17 May 2000 GST/HST Interpretation 2978 - Licensing of Electronic Subscription Products Via the Internet

Dear XXXXX

Thank you for your letter of July 19, 1999 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. We have now had the opportunity to review copies of the license agreements that you forwarded to us on April 5, 2000.

Background

XXXXX has established standing licensing agreements with various vendors of internet accessible database subscription services. The suppliers are both Canadian and U.S. vendors.

Interpretation Requested

Whether GST under the Excise Tax Act (Act) should be charged on the licensing agreements between XXXXX and the vendors of the database subscription services. Secondly, should XXXXX apply GST to the charge it makes to the public libraries who are interested in the various subscriptions.

Interpretation Given

Based on the information provided by XXXXX, it is our opinion that the supply being provided to XXXXX from the database subscription providers is properly characterized as a right to use intellectual property, which is characterized as intangible personal property for the purposes of the Act. We make this determination on the basis of our review of the licence agreements with the XXXXX[.]

(i) Status on Acquisition

The supplies by domestic subscription service providers are "taxable supplies" made in Canada in that they are made in the course of a commercial activity. A supply of intangible personal property is deemed to be made in Canada if the property may be used in Canada (section 142(1) of the Act).

The supplies by non-resident subscription service providers are considered to be made outside of Canada as section 143(1) of the Act provides that a supply of personal property or a service made in Canada by a non-resident shall be deemed to be made outside Canada, unless the supply is made by a non-resident who is a GST registrant (i.e., registered or required to be registered), in which case the supply is to be treated as a supply made in Canada. Therefore, no tax will be payable to the non-resident supplier for these supplies unless the non-resident is registered, or required to be registered.

Where there is no tax payable to the non-resident supplier, XXXXX will be required to self-assess in respect of its acquisition of intangible personal property for GST as section 217 of the Act requires recipients to self-assess and remit tax on those importations that are for use in Canada otherwise than exclusively in the course of a "commercial activity" of the recipient. Given that they are for re-supply by the charity, an "exempt" activity, they are not considered to be for use exclusively in the course of a commercial activity.

(ii) Status on Resupply

The supply of intangible personal property made by XXXXX to the libraries are exempt supplies given that they are supplies made by a charity and as such are not subject to tax. Supplies by charities are, generally speaking, exempt supplies as a result of section 1 of Part V.1 of Schedule V of the Act. There are a number of exclusions to this general rule, however, the particular supply of intangible personal property by XXXXX is not excluded. Therefore, no tax would be charged and XXXXX would not claim an input tax credit (ITC) of the tax paid on acquisition as ITCs may only be claimed when the property is acquired for use in commercial activities.

Finally, we would note that, under the public service bodies' rebate provisions, charities are eligible for a rebate of 50% of the GST/HST they paid or owe on eligible purchases and expenses for which they cannot claim ITCs.

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 Ivan Bastasic, Manager of the Border Issues Unit at (613) 952-8810.

Yours truly,

David Liston
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate