20 May 1999 GST/HST Interpretation HQR0001583 - Services Offered Via the Internet to Clients Outside Canada

Dear XXXXX

I refer to your facsimile of January 19, 1999, and our subsequent telephone conversations concerning the application of the Goods and Services (GST)/Harmonized Sales Tax (HST) to the supply of access to the internet.

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

•   XXXXX a resident of Canada is registered for GST/HST purposes XXXXX XXXXX[.]

•   XXXXX is in the business of providing its clients with access to the internet.

•   XXXXX provides access to the internet to clients in many foreign countries through their local point-of-presence facilitie[s] XXXXX located in the same jurisdiction.

•   Some of XXXXX clients are XXXXX.

•   All clients with multiple access points are invoiced separately for each access point based on contractual arrangements.

•   All invoicing for these services are conducted by XXXXX from its office in Canada.

Interpretation Requested

1. Is the supply of access to the internet from a XXXXX located outside Canada to a person who is also located outside Canada where the bill-to address is in Canada considered to be an export of a service?

2. What is the GST/HST tax status of the provision of access to the internet to a client located outside Canada using a XXXXX which is also located outside Canada?

Interpretation Given

Subsection 123(1) of the Excise Tax Act (the "Act") defines "telecommunications facility" as follows:

any facility, apparatus or other thing (including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof) that is used or is capable of being used for telecommunications.

A XXXXX being an access point to the internet requiring specialized telecommunications equipment will fall within the definition of a telecommunications facility for purposes of the Act.

Subsection 123(1) of the Act defines "telecommunication service" as follows:

(a) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or

(b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a).

The supply of access to the internet through a XXXXX will be considered to be "making available ... telecommunications facilities" and therefore, the provision of a telecommunication service.

Before determining the GST/HST tax status of the supply of a telecommunication service, the place of supply must first be determined. Section 142.1 of the Act provides specific place of supply rules for telecommunication services. Section 142.1 has been reproduced below for referral purposes:

142.1(1) Billing location - For the purposes of this section, the billing location for a telecommunication service supplied to a recipient is in Canada if

(a) where the consideration payable for the service is charged or applied to an account that the recipient has with a person who carries on the business of supplying telecommunication services and the account relates to a telecommunications facility that is used or is available for use by the recipient to obtain telecommunication services, that telecommunications facility is ordinarily located in Canada; and

(b) in any other case, the telecommunications facility used to initiate the service is located in Canada.

142.1(2) Place of supply of telecommunication service - Notwithstanding section 142 and subject to section 143, for the purposes of this Part, a supply of a telecommunication service is deemed to be made in Canada where

(a) in the case of a telecommunication service of making telecommunications facilities available, the facilities or any part thereof are located in Canada; and

(b) in any other case,

(i) the telecommunication is emitted and received in Canada, or

(ii) the telecommunication is emitted or received in Canada and the billing location for the service is in Canada.

From our understanding of the information provided, it appears that the telecommunications facilities are not located in Canada and the telecommunication is neither emitted nor received in Canada. Further, the billing location, as defined in subsection 142.1(1) of the Act, would be outside Canada because the telecommunications facility is not ordinarily located in Canada, and the facility used to initiate the service is not located in Canada. Section 143 as referred to in subsection 142.1(2) of the Act is not relevant in the circumstances as it applies to supplies made by persons who are not residents of Canada. If the telecommunication service is not deemed to be made in Canada pursuant to subsection 142.1(2) of the Act it would be considered to be made outside Canada.

A supply of a telecommunication service which is not made in Canada is not considered an exported supply, however, it is not subject to Division II tax as this tax applies only to taxable supplies made in Canada.

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.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

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

Section 1.4 of Chapter 1 of the GST/HST Memoranda Series