Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 101772
August 28, 2008
Subject:
GST/HST INTERPRETATION
Software Maintenance and support services
Dear XXXXX:
Thank you for your fax of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of software maintenance and support services to a non-resident.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
We understand the facts to be as follows:
• Service Co is a member of a group of affiliated corporations, who license XXXXX software and applications and solutions to customers throughout the world.
• In conjunction with supplying software, Service Co and the various affiliated corporations also provide customers with software maintenance and support services. The price charged by the licensor for software upgrades, maintenance and support services is approximately XXXXX of the amount charged for the software licence.
• For the most part, Service Co only supplies the XXXXX software applications and solutions to Canadian customers (or, in certain situations, to independent retailers who supply the software to Canadian customers); whereas an affiliated non-resident corporation will supply the XXXXX software applications and solutions to customers situated within their own geographical region (e.g. U.S. based affiliate sells to U.S. customers).
• When supplying software applications and solutions to Canadian customers, Service Co charges and collects GST on amounts charged for (i) the software licence; and (ii) the software upgrades, maintenance and support services.
• For purposes of responding to various problems and inquiries that software licensees may have with respect to their day to day use of XXXXX software licensed from one of the affiliated entities, the XXXXX parent company of all the affiliated entities (the "XXXXX Parent") has retained Service Co to receive, respond and rectify inquiries that are received from customers throughout the world and, for this purpose, Service Co has established a Canadian support centre that is operational XXXXX hours a day XXXXX days a week ("the Support Centre"). Additional support centres have also been established by some of the other affiliated entities outside Canada.
• As each of the software licensees generally has their own information technology (IT) department (or access to third party IT professionals), the Support Centre is not being retained by the XXXXX Parent to respond to basic enquiries such as the operation of peripheral computer equipment.
• The process by which Service Co's Support Centre becomes involved in responding to a software licensee's problem commences with a support log ticket being generated by the licensee and submitted electronically to the XXXXX Parent through the Internet. The log tickets provide a detailed description of the licensee's particular problem, including any error codes or messages which are associated with the problem.
• On receipt of the log tickets, the tickets are reviewed and analyzed by the "primary support" group of one of the support centres which have been established to determine whether there is an existing patch or solution to rectify the licensee's particular problem. To the extent that a relevant patch or solution exists, then the primary support group will rectify the licensee's particular problem by sending the licensee the requisite solution and provide the licensee with the necessary support to implement the solution.
• In situations where the "primary support" group receives a log ticket and determines that an existing patch or solution is not available (for example, the problem or issue relates to the software's source code), then the problem is forwarded by the "primary support" group to the "development support" group. The "development support" group will then rectify the licensee's particular problem through, among other things, making requisite changes to the software's source code and designing and writing a new patch or solution. The XXXXX Parent is the sole and exclusive owner (throughout and subsequent to the development stage) of any patch or solution created by the "development support" group.
• Service Co's Support Centre is almost exclusively responsible for "development support" group activities- with approximately XXXXX% of the Support Centre's staff being responsible for responding to log tickets that the "primary support" group cannot rectify.
• In receiving and responding to enquiries (i.e. log tickets), the Support Centre will typically (i) provide technical support with respect to program errors including writing computer code to create a patch and rectify the particular problem; (ii) advise clients on how to use the XXXXX software to perform a particular task such as generating various types of reports; (iii) provide advice and technical support with respect to program configurations; and (iv) provide assistance to independent retailers with respect to the implementation and configuration of software that they have supplied directly to a particular customer. It is not uncommon for persons employed in the "development group" at the Support Centre to spend 3 to 5 days in rectifying a particular problem.
• For services performed through the Support Centre, Service Co charges the XXXXX Parent a monthly fee that is based on the costs incurred in operating the Support Centre plus a reasonable mark-up.
• In responding to inquiries, the Support Centre is not merely educating customers on how to use the XXXXX software to perform rudimentary and basic functions. Rather, specialized skill and knowledge are required and typically used by personnel who receive and respond to customer inquiries at the Support Centre.
• Employees at the Support Centre each have the following technical expertise and specialized knowledge:
(i) University education with a particular focus on computer science; and
(ii) Computer program and development training and expertise.
• Apart from Service Co, none of the operational affiliates including the XXXXX Parent are residents of Canada. Service Co is the only operating entity that is registered for GST.
• The services rendered by Service Co relate exclusively to the XXXXX software applications and solutions that were licensed to the customer. Said XXXXX software applications and solutions involve highly complex and sophisticated computer technology, with the licensing fees for the software generally being in excess of $XXXXX.
Interpretation Requested
You would like to know the following:
1. Whether Service Co's supply of services through the Support Centre constitutes an "advisory, professional or consulting service" as described in section 23 of Part V of Schedule VI XXXXX.
2. Whether the services provided by Service Co through the Support Centre are not excluded from zero-rating under any of the paragraphs 23(a) to (d) of Part V of Schedule VI XXXXX.
3. In the event that the Canada Revenue Agency (the "CRA") is of the view that the services provided by Service Co are not an "advisory, professional or consulting service", we further request that the CRA issue an interpretation that said services qualify for zero-rating under section 7 of Part V of Schedule VI XXXXX.
Interpretation Given
1. Service Co's supply of services through the Support Centre does not constitute an "advisory, professional or consulting service" as described in section 23 of Part V of Schedule VI XXXXX.
As set out in GST/HST Memoranda Series 4.5.3 (4.5.3 Exports - Services and Intellectual Property), for purposes of section 23 of Part V of Schedule VI XXXXX, an advisory or consulting service is not considered to include any work that might be undertaken or performed as a result of the plans or recommendations accepted by the client or the advice provided by the client. The changing of the software's source code and the designing and writing of a new patch or solution would disqualify the supply as being an advisory or consulting service.
Also set out in the policy, a professional service is generally defined in terms of the individual providing the service. For purposes of this provision, the individual providing the service may be a member of a professional association, a professional corporation or a similar body, which is recognized by a statute in at least one province or territory or by one federal body, and which enforces standards of professional practice as well as a code of ethics.
2. The services provided by Service Co through the Support Centre do not qualify as an "advisory, professional or consulting service". The exclusions under paragraphs 23(a) to (d) of Part V of Schedule VI XXXXX are not applicable.
3. Service Co's supply of services through the Support Centre do not qualify for zero-rating under section 7 of Part V of Schedule VI XXXXX.
The supply of services through the Support Centre by Service Co. to the XXXXX Parent, which includes the employees of software licensees physically located in Canada, does not qualify for zero-rating based on the application of the exclusion in paragraph 7(a.1) of Part V of Schedule VI XXXXX.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6743. 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,
Gregory Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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