29 June 1998 GST/HST Interpretation HQR0001173 - Zero-Rated Sales for Export

                                                                        GST/HST Rulings and Interpretations
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario K1A 0L5

Gentlemen:

I refer to your letter of April 24, 1998 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX for export.

You state that a GST/HST registered resident Manufacturer is engaged in the production of a bulk commodity, i.e. XXXXX[.] The Manufacturer sells the XXXXX in Canada, F.O.B. the Manufacturer's facility, to a Distributor who is also registered for GST/HST purposes and a resident of Canada. The Distributor sells the XXXXX to an unregistered non-resident Customer who is a resident of XXXXX[.]

You presented the following scenarios in your letter:

1. XXXXX is shipped directly by train from the Manufacturer's facilities to a Canadian port, where it is temporarily stored and then loaded into ships destined for XXXXX[.] You state that the XXXXX is loaded onto a train by the Manufacturer (at which point the Distributor acquires title to the property), transported to a Canadian port, loaded onto a ship (at which point the Customer acquires title to the property) and transported to XXXXX including the "Canada Customs Export Declaration B13A", commercial invoicing and bills of lading. You advise that the Distributor is responsible for arranging and co-ordinating the loading of XXXXX onto the vessel and has approval over whether a particular vessel is satisfactory for shipment. Under the terms of the written sales agreement between the Distributor and the Customer, title to the XXXXX is transferred to the Customer after the vessel has been loaded, has cleared inspection and is ready to sail. As a consequence of the timing of the transfer of title, the Customer assumes financial responsibility for the safe delivery of the XXXXX to its destination in XXXXX is shipped by train from the Manufacturer's facilities to a Canadian port where it is loaded onto vessels destined for XXXXX[.] Under the terms of the written sales agreement, the Distributor receives payment for the XXXXX three days after the loaded vessel departs the Canadian port. As a consequence, payment is received at a point in time when the XXXXX is at a location outside Canada.

Interpretations Requested

1. The supply of the XXXXX from the Manufacturer to the Distributor is zero-rated under the provisions of Schedule VI, Part V, section 12 to the Excise Tax Act (Act).

2. The supply of the XXXXX from the Manufacturer to the Distributor is zero-rated under the provisions of Schedule VI, Part V, section 1 to the Act.

3. As a result of the application of paragraph 152(1)(c) and subsection 168(1), the supply of XXXXX by the Distributor to the Customer is made at the time the consideration is due under the written agreement, i.e., three days after the vessel containing the XXXXX leaves the Canadian port. Secondly, when the supply is made three days after the vessel left port and is at that point at a location that is outside Canada, the first supply by the Manufacturer to the Distributor in Canada is zero-rated under Schedule VI, Part V, section 1.

Interpretations Given

Based on the information provided, the following interpretations are provided:

1. In order for a supply of tangible personal property to be zero-rated under Schedule VI, Part V, section 12, the supplier must deliver the property to a common carrier ... for export.

In this scenario, the XXXXX is loaded onto a train by the Manufacturer (at which point the Distributor acquires title to the property). The terms of delivery under the contract are F.O.B. the Manufacturer's facility (i.e., Canadian shipping point). The XXXXX is transported to a Canadian port where the XXXXX is temporarily stored. The XXXXX is eventually loaded onto a ship (at which point the Customer acquires title to the property) and subsequently transported to XXXXX[.] The terms of delivery from the Distributor to the Customer would appear to be F.O.B. Canadian port.

While the Manufacturer is delivering the XXXXX to a common carrier, it appears that the XXXXX is not for export, but for delivery to a domestic location (i.e., the Canadian port). As a result, the zero-rating provisions of Schedule VI, Part V, section 12 would not apply. The supply of the XXXXX by the Manufacturer to the Distributor is subject to the GST at 7% or the HST at 15%, depending upon whether the XXXXX is supplied in a non-participating or participating province.

2. In order for a supply to be zero-rated under Schedule VI, Part V, section 1, the recipient must intend to export the tangible personal property (i.e., the XXXXX[.] However, it appears that the Distributor (the recipient) does not intend to export the XXXXX but, instead, to sell the XXXXX to the XXXXX Customer, with the terms of delivery at the Canadian port. Therefore, the supply of the XXXXX by the Manufacturer to the Distributor is not zero-rated under Schedule VI, Part V, section 1. The supply of the XXXXX by the Manufacturer to the Distributor is subject to the GST at 7% or the HST at 15%, depending upon the province in which the XXXXX is supplied.

Please note that, as stated in Technical Information Bulletin B-062 dated November 8, 1991, the Canada Customs B13 form is not acceptable as proof of export in any circumstances.

3. Contrary to the suggestion in your letter, the provisions of paragraph 152(1)(c) of the Act and subsection 168(1) of the Act, which deal with when consideration for a taxable supply comes due and the timing of the liability for payment of the tax under Division II, are not relevant when determining the place of supply by way of sale of tangible personal property. Reference must be made to paragraphs 142(1)(a) and 142(2)(a) of the Act, which read as follows:

Subsection 142(1)

"For the purposes of this Part, subject to sections 143, 144 and 179, a supply shall be deemed to be made in Canada if

(a) in the case of a supply by way of sale of tangible personal property, the property is, or is to be, delivered or made available in Canada to the recipient of the supply;

Subsection 142(2)

"For the purposes of this Part, a supply shall be deemed to be made outside Canada if

(a) in the case of a supply by way of sale of tangible personal property, the property is, or is to be, delivered or made available outside Canada to the recipient of the supply;"

Policy Statement P-078 (Meaning of the phrase "delivered or made available in (or outside) Canada to the recipient) dated July 23, 1993, provides guidelines to assist in making a determination concerning the place of supply by way of sale of tangible personal property. A copy of the Policy Statement is enclosed. You will note that "delivered" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by actual delivery. "Made available" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the tangible personal property is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law).

Although the Customer may not be receiving physical delivery of the XXXXX at the time the XXXXX is loaded onto the ship at the Canadian port, the Customer is receiving constructive delivery of the XXXXX at the Canadian port. Therefore, as the XXXXX is made available to the Customer in Canada, the supply by the Distributor to the Customer is deemed to be made in Canada pursuant to paragraph 142(1)(a). Although the XXXXX is ultimately exported, it is clear from the information provided that the Distributor does not intend to export the XXXXX but intends to supply the XXXXX and actually does supply the XXXXX to the Customer in Canada. Therefore, as stated in the interpretation for Scenario 2, the zero-rating provisions of Schedule VI, Part V, section 1 do not apply to the supply of the XXXXX by the Manufacturer to the Distributor. The supply of the XXXXX by the Manufacturer to the Distributor is subject to the GST at 7%, if the supply is made in a non-participating province, or the HST at 15%, if the supply is made in a participating province.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced or future amendments to the Act may result in changes to this interpretation. 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 Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Garry L. Ryhorchuk
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Encl.

NCS Subject Code:                 11640-4, 11680-6