20 December 1999 GST/HST Interpretation 8189/HQR0001795 - Entitlement to Claim Input Tax Credits

We have completed our review of the issue as to whether XXXXX is entitled to claim ITCs related to certain costs incurred as a result of it being the target of a takeover bid by XXXXX[.]

Background

XXXXX is a resident in Canada and a GST/HST registrant. It makes taxable supplies of goods and services to XXXXX[.] In XXXXX made a takeover bid for XXXXX shares.

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XXXXX is not a financial institution for purposes of the Excise Tax Act.

Comments

As a result of the initial takeover bid by XXXXX the subsequent offer by XXXXX and finally the successful bid of XXXXX acquired or imported various services and property such as legal, auditing and financial advisory services.

To determine XXXXX eligibility to claim ITCs with respect to the costs incurred as a result of the takeover bids, it is necessary to ascertain the extent to which a particular service was acquired or imported by XXXXX for consumption or use in the course of its commercial activities.

Subsection 141.01(2) of the Excise Tax Act (ETA) provides, in part, that where a person acquires or imports a property or a service for consumption or use in the course of an endeavour of the person, that person shall be deemed to have acquired or imported the property or service for consumption or use in the course of commercial activities of the person, to the extent that the service is acquired or imported by the person for the purpose of making taxable supplies for consideration in the course of that endeavour.

XXXXX acquired certain inputs in order to provide advice to shareholders in keeping with the legal obligations of the corporation (the required inputs). It is our view that property or services acquired or imported by a corporation in fulfilling obligations under a securities or corporations act in producing circulars for shareholders concerning takeover bids, would generally be considered to have been acquired or imported for the purpose of making supplies for consideration in the course of the corporation's endeavour for the purposes of section 141.01. Costs with respect to inputs which may be acquired or imported in preparing and distributing the circulars generally include legal and accounting fees, fairness opinions (valuation reports), printing and mailing costs. Therefore, to the extent that XXXXX is engaged in commercial activities, the corporation is entitled to claim input tax credits in respect of tax paid or payable on the required inputs, provided the conditions of subsection 169(1) are met.

It is important to note that if substantially all of the required inputs were acquired or imported for consumption or use in the course of XXXXX commercial activities, all of the consumption or use of the inputs by XXXXX is deemed to have been in the course of those activities, as specified in section 141. If less than substantially all of the required inputs were acquired for consumption or use in the course of XXXXX commercial activities, the taxable inputs should be apportioned. It is therefore necessary to consider whether any of XXXXX outputs consisted of exempt supplies.

We also understand that XXXXX has numerous foreign subsidiaries. If a significant proportion of the required inputs related specifically to XXXXX investments in foreign subsidiaries, it is necessary to be determined whether the deeming provisions in subsection 186(1) will apply to the related required inputs. If subsection 186(1) applies, then XXXXX will be deemed to have acquired or imported those required inputs for use in the course of its commercial activities. If subsection 186(1) does not apply, then that portion of the required inputs relate to exempt activities and XXXXX has no ITC entitlement in respect of those required inputs.

The above information applies to XXXXX[.] ITC eligibility with respect to inputs acquired or imported to fulfill XXXXX legal responsibilities for dealing with a takeover bid.

To determine whether XXXXX is eligible to claim any ITCs with respect to other inputs (non-required inputs) incurred in response to the same takeover bid, it is again necessary to determine the purpose for acquiring or importing the particular input. For example, to the extent that the purpose of acquiring or importing a non-required input is to increase the amount for which XXXXX shares were sold, no ITC should be allowed with respect to any taxable inputs related to that activity as the sale of XXXXX shares is an exempt supply of a financial service.

From the information provided we understand that XXXXX acquired certain services which were supplies made outside of Canada (e.g., service provided by XXXXX[.] Where taxable supplies of services are made outside Canada to a resident in Canada, the application of Division IV must be considered. If it is determined that these services are "imported taxable supplies" as defined in section 217, XXXXX is liable to pay tax on the value of consideration for those supplies.

If you have any questions concerning this matter, please contact me at (613) 952-9211.

Don Dawson
Technical Analyst
Specialty Tax Unit
Financial Institutions and Real Property
GST/HST Rulings and Interpretations Directorate

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