31 October 2003 GST/HST Interpretation 41478 - Advertising Services Supplied by a Non-resident

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX

Thank you for your facsimile XXXXX XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your acquisition of advertising services. Your request has been transferred from the XXXXX GST/HST Rulings Unit to the Border Issues Unit of the General Operations and Border Issues Division for response. We regret the delay in responding.

The following information was taken from your facsimile and telephone conversations:

•   XXXXX is registered for GST/HST purposes.

•   XXXXX manufactures unassembled XXXXX

•   XXXXX sells their XXXXX on an uninstalled basis to customers in Canada and the United States. Their customers are responsible for installing the XXXXX on site.

•   XXXXX has a contract with XXXXX, a non-resident who is located in XXXXX. The contract between XXXXX and XXXXX is for XXXXX advertisements that will appear in each monthly issue of XXXXX magazine. A single consideration of $XXXXX US per month is charged by XXXXX for the supply of the advertising service.

•   XXXXX is registered for GST/HST because they supply prescribed property in Canada under the circumstances described in subsection 240(4) of the Excise Tax Act (Act).

•   XXXXX employees create the advertisement message in XXXXX; send it to XXXXX for their approval and insert the advertisement in XXXXX magazine which is printed in the United States and in Canada.

•   The magazine will be distributed in the United States and in Canada.

Interpretation Requested

You would like to know if XXXXX is required to charge and collect GST on their supplies of advertising services. If they are required to charge GST, should it be charged on the entire consideration or should it be charged on the Canadian portion only. Can the GST be charged in US dollars?

Interpretation Given

Based on the information provided, we offer the following interpretation:

XXXXX as a GST/HST registrant is required to charge and collect GST/HST on every taxable (other than zero-rated) supply of a service made in Canada.

An advertising service as defined in paragraph 26 of GST/HST Memorandum 4.5.3, Exports - Services and Intellectual Property includes:

(a) 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, including,

(i) in a newspaper or other publication,

(ii) on radio or television,

(iii) in a notice, handbill, sign, catalogue, or letter, and

(iv) on a billboard or on real property; and

(b) a service directly related to the communication of such a message (e.g., air time on a broadcasting service, space in a publication) where,

(i) the communication service is supplied as part of the supply of a message as defined in paragraph (a) above, or

(ii) 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 as defined in paragraph (a) above.

There are occasions where the person broadcasting or communicating a message, within the meaning of subparagraph (b) above, will not be the same person supplying the message (i.e., the creative aspect). Generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.

In the case at hand, XXXXX is supplying an advertising service, which includes creating an advertisement message and communicating the message in its magazine XXXXX. Therefore, the supply provided by XXXXX to XXXXX is a supply of an advertising service as defined in GST/HST Memorandum 4.5.3.

Under paragraph 142(1)(g) of the Act, a supply of a service (which includes an advertising service) is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Since the advertising message appears in the magazine XXXXX that is distributed in part in Canada, the advertising service is considered to be performed in part in Canada. Therefore, the supply of the advertising service is deemed to be made in Canada and XXXXX is required to collect and remit the GST/HST on the full value of the consideration for the supply.

XXXXX is entitled to set its own price and is able to stipulate payment in a currency other than in Canadian currency. Pursuant to section 159 of the Act, where the consideration for a supply is expressed in foreign currency, the value of the consideration for GST/HST purposes shall be calculated based on the value of that foreign currency in Canadian currency. The determination of the value of the consideration in equivalent Canadian currency is made on the day that tax is payable; or such other day as is acceptable to the Minister.

Consideration expressed in a foreign currency must therefore be converted into Canadian currency using either the exchange rate on the day tax is payable or on such other day as is acceptable to the Minister (i.e. alternative days).

Subsection 168(1) of the Act provides that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.

Consideration or a part thereof for a taxable supply is deemed to become due on the earliest of:

(a) the day the supplier first issues an invoice in respect of the supply and the date of that invoice;

(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and

(c) the day that the recipient is required to pay that consideration or part pursuant to an agreement in writing.

The following alternative days are also acceptable to the Minister for determining the value of the consideration for a supply in Canadian currency:

(a) the day the consideration for the supply is paid;

(b) the day the foreign currency was acquired; and

(c) the average rate of exchange for the month in which tax is payable.

For further details, see the enclosed GST Memorandum 300-7-10, Foreign Currency.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the 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 CCRA with respect to a particular situation.

For your convenience, please 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) 952-8810.

Yours truly,

Patrick McKinnon
Manager
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

XXXXX
XXXXX
XXXXX
XXXXX