XXXXX
Dave Caron
Manager
General Operations Unit
General Operations and Border Issues Division
This memorandum is in response to your letter of November 13, 1996, where you requested guidance with respect to the remittance requirements of a franchisee of XXXXX . I apologize for the delay in responding to this matter.
Background:
• A franchisee of XXXXX requested direction from your office with respect to the manner in which they are required to account for tax.
• Paragraph 7 of the additional services addendum to the franchise agreement XXXXX , between XXXXX and its franchisees, provides that the franchisees will receive an "agent fee" for tax preparation, documentation, and client servicing functions. The base amount of the agent fee is defined as XXXXX of the difference between the expected refund of the taxpayer and the amount paid to the taxpayer, less bank financing costs (calculated on an individual account basis).
Interpretations Requested:
(1) Does XXXXX operate similar to XXXXX Agreement?
(2) If XXXXX and XXXXX are similar in application, will the same administrative relief granted to XXXXX franchisees be granted to XXXXX franchisees?
(3) Do the administrative guidelines set out in Audit Directive 95-25 apply on an ongoing basis for XXXXX franchisees, or do they only apply for a limited time period? If similar relief is available to XXXXX franchisees, will it apply on an ongoing basis?
XXXXX Tax Services Office's Interpretations:
• It is your opinion that the documentation available supports the position that XXXXX is similar in structure to XXXXX
• It is your understanding that XXXXX currently accounts for all of the tax in respect of the supplies of tax return preparation services, in the same manner as XXXXX
• Your interpretation of Audit Directive 95-25 was that the administrative relief granted to XXXXX franchisees was only applicable, up to, and including the 1994 taxation year.
Headquarters' Interpretations:
(1) Does the XXXXX operate similar to XXXXX
The payment of an "agent fee" by XXXXX to the XXXXX franchisees, for tax preparation, documentation, and client servicing functions appears to differ from our understanding of the arrangement under XXXXX , in that under XXXXX , the parties jointly provide services, and share in the profits equally. The payment from XXXXX to its franchisees appears to come in the form of a fee, rather than a share in the consideration for the joint provision of tax discounting services.
It is your understanding that XXXXX collects, and accounts for all of the tax in respect of the supply of tax return preparation services, in the same manner as XXXXX Where it can be established that XXXXX collects the consideration for the supply, and tax, on behalf of the franchisees, it is our position that Policy Statement (P-131) could apply, even though the franchise agreements may differ. Given the existence of the third party remittance policy, the fact that XXXXX is a tax discounter, and the fact that there would be no revenue lost if XXXXX accounted for the tax on behalf of the franchisees, it would be reasonable to extend the administrative relief to the XXXXX franchisees. It should be noted that P-131 will not apply in circumstances where XXXXX is an agent of a franchisee.
(2) Will the same administrative relief made available to XXXXX be granted XXXXX franchisees?
Paragraph 13 of the XXXXX franchise agreement states that the parties are not, and shall not be construed as joint venturers, partners or agents of each other, and neither party shall have any power to bind or obligate the other, and neither party shall be liable to any person whomsoever for any debts incurred by the other.
The additional services addendum XXXXX to the XXXXX franchise agreement provides that the addendum amends the franchise agreement. Where the addendum is silent on any matter between the parties, the provisions of the franchise agreement shall apply. If the provisions of the addendum and the franchise agreement conflict, the provisions of the addendum shall supersede those of the agreement.
As stated earlier, P-131 will not apply where XXXXX is an agent of the franchisee. Paragraph 3 of the additional services addendum XXXXX provides that although the franchisee is granted the right to provide tax rebate discounting services, the franchisee elects to appoint the franchisor XXXXX as the franchisee's agent, in connection with certain activities. Upon review of the agreement, the additional services addendum did not specify instances where the franchisor would be acting as agent for the franchisee.
Policy Statement (P-182) presents the Departments position with respect to agency relationships. It is the Department's position that a person will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. A person may act as an agent for some matters, but it cannot be concluded that the person is acting as an agent in all matters. Upon review of P-182, it is our position that the relationship between XXXXX and its franchisees is not likely one of general agency, therefore P-131 could apply.
It is our position that from a revenue protection perspective, it would be preferable to have XXXXX account for the entire amount of tax collected, if it is collecting tax from clients, on behalf of its franchisees.
(3) Do the administrative guidelines set out in Audit Directive 95-25 apply on an ongoing basis for XXXXX franchisees, or do they only apply for a limited time period. If similar relief is available to XXXXX franchisees, will it apply on an ongoing basis?
Your interpretation of Audit Directive 95-25 was that the administrative relief granted to XXXXX franchisees was only applicable, up to, and including the 1994 taxation year.
From discussions with Audit, it is our understanding that there had been no intention to limit the application of Audit Directive 95-25 up to, and including the 1994 taxation year. Audit Directive 95-25 states in part, XXXXX
Since the arguments which lead to the decision to allow the administrative relief to XXXXX franchisees are still sound, it makes sense to continue to allow the relief to XXXXX franchisees on an ongoing basis. Similar relief could also be extended to XXXXX franchisees, and other providers of tax discounting services, on an ongoing basis, if they are accounting for tax in a similar manner.
Should you have any questions with respect to the above noted matter, please contact me at (613) 952-0301, or Douglas Wood at (613) 954-9699.
Sincerely,
Dave Caron
Manager
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations
Policy and Legislation Branch
NCS Subject Code(s): 116951
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