25 July 2000 GST/HST Interpretation 25782 - Application of the GST/HST to Certain Supplies of Services Made to Non-resident Persons

Dear XXXXX:

Thank you for your letter of July 27, 1999 (with attachments), sent to our XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply made by your client, namely XXXXX to an unregistered non-resident situated in Holland. I apologize for the lateness of this response.

Interpretation Requested

XXXXX, who operates a small e-com and training consulting firm in XXXXX, has been charging GST in regards to its services supplied to an unregistered non-resident when performed in Canada, and not charging the tax on services performed abroad. One of its customers in Holland, that acquired the services supplied by XXXXX in connection with designing and uploading its customer's website onto the Internet, is complaining that it should not be paying GST because of the tax treaty between Canada and Holland.

You have written us on behalf of XXXXX requesting confirmation as to whether XXXXX has correctly applied GST to its supplies or if the tax treaty, as between Holland and Canada, would nullify the charging of the GST to its customer in the Netherlands.

Interpretation Given

Based on the above information, I am pleased to provide you with the following interpretation:

Subsection 142(1) of the Excise Tax Act (the Act) provides that a service (other than a service that is in relation to real property) is deemed to be made in Canada if all or any part of the service is, or is to be, performed in Canada. Conversely, subsection 142(2), deems such a supply of a service to be made outside Canada, and, therefore, not subject to tax, if the service is, or is to be, performed wholly outside Canada.

On the first issue involving the supply made by XXXXX in Canada of a service of designing a website, on behalf of an unregistered non-resident, and uploading the website on the internet, such a supply would be considered to be made in Canada, notwithstanding that a portion of the service is performed abroad. Therefore, such a supply would generally be taxable at the full rate of 7 per cent, unless the supply is zero-rated (taxed at 0 per cent).

Part V of Schedule VI to the Act, zero-rates certain supplies of services made to non-resident persons. Section 7 of Part V of Schedule VI is the general zero-rating provision for services that are not specified elsewhere in Part V of Schedule VI. The supply made by XXXXX of a service of designing a website could be considered simply as a service, general in nature, such as a programming service, in respect of intangible personal property. Such a service would be zero-rated by virtue of section 7 of Part V of Schedule VI to the Act, when supplied to a non-resident.

Turning now to the issue concerning the tax treaty as between Canada and the Netherlands (e.g., Holland), Article 2 of this treaty provides that the Convention applies (only) to taxes on income imposed on behalf of each state. As a result, the tax treaty in question does not apply to consumption or value added taxes imposed by either states.

Finally, if XXXXX has charged or collected an amount as tax in respect of a supply that is a zero-rated supply as described above, XXXXX should either refund or credit the excess amount of tax that was charged or collected , within two years after the day the amount was so charged or collected, pursuant to subsection 232(1) of the Act.

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 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)957-8220.

Yours truly,

Daniel E.B. Chamaillard
Senior Technical Analyst
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate