SLFI Group - Invesco Canada – Tax Court of Canada finds that an SPV funding MFT brokerage commissions was providing a GST-taxable management service

Citibank in the U.S. agreed to fund the payment of the upfront brokerage commissions that were payable on the issuance of units in the Invesco/Trimark funds (the “Funds”) in consideration for receiving an assignment of X% of the management fees that otherwise would have been earned by the Invesco manager (the “Manager”). More precisely, the Manager agreed to relinquish its receipt of that X% of its fees, and the Funds agreed to pay the same percentage amounts to a special purpose non-resident Citibank-formed vehicle (“Funding Corp”) in consideration for Funding Corp paying the brokerage commissions. Funding Corp then immediately sold its fee-amount entitlements to Citibank.

The Funds argued that they were receiving a GST/HST exempt financial service from Funding Corp – so that this arrangement in effect eliminated the GST or HST on the portion of the management fees that was assigned to Funding Corp. This turned principally on whether this consideration paid by the Funds to Funding Corp was tainted under para. (q) of the financial service definition on the basis that Funding Corp provided any management or administrative service to the Funds.

V.A. Miller J indicated that taking care of the brokerage commissions was part and parcel of the management duties of the Manager, and delegating that duty to Funding Corp did not detract from its performance being a management function. Therefore, the consideration paid by the Funds to Funding Corp was tainted as Funding Corp was providing a management service.

Neal Armstrong. Summary of SLFI Group - Invesco Canada Ltd. v. The Queen, 2017 TCC 78 under ETA, s. 123(1) – financial service - (q).