16 December 1998 GST/HST Ruling HQR0001391 - Application of the GST/HST on Marketing Services] GST/HST INTERPRETATION [Application of the GST/HST on Marketing Services

Dear XXXXX

I refer to your letter of September 29, 1998, and your facsimile message of December 7, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the proposed transactions described below.

GST/HST Application Ruling

Statement of Facts

Our understanding of the facts and the transactions is as follows:

1. XXXXX a non-resident corporation that is not registered for GST/HST purposes, sells goods to customers in Canada. XXXXX does not have a physical presence in Canada and its employees enter Canada on an infrequent basis solely to perform sales calls. XXXXX is, therefore, not considered to be carrying on business in Canada.

2. Orders for goods are accepted by XXXXX in XXXXX and the goods are manufactured and shipped to Canada from XXXXX warehouses in XXXXX. Persons with authority to contract in respect of sales of XXXXX goods are situated in XXXXX only. Title to the goods passes to the customer in Canada.

3. XXXXX is the parent of XXXXX[.]

4. XXXXX and XXXXX are contemplating an agreement whereby XXXXX will perform marketing services on behalf of XXXXX[.]

5. In addition, the parties are considering an arrangement whereby XXXXX will act as importer of record for goods shipped to Canadian customers by XXXXX will be the party named on the Canada Customs B3 Import Entry Coding Form). Under this arrangement, XXXXX would pay the GST and any applicable duties on the goods as they enter Canada.

6. The transactions are expected to begin taking place on XXXXX, and continue indefinitely.

7. XXXXX is not a customs broker and will not be performing customs brokerage services.

8. In return for the marketing and customs clearance services, XXXXX will receive commissions from XXXXX[.]

Ruling Requested

XXXXX will be importing goods of an unregistered non-resident for the purpose of making a taxable supply to the non-resident person of a commercial service in respect of the goods and will, therefore, be entitled to claim input tax credits (ITCs) under subsection 169(2) of the Excise Tax Act (Act). The ITCs are equal to the amounts of Division III tax paid at the time of importation of the goods.

As outlined in paragraph 4 of section 1.4 of Chapter 1 of the GST/HST Memoranda Series, an advance GST ruling refers to specific persons, specific transactions and specific time periods within which the transactions must be completed. In your facsimile message, you stated that the transactions are expected to begin taking place on XXXXX and continue indefinitely. As the time period is not specific, a GST application ruling is being issued in lieu of an advance GST ruling.

Ruling Given

Based on the facts set out above, the following ruling is provided:

XXXXX will not be eligible to claim ITCs under the provisions of subsection 169(2).

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection or appeal, that there are no relevant changes in the future to the Act or to departmental interpretative policy, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Rationale

Enclosed is a copy of the Fall 1995 edition of The Excise/GST News. On page 2, under the heading "ITCs - commercial services performed on imported goods", you will note that a commercial service is any service performed in respect of the goods, except for financial or shipping services. There must be a direct functional relational relationship between the commercial service and the goods. Generally, a functional relationship exists where the commercial service is performed to or on the goods themselves.

XXXXX will not be performing a commercial service to or on the goods themselves. XXXXX will merely be allowing its name to be used as the "importer of record" and paying all applicable duties and taxes. Therefore, the provisions of subsection 169(2) will not be met and XXXXX may not claim ITCs.

GST Interpretation

Although you requested a ruling for this alternative scenario, a ruling cannot be issued because you have neither provided a Third Party Authorization from XXXXX nor have you provided information regarding XXXXX Canadian customers, e.g., registration status and nature of business operations. A GST interpretation is, therefore, being provided.

The facts (with the exception of #5) are essentially the same as those outlined above for the GST application ruling. However, in this scenario, XXXXX will act as the importer of record and pay the Division III tax on the goods entering Canada.

Interpretation Requested

If XXXXX provides the proper documentation, such as the B3 form, to its Canadian customers, will XXXXX customers be entitled to claim ITCs, under the provisions of section 180 of the Act, to recover the GST paid by XXXXX to the extent the customers will be acquiring the goods for use in the course of their commercial activities?

Interpretation Given

Provided XXXXX Canadian customers are GST/HST registrants, and they are provided with satisfactory evidence that Division III tax has been paid on the goods, the registrants will be considered to have paid that tax and thus be able to claim ITCs to the same extent as would be the case if the registrants were the importers of record and actually paid the tax.

The foregoing comments represent our general views with respect to the subject matter of your letter and facsimile message. Unannounced or future amendments to the Act may result in changes to this interpretation. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Garry L. Ryhorchuk
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Enclosure