24 August 1999 GST/HST Interpretation HQR0001584 - Advertising Services Provided Via The Internet

Dear XXXXX

I refer to your letter of February 2, 1999, addressed to Mr. Randy Nanner, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided to a non-resident through the internet.

The following information was provided in your letter and our subsequent telephone conversations:

•   "CoA" is a Canadian resident person that is registered for GST/HST purposes.

•   "CoB" is a non-resident person that is not registered for GST/HST purposes and does not carry on a business in Canada. CoB is in the business of soliciting clients in the U.S. who are interested in advertising their goods and services on web-sites. CoB invoices its clients for advertising services and purchases advertising services from CoA to fulfill it's contractual obligations to it's clients.

•   CoA entered into an agreement with CoB to provide a "Spot" on CoA's web-site. A Spot is a specific place on a web-page where a "Banner" may appear through CoB's service. A Banner is defined as an advertisement and its contents.

•   CoB will place the Banner on a "Page" of the web-site according to a "placement algorithm". A Page in the context of the World Wide Web is a file notated with the Hypertext Markup Language where text, images or other multimedia files are to be placed when the page is displayed. The Page where the Banner is to be placed is designated by CoA but must be accepted and approved by CoB.

•   The consideration to be paid by CoB to CoA for the use of the Spot is based on a percentage of the advertising revenues generated by CoB.

•   The agreement between CoA and CoB provides that CoB shall use its best efforts to procure advertising for placement on the web-site.

Interpretation Requested

The service provided by CoA to CoB is a supply of an advertising service to a non-resident person who is not registered for GST/HST purposes which is zero-rated pursuant to section 8 of Part V of Schedule VI to the Excise Tax Act (the "Act").

Interpretation Given

The term advertising is not defined in the Act, however, the Department has provided an explanation as to what is generally considered to be an advertising service in Memoranda Series section 4.5.3 Exports - Services and Intellectual Property. The explanation in the Memoranda Series refers to a service of creating a message and a service directly related to the communication of such a message. Further, the message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication.

There are occasions where the person communicating a message will not be the same person creating or supplying the message. Generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.

The provision of a Spot on a web-site is considered to be a service of communicating a message. The supply of communicating a message may be considered an advertising service providing the person broadcasting or communicating the message has sufficient information prior to the supply of the service to know that the message is in the nature of advertising. A contract between two persons stipulating that the Spot be used in the nature of advertising subject to post-placement verification would satisfy the condition that the service provider know that the message is in the nature of advertising prior to the supply of its communication service.

Section 8 of Part V of Schedule VI to the Act zero-rates a supply of a service of advertising made to a non-resident who is not registered for purposes of the GST/HST.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the 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) 952-8532.

Yours truly,

J. Frobel
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate