31 March 1998 GST/HST Interpretation HQR0000943[2] - Application of the GST/HST to Telemarketing Services

Dear XXXXX

Thank you for your letter of November 27, 1997, requesting our comments on the position taken by XXXXX with respect to the purchase by XXXXX of telemarketing services provided by XXXXX[.]

Our understanding of the facts is as follows:

•   XXXXX provides specialized forms of group insurance coverage for members affiliated with a particular organization such as a bank, a large retailer, or an association (referred to hereafter as the XXXXX group).

•   In an XXXXX program there are additional "arranging for" efforts required after the initial group insurance policy is issued by XXXXX to the group policyholder. The group policyholder offers access to specialized insurance coverage at volume rates to its members in order to enhance the value of the membership relationship.

•   A group insurance master policy is issued by XXXXX to XXXXX, the group policyholder, who makes the coverage available to its members (certificateholders) under the terms and conditions of the master policy.

•   The initial selling activities between a broker, a sponsor and insurance carrier that ultimately results in the issuance of an XXXXX group insurance policy are largely the same for both "regular" and XXXXX group insurance, as generally described in policy statement P-092 ("Arranging For" As It Applies to Group Insurance).

•   XXXXX is required by contract with XXXXX to conduct the necessary insurance coverage-placing activities with members and is usually permitted to use a telemarketing agency for this purpose.

•   XXXXX is contracted by XXXXX to conduct the necessary insurance coverage-placing activities with the XXXXX group members.

•   The marketing process follows a predetermined script jointly prepared by XXXXX and XXXXX and/or XXXXX may approve/monitor this marketing process.

•   Members of the XXXXX group are contacted by telephone and are made aware of the availability of the coverage by the telemarketer representative.

•   When a potential customer is identified during the telephone call, the details are forwarded to XXXXX , who has the license to provide insurance services. A representative of XXXXX then completes the telephone call arranging for the placement of the insurance.

•   The XXXXX representative prepares the prospective certificateholder's insurance application during this process.

•   The completed applications are transmitted to XXXXX for final approval, underwriting and issue.

•   XXXXX is compensated on a per-hour basis. The invoice from XXXXX to XXXXX for the period from November xx, 1993 to November xxx, 1993 shows the total hours in respect of calling XXXXX hours) billed at XXXXX per hour and total hours in respect of clerical XXXXX hours).

Audit's Position

The auditor is of the opinion that XXXXX is providing a service of "arranging for" the issue of insurance. XXXXX is subcontracting the work to their related company.

Our Comments

In reviewing the documents provided, we are of the opinion that XXXXX activities consist of more than merely introducing or referring the members. XXXXX overall activities consist of contacting the member by telephone, presenting themselves as calling on behalf of XXXXX and XXXXX explaining the insurance coverage available, answering questions regarding the insurance coverage, screening the eligibility of the person and preparing the application before forwarding it to XXXXX who grants final approval, underwrites and issues the insurance to the member. These services are analogous to those provided by insurance brokers. These activities are clearly connected to the actual provision of the insurance policy and do not merely facilitate the supply of insurance. XXXXX is actively involved in marketing the plan to the XXXXX group in order to increase participation in the plan. This is an essential component in the placement of the insurance since without this effort the members would not be aware of the coverage available.

The fact that XXXXX subcontracts some of the above activities to XXXXX related company, does not change the nature of the service being provided by XXXXX to XXXXX is billed for the total service of "arranging for" the placement of insurance. Accordingly, we are in agreement with the auditor's views that XXXXX is providing an exempt financial service pursuant to paragraph (l) of the definition of financial service in subsection 123(1) of the Excise Tax Act.

With respect to XXXXX request for a GST Application Ruling with respect to the purchase of telemarketing services which was forwarded to our office for reply, we will be issuing a letter shortly and we will then forward a copy to your office. Should you have any questions, please feel free to contact me at (613) 952-9577 or Duncan Jones at (613) 952-9210.

Your truly,

Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch