GST/HST Rulings and Interpretations
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario K1A 0L5
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File: 11640-3(glr)
XXXXX Case: HQR0001147
XXXXX s. 132, 133, 136.1, Sch. VI/V/23
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Dear XXXXX
Thank you for your letter of April 17, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST). The following information was provided in your letter concerning two different fact situations:
1. A U.S. corporation (USCO) has two divisions, Division A and Division B. Division A has an office in Canada which is a permanent establishment as that term is defined in subsection 123(1) of the Excise Tax Act (Act). Division B has no assets or employees in Canada and does not have a permanent establishment in Canada. A Canadian accounting firm is providing advice to Division B with respect to the tariff classification of certain goods to be exported to Canada by Division B.
2. A Canadian law firm is providing advice to a non-resident with respect to a corporate reorganization of various related companies including certain companies which are resident in Canada. The reorganization will include an amalgamation of two of the Canadian affiliates and a wind-up of one of the Canadian affiliates into the parent of that affiliate. As a result of the amalgamation, title to tangible personal property and real estate will be transferred into each of the amalgamating corporations and into the newly-created amalgamated corporation. With respect to the wind-up, tangible personal property and real estate will be transferred into the name of the parent corporation into which the subsidiary corporation is wound up.
Interpretations Requested
1. Will USCO be considered to be a non-resident in respect of the advice given to Division B for purposes of Schedule VI, Part V, section 23 to the Act as a result of the application of subsection 132(2) of the Act?
2. Would advice in respect of these transactions be considered to be in respect of tangible personal property or real property within the meaning of Schedule VI, Part V, section 23?
Interpretations Given
Based on the information provided, I am pleased provide the following interpretations:
1. A non-resident person who has a permanent establishment in Canada is deemed under subsection 132(2) to be resident in Canada, but only in respect of the person's activities carried on through that establishment. Although USCO would be deemed to be a resident concerning the activities of Division A, it would continue to be considered to be a non-resident for GST/HST purposes concerning the activities of Division B. Therefore, the services supplied by the Canadian accounting firm to Division B of USCO, which relate to the tariff classification of certain goods to be exported to Canada, would qualify for zero-rating under the provisions of Schedule VI, Part V, section 23.
2. Section 133 of the Act provides that the entering into of an agreement to supply any property or service shall be deemed to be a supply of the property or service, made at the time the agreement is entered into. In addition, subsection 136.1(2) of the Act provides that a supply of a service will be treated as a series of separate supplies for each period (i.e., the billing period) to which a particular payment is attributable. For each billing period, the supplier is deemed to have made, and the recipient is deemed to have received, a separate supply of the service. Although subsection 136.1(2) introduces the concept of separate supplies, it does not change the nature of the supply. The Department's position concerning whether a supply of a service is "in respect of tangible personal property or real property" is outlined in Policy Statement P-169 dated January 25, 1995. A copy of the Policy Statement is enclosed for your information. You will note that there must be more than a mere indirect or incidental nexus or connection between a service and the underlying real or tangible personal property before the supply will be excluded from zero-rating under Schedule VI, Part V, section 23. The purpose (or objective) of the services being supplied by the Canadian law firm to the non-resident is to facilitate the corporate reorganization of various related companies. The corporate reorganization will, as a result, necessitate the transfer of title to tangible personal property and real property. However, the services relating to the transfer of title are merely part of the principal service relating to the corporate reorganization of the companies (i.e., there is an indirect relationship between the services and the tangible personal property and real property). As a result, the services supplied by the Canadian law firm to the non-resident will qualify for zero-rating under the provisions of Schedule VI, Part V, section 23.
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed 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
Legislative References: Section 133, Subsections 132(2), 136.1(2), Schedule VI, Part V, section 23
Policy Statement P-169 dated January 25, 1995
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NCS Subject Code: 11640-3
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