11 August 1994 GST/HST Interpretation 1994-08-11[3] - Services Registrants Supply to Non-residents

Attached are copies of letters dated May 16, 1994 (XXXXX, and May 25, 1994 XXXXX[)], respectively, written by XXXXX, to the above-referenced registrants. The letters concern the application of the Goods and Services Tax (GST) to the services these registrants supply to non-residents. The services supplied by both registrants may be described as services of sales representatives.

In his letters, XXXXX advises the registrants that as they are not regarded as agents of their non-resident clients, their services are not zero-rated under the provisions of Schedule VI, Part V, section 5 to the Excise Tax Act (Act). In addition, as the services are for consumption, use or enjoyment in Canada, the services may not be zero-rated under the provisions of Schedule VI, Part V, section 7 to the Act. The services are, therefore, subject to the GST at 7%.

I agree that these registrants are not agents of their non-resident clients and that their services are for consumption, use or enjoyment in Canada. As a result, the services supplied to the non-resident clients do not qualify for zero-rating under Schedule VI, Part V, sections 5 or 7. However, neither letter makes reference to current departmental policy respecting the services of sales representatives.

The Department has not been assessing the GST on supplies by sales representatives for the period January 1, 1991 to October 31, 1992 (the date on which GST Memorandum 300-3-5 entitled "Exports" was published). Please refer to Audit Directive 93-20 dated November 20, 1993.

In addition, as outlined in announcement which appeared in the Internal Bulletin Board (IBB) on April 18, 1994 (which was clarified by the announcement in the IBB on June 8, 1994 - Notice 53), and Audit Directive 94-07 dated May 24, 1994, the Department of Finance is in the process of reviewing its policy in this area in consultation with industry representatives. Therefore, in view of Finance's intention to reconsider the policy in this area, assessments relating to services of sales representatives who solicit orders from Canadians for goods and services to be provided by non-residents, should not be pursued. Also, action should be deferred relating to assessments which have been established. Additional information will be provided when Finance completes its review and a decision as to whether to proceed with a legislative amendment is taken.

It should be noted that this policy is limited to circumstances where the requirements in Schedule VI, Part V, paragraphs 5(a) or (b) are met. That is, the representative's services of soliciting must be in respect of a zero-rated export supply to the non-resident or a supply made outside Canada by or to the non-resident.

Both letters should be amended to reflect current departmental policy concerning sales representative's services.

If you require further information, please contact Mr. Garry Ryhorchuk of my staff at (613) 952-6743.

H.L. Jones
Director
General Tax Policy
Excise/GST
Policy and Legislation

Att.