8 October 1999 GST/HST Interpretation HQR0001742 - Non-Resident Importers and Place of Supply

Dear Sirs:

Thank you for your facsimile letter of April 15, 1999, addressed to the attention of Mr. Randy Nanner and subsequent attachment concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a question submitted to Revenue Canada at the XXXXX and to which Revenue Canada provided a response. Your interpretation request has been directed to the attention of the undersigned for response.

Interpretation Requested

1. For Revenue Canada to address the issue of the determination of the place of supply for goods sold by a registered non-resident supplier to a resident Canadian purchaser and the corresponding obligation on the non-resident supplier to collect GST/HST;

2. For Revenue Canada to address the issue of the right of a registered non-resident supplier to claim an input tax credit (ITC) for Division III GST/HST tax paid in acting as the importer of record.

Interpretation Given

1. The issue of the determination of the place of supply for goods sold by a registered non-resident supplier to a resident Canadian purchaser and the corresponding obligation on the non-resident supplier to collect GST/HST:

The point at which goods which are tangible personal property (TPP) and which are supplied by way of sale are delivered or made available to a recipient is a question of fact that must be determined on the particular circumstances of each case. Where the supply is made or deemed to be made outside Canada (such as when the goods are shipped FOB shipping point) the supply is not subject to Division II tax. The recipient of the supply (the Canadian customer) is not liable to pay tax under Division II and the registered non-resident is not liable to collect the Division II tax (paragraph 142(2)(a) and subsection 165(1) of the Excise Tax Act ("ETA")).

Where goods which are TPP and which are supplied by way of sale are delivered or made available in Canada (such as when the goods are shipped FOB Canadian destination) tax under Division II should be charged and collected by the registered non-resident on the supplies made to their customers in Canada (paragraph 142(1)(a) and subsection 165(1) of the ETA). Subsection 142(1) is, however, subject to sections 143, 144 and 179. Subsection 143(1) deems a supply of personal property made in Canada by a non-resident person to be made outside Canada, unless the supply is made in the course of a business carried on in Canada or the non-resident is registered for GST/HST purposes.

The Department has developed an administrative policy on the meaning of the phrase "delivered or made available" for purposes of the place of supply rules for TPP. For purposes of paragraphs 142(1)(a) and 142(2)(a), the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods.

•   "Delivered" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by actual delivery. In other words, delivery of the TPP may be effected by a transfer of the actual physical custody of the TPP from the buyer to the seller.

•   "Made available" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the TPP is not transferred to the recipient of the supply).

In a given case, the place where the TPP is considered to have been delivered or made available may be determined by reference to the law of the sale of goods applicable in that case and by reference to the terms of the contract.

Generally, sales made FOB shipping point by a non-resident would not be made in Canada, and therefore Division II tax would not apply, regardless of whether the non-resident is registered. Sales made FOB destination by a non-resident to a Canadian recipient would, however, generally be made in Canada, and so, would be subject to GST/HST under Division II where the non-resident is registered.

If goods are delivered or made available by the non-resident outside Canada to the Canadian customer (e.g. the supply of goods is FOB U.S. plant) and the non-resident seller arranges transportation for or on behalf of the customer, such that it is the customer who is responsible for clearing the goods through Customs then the customer as the "importer" is responsible for paying the Division III tax at time of importation. In such instances the non-resident seller should neither bill nor collect the Division II tax from the consumer.

2. The issue of the right of a registered non-resident supplier to claim an input tax credit (ITC) for Division III GST/HST tax paid in acting as the importer of record:

To be entitled to an ITC in respect of Division III tax, the person must be the de facto importer of the goods. The de facto importer is interpreted by the Department to be the person who caused the goods to be imported. Although the person listed as the importer of record on the B3 Canada customs accounting document provides prima facie evidence that the person is the de facto importer, such evidence can be reversed through other evidence. Accordingly, a person who is listed as the importer of record may in certain cases not be entitled to the ITC. The de facto importer does not necessarily have to be the owner of the goods, however, this is usually the situation.

Where the imported goods are for use in the course of the commercial activities of the de facto importer, who is not the importer of record, the de facto importer is entitled to claim the ITC provided the de facto importer has evidence that the importer of record acted as agent for purposes of the importation. Only the de facto importer will be considered as the "person who imported the goods" for the purposes of subsection 169(1) of the ETA, even if a person other than the de facto importer may have paid the GST at the time of importation into Canada.

Section 169 of the ETA provides that, in order for a person to be eligible to claim an ITC in respect of the tax payable on a property or service, the following conditions must be met:

1. the person must be the recipient of the property or service or the person must be the importer of the property or service;

2. the person must be a GST registrant during the reporting period in which the supply or importation is made;

3. tax must be payable by the person in respect of the supply or importation, or be paid by the person prior to its becoming payable;

4. the property or services must be acquired or imported for consumption, use or supply in the course of the commercial activities of the person; and

5. the person must have obtained sufficient documentation to establish the eligibility for the ITC before the claim is made.

In the situation where a registered non-resident sells goods to a Canadian resident, pursuant to the contract delivery is to be made by the non-resident to the purchaser in Canada, and it is the Canadian resident purchaser who acts as the documented importer of record for Customs purposes paying the GST under Division III, the entitlement to the ITC would normally rest with the non-resident seller, as the goods are still intended for use in the non-resident's commercial activity until the sale or lease/rental is completed. Until the goods are delivered to the Canadian resident or in the case of a lease/rental the Canadian resident has constructive possession or use of the goods, the supply to the Canadian resident has not been completed. Accordingly, the goods would not yet be considered to be for use in the commercial activity of the Canadian resident and the resident would not be entitled to claim the ITCs for the tax paid at time of importation. In order for the non-resident seller to be able to claim the ITCs for tax paid under Division III pursuant to section 169 of the ETA the non-resident would need to evidence that the Canadian resident was acting on the non-resident's behalf when the tax was paid by the Canadian resident under Division III.

In the situation where a registered non-resident supplier is acting as the importer of record on behalf of the Canadian resident purchaser for goods which have been sold to the Canadian resident purchaser FOB shipping point, an ITC for Division III taxes which the non-resident has paid on importation will be denied as the Department will consider the non-resident to not have imported the goods for consumption, use or supply in the course its commercial activities.

In the situation where a Canadian registrant imports goods for use in the course of its commercial activities and is not identified as the importer of record on the customs documentation, the Canadian registrant will be eligible to claim the related ITC provided that it has obtained sufficient evidence demonstrating that the importer of record acted on its behalf for GST purposes. Such documentation could be evidenced by a contract, an agency agreement or a letter of authorization. The evidence to substantiate the relationship between the parties and the connection with the goods on which tax was payable pursuant to Division III will be determined on a case-by-case basis.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. To the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 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) 954-2560 or Ivan Bastasic, Manager, Border Issues, at (613) 952-8810.

Yours truly,

Richard Aronoff
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate