Words and Phrases - "arranging for"
The appellant (“Zomaron”) negotiated with and obtained from prospective merchants a commitment to use the card payment processing services of two companies (“Elavon” and “First Data”), which in turn accessed the VISA (or other credit card network) to access payment from the bank that had issued the card of the customer of the merchant, so that the merchant was paid. As an example, Zomaron would negotiate a transaction fee of 2% with a particular merchant, and when a customer used her card to make a purchase from the merchant for, say, $100, Elavon collects $100 from the customer’s issuing bank and deposit the $100 to the merchant’s bank account the next day. At month’s end, Elavon would collects the $2 merchant fee (2%) from the merchant’s bank account which was then distributed as follows: Elavon pays $1.50 (the interchange fee) to the card issuer and payment network; the remaining $0.50 cents (the “mark-up”) is the revenue shared between Elavon and Zomaron in accordance with a negotiated split – say, 30%/70%, so that Elavon retains $0.15 and pays Zomaron $0.35, representing its portion of the fee as consideration for its services. The mark-up was negotiated in the discretion of Zomaron with the merchant based on risk and other factors.
The Minister had found that the services of Zomaron were promotional servicers described in para. (r.4), partly on the basis of its “Marketing Agreement” with Elavon stating that it would “market” merchant services offered by Elavon – but Lyons J accepted evidence that Zomaron did not carry out such marketing services. Lyons J noted (at para. 65) that “only the predominant elements are taken into account in applying the inclusions and exclusions in the definition” and (at para. 71) that “Zomaron’s compensation is entirely dependant on whether a financial service is ultimately provided by a Processor to a merchant,” and stated (at para. 97):
… Parliament intended … the concept of “arranging for” to mean “bringing together parties to a service.” … Additionally, it … call[s] for the intermediary to have a sufficient amount of involvement to then “cause to occur” or effect the financial service without involvement in every transaction.
Lyons J found that the fees received by Zomaron were exempt “arranging for” fees, stating (at paras 107, 110):
… [T]he vital element of Zomaron’s supply was as an intermediary “arranging for” payment processing services leading to Processors successfully acquiring merchants. Without this, there would be no point to the constituent elements. Accordingly, the end product, the final result, the essence for what the Processors is paying Zomaron for is to “arrange for” merchants to use the Processor’s card payment services. This, I find, is the predominant element of the supply provided by Zomaron to Elavon and First Data.
… Even if the supply provided by Zomaron to the Processors involved services of a promotional nature, since these do not represent the predominant element of the supply, paragraph (r.4) has no application … .
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|Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l)||finding and signing-up merchants to use the services of a credit card payment processor was an arranging-for service||278|
The CIBC issued Visa credit cards and utilized a credit card payment system operated and managed by Visa Canada. Visa Canada essentially acted as a largely automated go-between between the “issuer,” who provided the funds for a purchase at a merchant by a cardholder, and the “acquirer,” who used such funds to pay the merchant. Visa Canada added $18M in GST or HST to its charges for its services to CIBC in the years in question, and CRA denied CIBC’s s. 261 rebate claim therefor. Before finding that the supply by Visa Canada was a prescribed supply under para. (t) of “financial service,” Rossiter CJ found that Visa Canada was providing an “arranging for” financial service, stating (at paras. 88, 92):
Visa satisfying paragraph (l), in conjunction with paragraph (a), is necessary in order for Visa to satisfy the financial services definition as the service provided by Visa does not involve Visa directly handling the funds that are in their possession. Instead, the transfer is done by having the issuers settle with Visa by paying the necessary funds into a designated bank account that Visa has with Scotiabank. …
Visa acts as a financial intermediary by facilitating the transfer of payments between issuers, acquirers and merchants. …The services provided by CIBC and the services provided by Visa are linked in their purpose to a degree where it can be said that Visa is “arranging for” the credit services offered by CIBC, through acting as an intermediary in the transfer of money. As a result, the conditions in paragraphs (a) and (l) are satisfied.