2 February 1998 GST/HST Interpretation HQR0000885 - Cross Border Advertising Services

                                                                        GST/HST Rulings and Interpretation
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario
K1A 0L5

                                                                        February 2, 1998

Dear XXXXX

I refer to your letter of October 6, 1997, with attachments, your subsequent facsimile messages of November 6 and 17, 1997, our telephone conversations and voicemail messages, concerning the application of the Goods and Services Tax (GST) to the services your client, XXXXX

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

Statement of Facts and Transactions

1.  XXXXX entered into an agreement with XXXXX for the provision of various services. The agreement is dated XXXXX, 19 xx , and was signed by both parties on XXXXX 19 xxx

2. The services to be provided by XXXXX to your client include:all of the usual and customary advertising agency services, including the creation of concepts for XXXXX advertising programs, the preparation of advertising materials and their placement in the proper media, the preparation of all collateral materials (i.e., brochures, posters, displays, etc.) and any other advice and counsel as may be required in the conduct of XXXXX advertising program (refer to section 1 of the agreement); and administer andor manage other contracts on behalf of XXXXX related to or ancillary to the advertising services XXXXX provides in conjunction with the agreement, including any media, billboard andor special event contracts (referred to in the agreement as "Third Party Contracts") (refer to section 2 of the agreement).On November 19, 1997, you left me a voicemail message. You indicated that XXXXX is responsible for the creation of advertising materials for the United States (U.S.) market and their placement in the U.S. media, and the creation of advertising materials for the Canadian market and their placement in the Canadian media.

3 XXXXX and XXXXX are registered for purposes of the GST.

4.  XXXXX has been charging the GST at 7% on all invoices related to the creative aspects of radio and print advertisements (because these supplies are made in Canada).

5.  XXXXX pays XXXXX a flat administrative fee of XXXXX monthly for administrative responsibilities (i.e., services). The GST at 7% has been accounted for on this supply.

6. GST at 7% has been charged on media placements in Canada.

7. No GST has been charged on media placements (both print and radio) in XXXXX You state that XXXXX media are not registrants for GST purposes and they have rendered services wholly outside Canada and, as such, have not charged the GST to XXXXX On rebill to XXXXX has not charged the GST at 7% on the premise that the services were rendered wholly outside Canada and are, therefore, outside the scope of the GST.

Ruling Requested

The advertising services purchased by XXXXX through XXXXX from U.S. media for airing and distribution in the U.S. remain outside the scope of the GST and the mere contracting and rebilling through XXXXX does not change the nature of the supply.

Ruling Given

Based on the facts set out above, we rule that the advertising services supplied to XXXXX by XXXXX are subject to the GST at 7% under the provisions of subsection 165(1) of the Excise Tax Act (Act).

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST 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.

Explanation

The supplies of the advertising services (i.e., media placements) by the U.S x media to XXXXX are supplies which are deemed to be made outside Canada under the provisions of paragraph 142(2)(g) of the Act. As a result, these supplies are not subject to the tax under Division II of the Act. If XXXXX had acquired these supplies as an agent of XXXXX reimbursements by XXXXX for these supplies would not have been subject to tax under Division II of the Act. In the absence of an agency relationship, these supplies of media placements are, in fact, inputs into the supply of the advertising services (e.g., the preparation of advertising materials and their placement in the proper media, as outlined in section 1 of the agreement) received by XXXXX from XXXXX As the advertising services supplied by XXXXX to XXXXX are performed in whole or in part in Canada, the supply is deemed to be made in Canada under the provisions of paragraph 142(1)(g) of the Act.

Attached for your information is a copy of GST Question and Answer 6a.214 dated May 1995.

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

Attachment

                                                GST Q&A 6.A.214

NCS Subject Code:                 1161