23 September 2002 GST/HST Interpretation 37751 - Supply of Services to a Non-resident

Dear Sir:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of specialized employees to a non-resident company. I apologize for the delay in responding to your letter.

The following facts were presented in your letter.

•   Your client (the "supplier") is a company, resident in Canada, and is registered for purposes of the GST/HST. The supplier is located in XXXXX.

•   One of the supplier's customers (the "client") is a non-resident company, located in the United States (U.S.). The client does not have a place of business in Canada and is not a registrant for purposes of the GST/HST.

•   The supplier and the client have entered into an agreement whereby the supplier will provide the client with its staff consisting of specialized workers in the fields of engineering, drafting, technical and business support.

•   The supply of staff is done in the context of outsourcing engineering, drafting, technical and business support.

•   The supplier's staff is provided on a day-to-day basis, as needed.

•   The non-resident client, as the recipient of the supply, has the sole discretion and the entire control over the supplier's workers in determining the need for or the nature of the work and the duration of the service or the time allowed to do the work.

•   The compensation received by the supplier for the supply of its specialized workers is based on the accounting of hours worked on a weekly basis by each member of the supplier's staff.

•   The supplier is not an agent, employee or representative of its client.

•   The supplier pays its employees and/or subcontractors and in turn, invoices its non-resident client for the staff provided.

•   The non-resident client has a customer located in Canada and supplies him with specialized workers in the fields of engineering, drafting, technical and business support.

•   The non-resident client puts the supplier's staff to work at its customer's premises located in Canada.

Interpretation Requested

Is the supply of a service made by a resident to a non-resident zero-rated under either section 7 or 23 of Part V of Schedule VI to the Excise Tax Act ("the Act")?

Interpretation Given

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the supply described in your letter.

A supply of a service is deemed to be made in Canada under paragraph 142(1)(g) of the Act if it is, or is to be, performed in whole or in part in Canada.

Where a person makes a taxable (other than zero-rated) supply in Canada of specialized services performed by its staff, the supply is subject to GST at rate of 7% (or 15% HST if the supply is made in the participating provinces of New Brunswick, Newfoundland or Nova Scotia.

Generally, a supply of a service is deemed to be made in a province under Part V of Schedule IX to the Act if all or substantially all of the service is performed in the province or, the place of negotiation of the supply is in the province and it is not the case that all or substantially all of the service is performed outside the province.

As you know, a supply of a service made to a non-resident person may be zero-rated under either section 7 or 23 of Part V of Schedule VI to the Act provided none of the exclusions of those provisions apply. For example, excluded from zero-rating under these provisions is a service in respect of real property or tangible personal property that is situated in Canada at the time the service is performed. GST/HST Memoranda Series Chapter 4.5.3, Exports - Services and Intellectual Property, is enclosed for additional information regarding the exclusions in sections 7 and 23. It is the Canada Customs and Revenue Agency's position that there must be more than a mere indirect or incidental connection between a service and the underlying property to be considered "in respect of" the property for purposes of the exclusions in sections 7 and 23 of Part V of Schedule VI to the Act.

The determination of whether the relationship between a particular service and real property or tangible personal property is sufficiently direct for the service to be considered to be in respect of the property for purposes of the exclusions of section 7 and 23 of Part V of Schedule VI to the Act depends on the particular circumstances of each case.

The information that you have provided is insufficient to conclusively determine whether the services in question would qualify for zero-rating. We would be pleased to provide you with a ruling regarding the tax status of the services of your client if more specific facts pertaining to those services are provided.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. 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 Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

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,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate