9 December 2002 GST/HST Interpretation 31642 - Supply of Subscriptions to

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply by XXXXX (the company) of Internet subscriptions. Your letter was sent to the International Tax Services Office and has been forwarded to us for a response. We apologize for the delay in providing you with a response.

Our understanding from your letter, your Web site (at XXXXX[)], information given to XXXXX. XXXXX and our telephone conversation of XXXXX is that the company is a resident of XXXXX and is registered for purposes of the GST/HST under XXXXX XXXXX. Our records indicate that the company does not have a permanent establishment in Canada.

The company supplies a product over the Internet called XXXXX to customers some of whom are located in Canada. XXXXX[.] The data is used to produce charts, graphs and other displays to assist in making investment decisions.

Subscriptions to XXXXX are $XXXXX per month XXXXX.

When a customer subscribes to XXXXX, the company ships a CD ROM from XXXXX so that the customer can install a software package on his personal computer. No separate charge from the subscription charge is made for the CD ROM. Alternatively, the customer can download the software from the Internet. XXXXX[.] All data that a customer is tracking is stored on the supplier's servers, not on the customer's hard drive. The company's servers are located in XXXXX.

If loaded on a laptop, XXXXX can be accessed from anywhere in the world, provided there is an Internet connection.

Interpretation Requested

Does GST/HST apply to supplies of XXXXX?

Interpretation Given

Based on the information provided, the supply made to subscribers of XXXXX is a supply of the right to access and use data. This is considered to be a supply of intangible personal property (IPP) for GST/HST purposes.

Pursuant to paragraph 142(1)(c) of the Excise Tax Act (the "Act"), a supply of IPP is deemed to be made in Canada if it may be used (meaning "allowed to be used") in whole or in part in Canada. Pursuant to paragraph 142(2)(c) of the Act, a supply of IPP is deemed to be made outside Canada if it may not be used in Canada.

A supply of IPP can be deemed made in Canada even if it is not actually used in Canada. The fact that the supply may be made to a recipient who is outside Canada has no bearing on whether the supply is made in Canada. In determining whether IPP may be used in Canada, reference may be made to such things as any written agreement for the supply that contains terms governing the place of use of the IPP or a general restriction that may be explained on the supplier's Web site as to the use of the IPP, to which the recipient agrees either expressly or implicitly upon acquisition of the supply.

A taxable (other than zero-rated) supply of IPP made in Canada is subject to the GST at the rate of 7% [or HST at the rate of 15% when made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.)].

A supply of IPP made in Canada is only zero-rated if it is a supply of intellectual property or any right, licence or privilege to use any such property, and is made to a non-resident person who is not registered for GST/HST purposes at the time the supply is made. Based on the information provided, the supply made to XXXXX subscribers would not qualify for zero-rating under this provision.

Whether a supply of IPP made in Canada is made in a participating or non-participating province is determined by applying the rules in section 144.1 of the Act and Schedule IX to the Act. Section 144.1 of the Act provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. A supply that is made in Canada and that is not made in a participating province is deemed to be made in a non-participating province.

A supply of IPP is considered to be made in a province if all or substantially all of the "Canadian rights" ("Canadian rights" refers to that part of the IPP that can be used in Canada.) in respect of the property may be used only in that particular province (Subparagraph 2(d)(i) of Part III of Schedule IX). A supply of IPP is also considered to be made in a particular province if the "place of negotiation" ("Place of negotiation" is defined as "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works ...".) of the supply is in the province, and the property may be used otherwise than exclusively outside that province (Subparagraph 2(d)(ii) of Part III of Schedule IX). Where there are no restrictions regarding the use of the IPP in a particular province, it will always be considered that the property may be used otherwise than exclusively outside the province where the place of negotiation occurred.

Therefore, where there are no restrictions regarding where the "Canadian rights" in respect of the IPP may be used and it is determined that the "place of negotiation" is outside Canada, the supply of the IPP that is made in Canada is considered to be made in a non-participating province and, where it is a taxable (other than zero-rated) supply of IPP, is subject to the GST at the rate of 7%.

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) 954-7931.

Yours truly,

Anne Kratz
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate