Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 13th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 180248
Dear [Client]:
Subject: GST/HST RULING
In-store product demonstration services
Thank you for your letter of September 15, 2016, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of in-store product demonstration services.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information provided in your letter of September 15, 2016 and additional documentation, including:
- an agreement between […] (“RetailCo”) and […], a corporation doing business under the name of […] (“DemoCo”) dated [mm/dd/yyyy] (“the Agreement”),
- a sample contract for the purchase by […] (“USCo”) of in-store product demonstration services from DemoCo, dated [mm/dd/yyyy],
- a document entitled “[…][X]” signed by USCo and DemoCo and dated [mm/dd/yyyy] (hereinafter “the Commitment”),
- a sample invoice from DemoCo to USCo dated [mm/dd/yyyy],
- a sample product demonstration brief prepared by USCo, and
- a brochure published by DemoCo describing their product demonstration services,
our understanding of the facts is as follows:
1. USCo is a non-resident corporation that is not registered for the GST/HST.
2. DemoCo is a Canadian resident corporation that is registered for the GST/HST.
3. RetailCo is […] with stores across Canada selling a wide range of supplies, including food.
4. USCo is a manufacturer of specialty food items. It manufactures and sells to RetailCo a variety of […] (“product”).
5. RetailCo takes delivery of the product in the United States and subsequently imports it into Canada.
6. RetailCo agrees to carry and sell the product in its stores throughout Canada provided USCo allocates […]% of its sales with RetailCo towards a promotional allowance to be used as directed by RetailCo.
7. Under the terms of the Commitment, USCo agrees to purchase promotional services, in particular, in-store product demonstrations (“demos”) provided by DemoCo, in order to help promote and boost sales of the product in RetailCo stores.
8. The outstanding balance in the promotional allowance is what determines the number of demos that may be purchased at any given point.
9. Under the terms of the Agreement, for good and valuable consideration, RetailCo grants to DemoCo the right to conduct a promotional services business within its stores.
10. RetailCo arranges for DemoCo to perform a certain number of demos of the product in various RetailCo stores across Canada.
11. Details such as the dates, store locations, type and frequency of the demos are finalized by USCo in consultation with RetailCo, based upon the remaining balance in the promotional allowance fund.
12. RetailCo, […], coordinates and schedules the agreed-upon demos for and on behalf of USCo by entering the scheduling details into the system.
13. Once RetailCo inputs the scheduling details […][the] system […] generates a contract for demonstration services between DemoCo and USCo for the specified type and quantity of demos at the specified dates and locations. The resulting contract for demonstration services is strictly between USCo and DemoCo.
14. USCo is asked to review the accuracy of the contract for demonstration services thus produced, sign it and return a copy to DemoCo as confirmation of the work order.
15. However, failure by USCo to respond is not interpreted as a rejection of the contract, but rather as a tacit agreement and will result in the work proceeding as scheduled.
16. DemoCo performs the requested demos at various RetailCo store locations in Canada in conformity with the schedule/contract for demonstration services.
17. DemoCo sends an invoice to USCo for the supply of product demonstration services and charges GST/HST on the supply.
18. A demo typically entails the deployment by DemoCo of one or more of its product demonstrators to a particular RetailCo store location. Product demonstrators, also referred to as sales support staff, are trained in sales.
19. Demonstrators are typically stationed at a demonstration cart which is strategically placed somewhere within the RetailCo store. A certain number of packages of the product may be on display, arrayed in proximity to the demonstration cart, in order to make them easily accessible for shoppers to purchase.
20. In the course of their activities, demonstrators routinely solicit passing shoppers who are in the store coincidentally, as part of their normal shopping routines.
21. The product demonstrators prepare, and offer to passing shoppers, free samples of the product and then encourage them to buy the product by interacting with them, providing basic information about the product and answering simple questions wherever possible. The main focus of these activities is on increasing sales of the product.
22. To help demonstrators prepare for the demo, USCo is asked to provide DemoCo with a product demonstration brief ahead of time. […]
RULING REQUESTED
You would like to know whether the supply of product demonstration services by DemoCo to USCo is considered a zero-rated supply (supply taxable at the rate of 0%) of an advertising service made to a non-resident person who is not registered for the GST/HST, pursuant to section 8 of Part V of Schedule VI.
