8 March 2018 CBA Commodity Tax Roundtable, Q.9

Company B, a registered resident, agreed to sell tangible personal property (the “Property”) to Company C, an unregistered non-resident, using the Incoterms® 2010 DAP Port of Liverpool, U.K. so that delivery and title transfer was to occur at the U.K. destination – although the parties agreed that Company C was to indemnify Company B if the Property were lost or damaged in transit. The Property is then loaded onto Company C’s vessel at the Port of Halifax and was immediately exported. CRA stated:

[I]t appears, based on the fact that Company C acquires physical possession of the Property in Canada pursuant to the terms of the agreement, that paragraph 142(2)(a) of the ETA would not apply to deem the supply to be made outside Canada. Our response … would not change if it were established that Company C’s affiliate (and not Company C itself) provided the commercial indemnity in a side agreement.

Company B, a registered resident, agreed to sell tangible personal property (the “Property”) to Company C, an unregistered non-resident, using the Incoterms® 2010 DAP Port of Liverpool, U.K. so that delivery and title transfer was to occur at the U.K. destination – although the parties agreed that Company C was to indemnify Company B if the Property were lost or damaged in transit. The Property is then loaded onto Company C’s vessel at the Port of Halifax and was immediately exported.

CRA indicated that it appeared that, because Company C acquired physical possession of the Property in Canada pursuant to the terms of the agreement, s. 142(2)(a) did not apply to deem the supply to be outside Canada. Similarly, CRA indicated that as the delivery of the Property by Company B to Company C appeared to be in Canada, zero-rating under Sched. VI, Pt. V, s. 1 also would not be available for the preceding supply of the Property by a Canadian registered vendor (Company A) to Company B.