18 July 2002 GST/HST Ruling 38436 - Application of GST to Consulting Agreement with

Dear XXXXX:

Thank you for your facsimile transmission of XXXXX XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts

You have provided the Consulting agreement between XXXXX ("the Company"), a XXXXX and XXXXX (the "Consultant"). Upon perusal of the agreement provided, in conjunction with our telephone conversation of XXXXX XXXXX, our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

•   You are a partner in XXXXX. This company provides XXXXX and financial consulting services on a contract basis and holds contracts (primarily XXXXX) with other clients.

•   You are not a licensed broker.

•   You do not need to be a licensed broker to effect the swap trades as they are interest rate derivative products (brokered into fixed income streams).

•   The Company entered into this agreement with you in order to determine if there was a Canadian market for brokering foreign exchange swaps, set up an office in XXXXX and penetrate the Canadian market.

•   The services provided by you to the Company, for which you receive your fee, include: conducting feasibility studies; setting up the systems, expanding the client base and effecting the swap transactions as between third parties on behalf of the Company. At this point, your primary functions are marketing and effecting trades.

•   The Company bills the third parties for the services that they receive from you.

The relevant portions of the agreement as regards the tax status of the supply are as follows:

Whereas the Company is engaged, inter alia, in the business of brokering Foreign Exchange Swaps.

Whereas, the Consultant represents that he has expertise in the field of brokering foreign exchange swaps, particularly Canadian swaps.

Whereas, the Company desires to (1) retain the services of the Consultant to undertake and carry out, on behalf of the Company, certain consulting and advisory services to the Company, and (2) protect the Company's business with respect to certain activities of the Consultant, and the Consultant desires to be so retained by the Company.

1. Consultant's services:

(a) The Company hereby engages the Consultant, and the Consultant hereby agrees to serve, as an independent consultant to the Company in which capacity the Consultant shall devote the necessary hours per month in the performance of such consulting and advisory services to the Company (the "Services").

(b) The Consultant shall manage a XXXXX including all the brokering operations and services related thereto.

(c) In the performance of his services, the Consultant will report to the President of the Company, who, directly or through a delegate, will provide specific assignments to, and act as liaison with, the Consultant.

(d) The Consultant will provide reports in writing to the Company in a timely manner as requested by the President of the Company or his delegate and will use his best efforts in all of his endeavours for the Company.

9. Representations and Warranties

b) The Consultant represents and warrants and covenants that its principals shall not represent themselves as agents of the Company, in general, and in particular shall not represent themselves as having the authority to bind the Company in any matter whatsoever, unless prior written consent is given by the Company. Notwithstanding the aforementioned the company consents to the Consultant engaging in brokering transactions in the regular course of business.

d) ... The Consultant represents, warrants and covenants that he will pay all taxes owing in respect of his compensation hereunder and file all tax and information returns, all of which shall identify him as an independent contractor.

11. Relationship of the Parties

... Nothing in this Agreement shall be deemed to authorize the Consultant to act as an agent of the Company or to bind or purport to bind the Company in any matter or manner whatsoever.

Varia:

Confidential information of the Company remains the property of the Company.

Inventions and intellectual property produced by the Consultant are the property of the Company.

The Consultant is not an employee of the Company.

The agreement also contains a non-competition clause restricting activities of the Consultant.

Transaction(s)

Pursuant to our conversation, your company, XXXXX, provides both financial and XXXXX consulting and is not a listed financial institution under subsection 149(1) of the Excise Tax Act (ETA). The services provided by you to the Company, for which you receive your fee, are set out in the contract. Examples of the duties provided pursuant to this contract would consist of conducting feasibility studies; setting up the office and its systems, expanding the client base, effecting the swap transactions as between third parties on behalf of the Company, and reporting functions; however, the main part of your duties currently consists of marketing and effecting swap transactions.

Ruling Requested

You would like a ruling as to whether the services provided to the Company are tax exempt services.

Ruling Given

Based on the facts set out above, we rule that the services provided to the Company pursuant to this agreement are a taxable supply.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Based upon the facts provided, XXXXX is not entering into any swap transactions, nor is it effecting swap trades in which the Company is a party or counterparty. XXXXX receives its fee from the Company for providing a number of taxable services (primarily consulting, advisory, marketing and management) and the exempt swap transaction.

For purposes of the ETA, goods and/or services provided together as a single package for a single consideration may constitute one supply, as explained in Policy Statement P-077R, Single and Multiple Supplies. The sum of this new composite supply has its own distinct identity and is different from the individual elements. A single supply versus multiple supplies analysis of the services provided by XXXXX, using the factors discussed in P-077R clearly concludes that the various elements of this service agreement constitute a single composite supply. For example, according to the preamble of the agreement, XXXXX was hired because XXXXX further, the Company states that it is entering into the agreement to XXXXX[.] The agreement also contains protections for the Company's business such as non-competition and no-hire clauses that tend to support the proposition that this is primarily a contract intended to support a Canadian start-up operation for the Company. All of the elements provided by you, including effecting the swap transactions, are required in order to meet the objective of setting up and managing a XXXXX XXXXX. The service of setting up and managing the XXXXX constitutes a single taxable supply.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9262.

Yours truly,

Sheena France
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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