17 August 2000 GST/HST Interpretation 31251 - Supply of Telecommunication Services

Dear XXXXX:

Thank you for your letter of May 16, 2000, written by XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of telecommunication services as described below.

The following information was taken from your letter and our subsequent telephone conversations.

-    XXXXX (CANCO) provides cost-effective telecommunication products and services to individuals and businesses.

-    CANCO is resident in Canada and is registered for GST/HST purposes with business number XXXXX.

-    CANCO is a reseller of telecommunication services, meaning that although it owns and operates switching equipment ("exempt apparatus" not considered a "transmission facility" pursuant to the Telecommunications Act, S.C. 1993, c. 38), it uses other carriers to supply fibre, or "intelligence" (fibre, light, microwave, etc.) pursuant to the Telecommunications Act. One such carrier that is used to supply switched voice and data services, is XXXXX (USCO).

-    USCO has collected GST on telecommunication services that relate to telecommunication traffic which originates in Canada (i.e. is carried by a carrier other than USCO across the Canada/U.S. border to a point of presence in XXXXX XXXXX). From XXXXX, the call is routed elsewhere. The only role that USCO has in relation to carrying CANCO's traffic is to carry that traffic from a point of presence in the U.S. to another part of the world. There is seemingly no nexus to Canada other than the fact that another Canadian carrier carries the call to USCO in XXXXX from Canada, and it is "handed off" over one continuum.

Interpretation Requested

What is the GST/HST status of the supply of telecommunication services by USCO to CANCO?

Interpretation Given

Based on the information provided the service supplied by USCO to CANCO appears to be that of a telecommunication service. For purposes of the Excise Tax Act (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 is defined in subsection 123(1) of the Act to mean:

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.

In order to determine 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 a supply of a telecommunication service. 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 by USCO in Canada. Further, the billing location, as defined in subsection 142.1(1) of the Act, is outside Canada because the telecommunications facility is not ordinarily located in Canada, and the facility used to initiate the service supplied by USCO is not located in Canada. If the telecommunication service is not deemed to be made in Canada pursuant to subsection 142.1(1) of the Act it is considered to be made outside Canada.

A supply of a telecommunication service which is not made in Canada 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 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,

Jeffrey A. Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate