10 December 2002 GST/HST Interpretation 38070 - Advertising Services

Dear XXXXX:

Thank you for your facsimile of XXXXX (with attachment), addressed to Ivan Bastasic, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to advertising services. The facsimile presented a situation between AdCo, CanCo and ForeignCo. We apologize for the delay in providing you with a response.

The following information was presented in your facsimile.

•   AdCo is an advertising agency that is resident in Canada and is registered for GST/HST purposes.

•   AdCo has a client ("CanCo") that is also resident in Canada and is registered for GST/HST purposes.

•   A related party of CanCo ("ForeignCo") is a non-resident of Canada and is not registered for GST/HST purposes.

•   AdCo entered into a contract to supply CanCo with commercial air time. Under this contract, there are monthly billing periods, and CanCo is legally liable to pay these billings to AdCo.

•   AdCo purchases such commercial air time from third party suppliers, and resells same to CanCo.

•   CanCo uses the commercial air time to advertise and solicit sales for its products.

•   Under an addendum to the contract, ForeignCo will be legally liable to pay AdCo for certain of the monthly billings (the XXXXX).

•   AdCo is in possession of a signed certificate from ForeignCo attesting that it (ForeignCo) is not resident in Canada and is not registered for GST/HST purposes.

Interpretation Requested

1. Where AdCo has a duly completed and signed GST non-resident, not registered certificate, should AdCo charge GST to ForeignCo on billings for the XXXXX?

2. Should AdCo charge and collect GST from CanCo on billings for all other billing periods?

Interpretation Given

The information contained in your letter relates to a situation in which you have indicated your client (AdCo) is involved. As acknowledged in your letter, based on the information provided, we are unable to provide a ruling regarding the situation described in your letter.

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 offer the following interpretation regarding the legislative provisions of the Act to which you have referred in your letter.

An advertising service is generally considered by the CCRA to be a service of creating a message oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication by any means including oral, written, or graphic statements and representations disseminated by any means. An advertising service also consists of a service directly related to the communication of such a message (e.g., air time on a broadcasting service, space in a publication) where the communication service is supplied as part of the supply of a message, or the person providing the communication service can demonstrate that, at the time the supply is made, the service is in relation to the supply of a message.

A taxable (other than zero-rated) supply of an advertising service that is made in Canada is subject to GST at a rate of 7% (or HST at a rate of 15% if made in the participating province of Nova Scotia, New Brunswick or Newfoundland and Labrador).

Paragraph 142(1)(g) of the Act deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Therefore, if the supply of an advertising service made by AdCo is, or is to be, performed in whole or in part in Canada, that supply will be deemed to be made in Canada. Paragraph 142(2)(g) of the Act deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

For purposes of paragraphs 142(1)(g) and 142(2)(g) of the Act the determination as to whether a supply of any other service is made in (or outside) Canada is made only once - at the time the agreement is entered into. When making the determination, the entire period during which the service is, or is to be, performed under the agreement for the supply must be considered.

As you know, paragraph 136.1(2)(a) of the Act provides that where the consideration for a supply of a service includes a payment that is attributable to a period ("billing period") that is the whole or a part of the period during which the service is to be rendered under the agreement for the supply, there is a deemed separate supply of the service for each billing period. We note that the deeming rule under subsection 136.1(2) of the Act only applies to what would otherwise be determined to be a single supply of a service.

However, the separate supply rule referred to in paragraph 136.1(2)(a) of the Act does not apply for the purposes of determining whether the entire supply of the service is considered to be a supply made in Canada or outside Canada. Paragraph 136.1(2)(d) provides that, if the place of supply of the service, without regard to the deeming rule under paragraph 136.1(2)(a), would be considered to be made in or outside Canada, then that is the place of supply for all of the supplies that are, because of paragraph 136.1(2)(a) of the Act, deemed to be made under the agreement for the service. Therefore, if the overall supply of an advertising service by AdCo is, or is to be, performed in whole or in part in Canada during the entire period covered by the agreement for the supply of the service, the service would be deemed made in Canada and any separate supplies of the service that are deemed to have been made in respect of the billing periods, are consequently deemed to have been made in Canada.

A separate supply of a service that is deemed to have been made under paragraph 136.1(a) of the Act and that is made in Canada may be zero-rated under Part V of Schedule VI to the Act. For instance, if a supply of an advertising service made in Canada is made to a non-resident person who is not registered at the time the service is performed, that service is zero-rated under section 8 of Part V of Schedule VI to the Act.

If a supply that is deemed to be made in Canada pursuant to paragraph 142(1)(g) of the Act and is not zero-rated, a determination as to the place of supply for purposes of section 144.1 of the Act and Part V, Schedule IX to the Act must be made for each billing period in order to determine the appropriate amount of tax applicable to each payment.

Paragraph 2(a) of Part V of Schedule IX to the Act provides that a supply of a service is made in a province if all or substantially all of the service is performed in the province. Paragraph 2(b) of Part V of Schedule IX to the Act provides that a supply of a service is made in a province if the place of negotiation of the supply is in the province and it is not the case that all or substantially all of the service is performed outside the province.

With respect to the questions posed in your letter, AdCo would be required to collect GST/HST on any taxable (other than zero-rated) supply of an advertising service that it makes in Canada. The deemed separate supply of an advertising service made by AdCo for a billing period could only be zero-rated if it is established that the supply is made to a non-resident person. Specifically, it must in fact be established that the recipient of the supply of the advertising service made by AdCo is a non-resident person.

Subsection 123(1) of the Act provides in part that the recipient of a supply of property or a service means, where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration.

Based on the information provided, CanCo appears to be the recipient of the deemed separate supplies of the advertising service made by AdCo as CanCo appears to be liable to pay the consideration for those supplies under the contract that it entered into with AdCo. As CanCo is a resident, the supplies would not appear to qualify for zero-rating and AdCo would consequently be required to collect tax on the consideration for the supply of advertising to CanCo, including the consideration that you have identified in your letter as relating to the XXXXX.

All relevant facts and documents regarding the specific situation presented in your letter, and in particular those relating to the addendum to the agreement between AdCo and Can Co, would have to be reviewed before it could be conclusively established that ForeignCo is the recipient of any deemed separate supplies made by AdCo for the XXXXX and what, if any, impact this would have on the application of subsection 136.1(2) of the Act with respect to the specific situation.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate