2 August 2000 GST/HST Interpretation 30624 - GST/HST Status of the Supply of Services to Recipients Who are Not Resident in Canada

Dear XXXXX:

Thank you for your letter of March 20, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the services supplied by your client. Your request has been transferred from the XXXXX to the Border Issues Unit of the General Operations and Border Issues Division for response.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the services described in your letter.

The following information was taken from your letter and subsequent telephone conversations with both yourself and XXXXX of XXXXX (CANCO):

-    CANCO is a Canadian resident corporation with all operations, assets and personnel situated in Canada.

-    CANCO is registered for GST/HST purposes with business number XXXXX.

-    The supplies described in interpretation request 1 and 6 are made to non-resident internet service providers who are not registered for GST/HST purposes. XXXXX[.]

-    The supply of a server co-location service entails the supply of band-width. Effectively, the non-resident receives a supply of a block of telephone lines from CANCO and in turn supplies segments of this block to end-users and corporate clients. In all situations the servers are situated at CANCO's premises in Canada. The servers may be leased by CANCO for the exclusive use of the non-resident or may be owned by the non-resident.

-    The programming services referred to in interpretation request 2 and 3 are specifically related to the installation and optimization of the software stored on the computer servers located at CANCO's premises.

-    The supply of system administration services as referred to in interpretation 4 may include services directly related to the computer servers which are situated in Canada.

Interpretation Requested

You wish to know whether the following supplies, when made to a non-resident person are zero-rated (taxable at 0%):

1. Server co-location - charges for band width usage on CANCO'S T1 - T3 link line;

2. Programming - charges for programming performed in Canada;

3. Programming - charges for installation of co-locations;

4. Systems administration - charges for services to computer servers;

5. Technical support - charges for telephone consultations; and

6. Internet usage - charges for internet usage.

Interpretation Given

Interpretation 1 and 6

The relevant zero-rating provisions for the supplies described in these two requests are section 7 of Part V of Schedule VI to the Excise Tax Act (the "Act") and Section 22.1 of Part V of Schedule VI to the Act.

Section 7 of Part V of Schedule VI to the Act is the general provision for zero-rating the supply of a service made in Canada to a non-resident person. However, the supply of a telecommunication service is excluded from being zero-rated pursuant to this provision.

The supply of a telecommunication service made to a non-resident person who is not registered or required to be registered for GST/HST purposes is zero-rated (taxable at 0%) pursuant to section 22.1 of Part V of Schedule VI to the Excise Tax Act (the "Act") provided the non-resident carries on the business of supplying telecommunication services and the telecommunication is not emitted and received in Canada.

For purposes of the Act a telecommunication service means:

(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)

A telecommunications facility means:

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.

Even if the supplies made by CANCO were supplies of telecommunication services, within the above definitions, it appears that such supplies would be zero-rated because they are made to non-resident persons who are not registrants and who are in the business of supplying internet access to end users or supplying web-site hosting services.

Consequently, the supply of the services described in interpretation request 1 and 6 are zero-rated when supplied by CANCO to a non-resident person who is not a registrant, by virtue of section 7 or section 22.1 of Part V of Schedule VI to the Act.

Interpretation 2, 3

The supply of a programming service made in Canada to a non-resident person is zero-rated pursuant to section 7 of Part V of Schedule VI to the Act provided the exclusions in the provision do not apply. Based on the information provided, it appears that the supply of the programming services are not excluded by any of the provisions in the section and are therefore zero-rated.

Interpretation 4

The supply of system administration services which are "services to computer servers" are excluded from being zero-rated by virtue of the fact that they appear to be in respect of the computer servers which are physically situated in Canada. To determine whether a supply of a service is in respect of tangible personal property (TPP) Policy Number P-169R Meaning of "In respect of real property situated in Canada" and "In respect of tangible personal property that is situated in Canada at the time the service is performed", for purposes of Schedule VI, Part V, sections 7 and 23 to the Act should be consulted. A copy of this policy has been attached for your perusal. As outlined in P-169R, there must be more than a mere indirect or incidental nexus or connection between a service and the underlying tangible personal property before the supply of the service is considered to be made "in respect of" TPP.

Where the supply of the service involves the management and maintenance of computer equipment, the supply will invariably be considered to be made in respect of that equipment and excluded from being zero-rated by paragraph 7(e) of Part V of Schedule VI to the Act.

Where a service is only indirectly connected to the computer equipment by virtue of the fact that it relates to software or information stored on the equipment, the supply of the service is not considered to be made in respect of the computer equipment and is therefore not excluded from being zero-rated.

Interpretation 5

The supply of a technical support service to a non-resident person is zero-rated pursuant to section 7 of Part V of Schedule VI to the Act provided the service is not rendered to an individual while that individual is in Canada or, where the supply of the technical support service is made to an individual, that individual if in Canada, does not have contact with the supplier in relation to the supply at any time while 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 Canada Customs and Revenue Agency 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) 952-8812.

Yours truly,

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