Words and Phrases - "granting of credit"
Royal Bank of Canada v. The King, 2024 TCC 125
When cardholders of credit cards issued by the appellant (RBC) used their cards for purchases from a foreign merchant, RBC would earn an “interchange fee” from the foreign bank (or other “merchant acquirer”) of the foreign merchant for accepting the charge. Upon such acceptance, the cardholder discharged their purchase obligation to the merchant, RBC advanced the amount charged (less its interchange fee) to the merchant acquirer for crediting to the merchant’s account, and RBC would then request payment of the balance from the cardholder at the end of the applicable billing cycle.
Smith J rejected the Crown position that such interchange financial services supplied by RBC to the non-resident merchant acquirer (found at para. 87 to be the recipient) were not zero-rated under Sched. VI, Pt. IX, s. 1 by virtue of the exclusion in para. 1(a) thereof for a “service [that] relates to (a) a debt that arises from … (ii) the lending of money that is primarily for use in Canada”. He found (at para. 76) that “the phrase ‘relate to’ should be narrowly construed as a broad interpretation of the carve-outs would defeat the policy objectives”. He noted that, in contrast to para. (g) of the financial service definition, which referred to “the making of any advance, the granting of any credit or the lending of money”, the carve-out in subpara. 1(a)(ii) referred only to the “lending of money”. He then stated (at paras. 79, 81-84):
[T]he jurisprudence has recognized a clear distinction between the granting of credit and the lending of money. …
Dahl … v. Royal Bank of Canada, 2005 BCSC 126 … affirmed in 2006 CBCA 369 … noted that because the “cardholder is permitted to defer payment of the debt, credit is advanced on the date of the purchase or service” and “this deferral of debt results in an extension of credit” …
[U]nlike a loan, “such credit is not initially paid out to the debtor in the form of money.” …
As indicated in Dahl … “the cardholder’s liability to the merchant is discharged by the merchant’s acceptance of the credit card” and “the Bank becomes liable to the merchant, and the cardholder becomes liable to the Bank.”
I thus agree with the Appellant that “when a cardholder uses a credit card to purchase goods or services, there is no transfer of money from the credit card issuer to the cardholder” and therefore there is no loan that arises from the lending of money.
Accordingly, the foreign interchange fees were zero-rated, and it was not necessary to determine whether funds were relevantly used in Canada.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 165 - Subsection 165(1.11) | issue should be stated "reasonably" | 131 |
| Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(21) | pre-approval of method for allocating inputs between foreign and domestic supplies did not stop CRA from assessing to deny zero-rating of the foreign supplies | 202 |
| Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(31) - Paragraph 141.02(31)(f) | s. 141.02(31)(f) is merely confirmatory of normal taxpayer onus | 98 |
| Tax Topics - Excise Tax Act - Section 141.02 - Subsection 141.02(1) - Direct Input | expenses of redeeming credit card loyalty points were inextricably linked to the issuer’s extension of credit, and only remotely linked to its earning zero-rated interchange fees | 368 |
| Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) | expenses of redeeming credit card loyalty points were an integral component of the issuer’s extension of credit, and not sufficiently connected to earning interchange fees | 181 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient | merchant acquirer was the recipient of credit card interchange services even though it was a conduit to the merchant | 91 |
| Tax Topics - Statutory Interpretation - Exclusionary provisions | exclusionary provisions should be narrowly construed | 267 |
| Tax Topics - Excise Tax Act - Section 301 - Subsection 301(1.2) - Paragraph 301(1.2)(a) | taxpayer not precluded from raising an argument that the Minister was bound by an ITC method that it had described in detail in its pleadings | 175 |
Vega International Car Transport and Logistic — Trading GmbH v. Dyrektor Izby Skarbowej w Warszawie, ECLI:EU:C:2019:412 (European Court of Justice, 8th Chamber)
The business of the subsidiaries of Vega International included the transport of commercial vehicles from the manufacturer to customer. International provided fuel cards to its subsidiaries which drivers used to purchase fuel, with International charging the subsidiaries on a monthly basis for the cost of the fuel plus a 2% surcharge.
In finding that International was not purchasing fuel and on-supplying the fuel to its subsidiaries, and instead was supplying credit to its subsidiaries (in this reference, its Polish subsidiary), the Court stated (at paras. 36, 44, 48):
Vega International does not dispose of the fuel in respect of the purchase of which it seeks reimbursement of VAT as if it were the owner. That fuel is purchased by Vega Poland directly from the suppliers and at its sole discretion. Accordingly, Vega Poland decides on, in particular, the fuel purchasing arrangements in so far as it may choose, from among the service stations of the suppliers indicated by Vega International, which service station to refuel at and may freely decide on the quality, quantity and type of fuel, as well as when to purchase and how to use it … .
[T]he expression ‘the granting and the negotiation of credit’ used in [the VAT] provision ... must be interpreted broadly, so that its scope cannot be limited only to loans and credit granted by banking and financial institutions … .
[B]y applying that surcharge of 2% to Vega Poland, Vega International receives a payment for the service provided to its Polish subsidiary. Vega International thus provides a financial service to Vega Poland by financing in advance the purchase of fuel and therefore acts, for that purpose, in the same way as an ordinary financial or credit institution.