RULING GIVEN
Based on the facts set out above, we rule that the supply of product demonstration services by DemoCo to USCo is a taxable supply pursuant to subsection 165(1) and is subject to GST at the rate of 5% or HST at the applicable rate if the supply is made in a participating province. The supply does not constitute a zero-rated supply of advertising services under section 8 of Part V of Schedule VI.
EXPLANATION
Generally, unless the supply is exempt or zero-rated, a supply of a service that is made in Canada is subject to the GST pursuant to subsection 165(1) or subject to the HST pursuant to subsection 165(2) if the supply is made in a participating province.
Pursuant to paragraph 142(1)(g), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. DemoCo performs its product demonstration services exclusively in RetailCo stores in Canada, therefore DemoCo’s supply of product demonstration services is deemed to be made in Canada.
Exempt supplies, which are listed in Schedule V, are not subject to the GST/HST. However, there are no exempting provisions that apply to DemoCo’s supply of product demonstration services.
Under certain conditions, supplies made in Canada to non-resident persons may be zero-rated under Part V of Schedule VI. In particular, section 8 of Part V of Schedule VI zero-rates a supply of a service of advertising made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed.
The term “advertising” is not defined in the ETA; however, as described in GST/HST Memorandum 4-5-3, “Exports – Services and Intellectual Property,” the Canada Revenue Agency (CRA) generally considers an advertising service to be
(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.
Usually, it is the same person that both creates the message and communicates the message all within the same supply. But there are occasions where the person broadcasting or communicating a message, within the meaning of paragraph (b) above, will not be the same person supplying the message (i.e., the creative aspect) within the meaning of paragraph (a). In that case, 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 communication service to know that the message is in the nature of advertising. In that case, the supply of the communication service, even though it is being supplied separately from the supply of the message, will nevertheless be considered as a supply of an advertising service.
Subparagraph (b)(i) of the above description applies where a person creates an advertising message within the meaning of paragraph (a) and also communicates that advertising message as part of the same supply. Based on our understanding of the facts, DemoCo is not providing a service of creating a set specific advertising message, within the meaning of paragraph (a) of the description. Since DemoCo is not providing a service of creating an advertising message, then subparagraph (b)(i) cannot apply.
Subparagraph (b)(ii) of the description of an advertising service applies where a person offers the use of a communications medium (i.e. billboard, space in newspaper, air time on tv, etc.) in order to broadcast a prepared advertising message received from another person who has created the message (“advertiser”). Thus, a supply of a communication service, in this context, relates to the act of putting a particular medium of communication at the disposal of an advertiser in order to facilitate the broadcast of the advertiser’s message.
In this case, DemoCo does not receive from an advertiser a specific set and controlled advertising message about the product, nor does it put a medium of communication at the disposal of an advertiser to enable the advertiser to broadcast or disseminate such a message.
Demonstrators set up a product demonstration cart inside the store, prepare and distribute free food samples according to USCo’s specifications and personally interact with passing shoppers in an unscripted fashion. They strike up conversations whose content may vary depending on the specific needs of the shopper, putting more emphasis on points that seem to be of most interest to the shopper. Demonstrators adapt their conversation to each situation, according to the shopper’s reaction, in order to persuade shoppers to purchase the product on the spot. DemoCo’s purpose is not to provide a communications channel for the broadcast of an advertiser’s prepared message, but rather to demonstrate the product for the purpose of facilitating a sale. Consequently, DemoCo is not providing a communication service within the meaning of subparagraph (b)(ii) of CRA’s description of an advertising service.
The in-store product demonstration services provided by DemoCo do not qualify as an advertising service for GST/HST purposes, and therefore the supply by DemoCo to USCo would not be considered a zero-rated supply of an advertising service made to a non-resident person under section 8 of Part V of Schedule VI. There are no other zero-rating provisions that would apply to zero-rate DemoCo’s supply of in-store product demonstration services to USCo. Accordingly, the supply is taxable at the applicable rate depending on the province in which the supply is made.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please do not hesitate to call me directly at 613-670-9892. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Anna Messore
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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