8 September 2017 Interpretation 180362
NRCo, a registered non-resident corporation registered for the GST/HST, has (before any shipments described below occur) entered into a one-year agreement with a Canadian purchaser ("CanCo") for the delivery to CanCo of fuel oil in marine vessels under ICC Incoterms (2010) "Delivery ex ship (DES)" at a delivery point in a Canadian port. The purchaser (CanCo ) takes possession of the fuel oil prior to its release by the CBSA and, as importer of record, pays any applicable taxes and duties to obtain release.
Would such supply be considered to be made outside Canada by virtue of s. 144? CRA responded:
One of the requirements of section 144 is that the goods be imported before the supply is made. Under section 133, the supply of the goods is deemed to be made when the agreement for the supply of the goods is entered into. … The relevance of the timing of when a supply is made under section 133 to the application of section 144 is reflected in the wording of the definition of "specified supply" of goods under subsection 178.8(1) … [which] distinguishes between a supply of goods that are imported after the supply is made, and a supply of goods that have been imported in circumstances in which section 144 deems the supply to have been made outside Canada. …
[S]hipments of fuel oil to CanCo commenced only after the agreement for the supply was reached … . Since section 133 deems the supply to have been made at the time of the agreement, the importation of the fuel oil occurs after the supply by [NRCo] to CanCo. Accordingly, section 144 would not apply in this case since the fuel oil was not imported before the supply was made.
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CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 33
Respecting the situation where goods are delivered or made available, in accordance with Incoterms, after the goods are imported but before Customs release, CRA stated:
Section 144 will not deem the supply of goods to be made outside Canada if the agreement for the supply has been entered into before the goods are imported. This includes where the goods are delivered or made available in Canada to the recipient in accordance with an Incoterm after the goods are imported and before their release.
....[T]he relevance of the timing of when a supply is made under section 133...to the application of section 144 is reflected in the wording of the definition of a "specified supply" [in s. 178.8(1) WHICH ] distinguishes between a supply of goods that are imported after the supply is made, and a supply of goods that have been imported in circumstances in which section 144 [applies]... .
CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 32
Under the "PARS" program, the goods are "reviewed" in transit but the goods cannot be released until their arrival as the CBSA has to decide whether to inspect the goods or release them without inspection. For example, for transport by truck, where delivery is stated to occur when the goods enter Canada at the "frontier" but the goods are not yet released, is the supply outside Canada? Alternatively, where goods arrive by vessel subject to the Incoterm "DEQ" and the goods have not yet been released when the goods are at the dock, is the supply made outside Canada? CRA stated:
[I]n order for section 144 to apply…[t]he goods must not only be delivered or made available to the recipient in Canada before their release…[but] the goods must also have been imported in compliance with the Customs Act or any other Act of Parliament that prohibits, controls, or regulates the importation of goods before the supply is made. Under section 133, the supply of the goods is deemed to be made when the agreement for the supply of the goods is entered into. Therefore, section 144 will not apply if the goods have not been imported before the agreement for the supply is entered into.
Brent F. Murray, "Drop Shipments and Imports: Potential Pitfalls", Canadian GST Monitor, No. 287, August 2012, p. 1
"CRA is of the view that section 144 applies only if goods have been imported before there is an agreement to supply the goods." States (p. 5) that this "interpretation is questionable."