6 August 2004 GST/HST Interpretation 50921 - Legal services provided to a non-resident

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX (Registrant) is registered with the XXXXX as a Retailer of energy in the province of XXXXX.

2. The Registrant enters into a contract for differences (CFD) with an End-User whereby the End-User agrees to pay a fixed price and the Registrant agrees to pay a floating price.

3. The local distribution company (the Utility) supplies the energy to the End-User. The End-User pays the Utility for energy consumed at the spot market price. The Utility charges GST to the End-User on the supply of energy.

4. The Registrant then issues a monthly invoice to the End-User by the XXXXXth day after the contract month ends. The amount to be invoiced to the End-User is calculated as follows (as per telephone conversation with XXXXX):

CFD = (XXXXX) x (Contract Price - XXXXX)

Where: XXXXX = Average monthly XXXXX energy price as defined and posted by the XXXXX.

5. Where the amount of the CFD is positive, it is payable by the Registrant to the End-User; where the amount is negative, it is payable by the End-User to the Registrant. As a result, the End-User only pays the fixed rate for energy as agreed to in the CFD.

Ruling Requested

Should the Registrant's invoices to the End-User include GST?

Ruling Given

Based on the facts set out above, we rule that the Registrant is making an exempt supply of a financial service and is not required to charge GST.

The contract described above is an energy price swap, a financial contract where the counterparties exchange a series of cash flows in the future. In this case, the counterparties are the Registrant and the End-User. The End-User has agreed to pay a fixed rate for energy and the Registrant has agreed to pay a floating rate. Settlement is made on a monthly basis by the payment of money by one party to the other calculated as the difference between the fixed rate and the floating rate. The swap is a financial instrument pursuant to the definition of "financial instrument" in subsection 123(1) of the Excise Tax Act (the ETA). The payment of money in respect of a financial instrument is a financial service pursuant to the definition of "financial service" in subsection 123(1) of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9577.

Yours truly,

Marilena Guerra
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/08/31 — RITS 51583 — Interest Income/Expense Arbitrage Accounts