17 December 1999 GST/HST Interpretation HQR0001767 - Referral Services - HST Place of Supply Rules

Dear Sir:

Thank you for your letter of April 29, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of a business referral service.

The following facts were provided in your correspondence and our subsequent telephone conversations:

•   XCo, a Canadian resident company provides data processing services to its clients. XCo has entered into a national contract with a Canadian bank where the bank will refer its clients to XCo for data processing services. All of the services relating to each referral are performed at the bank's branch office location in Canada. In consideration for the business referrals, XCo pays a fee to the bank pursuant to the terms of the national contract. The referral fee is based on the volume of sales and is paid by XCo to the bank in the month that the new client begins transacting business with them.

•   As consideration for the supply of the referral services XCo issues a cheque on a monthly basis to the head office of the bank, accompanied by a report which details the number of referrals made by each branch office of the bank. The report contains enough information to allow the bank to know how much of the referral fee is attributable to each branch office. The branch offices are located throughout Canada.

•   The contract for the supply of the referral services is entered into and negotiated between XCo and the bank at a place inside Canada but outside the participating provinces. The bank is resident in Canada.

Interpretation Requested

You request an interpretation regarding the application of GST and HST to a contract for the supply of a referral service.

Interpretation Given

The contract outlining the terms of the referral services was not provided for our consideration. The following interpretation will therefore be based on the facts presented in the incoming correspondence and our telephone conversations as summarized on page 1 of this interpretation.

Although the contract for referral services involves a monthly billing, each particular referral service is considered to be a separate supply. Provided the supply is made in Canada, the place of supply rules in section 144.1 of the Excise Tax Act (the "ETA") and Schedule IX to the ETA must be applied to determine the province in which each referral service is made.

Pursuant to paragraph 2(a) of Part V of Schedule IX to the ETA the supply of each referral will be considered to be made in the province where all or substantially all of the Canadian element of the supply is performed. Based on the information provided, all aspects of each supply of a referral are performed at the branch office location where the referral originated. Each supply will therefore be considered to be made in the province where the branch office that made the referral is located.

Subsection 165(1) of the ETA imposes GST at a rate of 7% on the consideration for taxable supplies (not zero-rated) made in Canada, subsection 165(2) imposes an additional tax at 8% with a resulting combined HST rate of 15% on the consideration for taxable supplies made in a participating province (New Brunswick, Newfoundland, or Nova Scotia).

The bank will therefore be required to collect and remit HST at 15% on the consideration for each supply of a referral made in a participating province and GST at 7% on all referrals made elsewhere in Canada.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. 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 Canada Customs and Revenue Agency 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) 952-8532.

Yours truly,

Jeffrey Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate