19 September 1994 GST/HST Interpretation 1994-09-19 - Supplies Made by an Unregistered Non-resident

Attached is a copy of a letter dated July 19, 1994 XXXXX written by XXXXX District Excise/GST Office, to the above-referenced registrant, concerning the application of the Goods and Services Tax (GST) to supplies made by an unregistered non-resident XXXXX and its Canadian branch XXXXX.

This letter has been reviewed and the following comments are provided:

Question (1)

The 2nd point on page 3 states:

"The provisions of the Act which zero-rate supplies to non-residents would not apply to the NRNR if XXXXX is considered a permanent establishment of the XXXXX"

This statement is not entirely correct. Subsection 132(2) of the Act deems a non-resident person who has a permanent establishment in Canada to be resident in Canada, but only in respect of the person's activities carried on through that establishment. Therefore, if the a supply is in respect of the non-resident's activities carried on through its establishment outside Canada, the supply may qualify for zero-rating under Schedule VI, Part V to the Act, where a requirement of the provision is that the supply is made to a non-resident. Of course, the other conditions for relief would also have to be met. For example, if the provision required that the supply be made to an unregistered non-resident, the supply could not be zero-rated where the XXXXX was registered as a result of its branch's activities in Canada. Examples of zero-rating provisions in Schedule VI, Part V, where the registration status of the non-resident is not relevant, are sections 1, 3, 4, 5, 6[,] 7, 9 and 23.

The third point made on page 3 states:

"The provisions of the Act which deem supplies made to non-residents to be made outside Canada would not apply to the XXXXX if XXXXX is considered a permanent establishment of the XXXXX"

I am not clear on the intent of this statement. If a supply is made to either the XXXXX or XXXXX, it could be deemed to be made outside Canada under the provisions of subsection 142(2) or section 144 of the Act. There is no requirement that the supply must be made to a non-resident in order for these provisions to apply. If XXXXX was referring to a supply made to the XXXXX (and not XXXXX) and the application of section 179 of the Act, the reason that this provision would not apply would be because the NRNR was registered. I suggest that the statement be clarified.

Question (2)

The last paragraph (i.e., sentence) of the response on page 4 states:

"A supply meeting the criteria outlined in paragraph 142(1)(a) of the Act would be considered for the purposes of Division II tax under Part IX of the Act.["]

This sentence is incomplete. Based on the question and the first paragraph of the response, it would appear that the sentence should actually read:

"As the terms of the delivery for the prepackaged software are either "F.O.B. Canadian plant" or F.O.B. Canadian site, paragraph 142(1)(a) deems the supplies to be made in Canada. Therefore, under subsection 165(1) of the Act, the software is subject to the GST at 7%, calculated on the value of the consideration for the supply."

Question (4)

XXXXX states that XXXXX provides to its Canadian customers an opportunity to use certain software programs housed on a computer located outside Canada. The customer accesses the programs by telephoning a computer centre located in Canada which redirects the call to a computer centre outside Canada that houses the specific programs. The Canadian customers are then billed for the access time (i.e., the amount of time the programs are in use). Although not stated in XXXXX letter, it appears that the invoice for the access time would include not only the access time to the computer centre located outside Canada, but the access time to the computer centre located in Canada.

From the information provided, it appears that XXXXX is providing an on-line computer service instead of the supply of intangible personal property. As the on-line computer service is being performed, in part, in Canada, paragraph 142(1)(g) of the Act deems the supply to be made in Canada, regardless of the registration status of XXXXX Canadian customers. As a result, subsection 165(1) of the Act provides that the supply of the on-line computer service is subject to the GST at 7%.

However, if a determination is made that XXXXX is actually providing a supply of intangible personal property, such as allowing its Canadian customers to download a specific computer program, I would agree with XXXXX response that the supply would be deemed to be made in Canada. However, it is paragraph 142(1)(c)(i) which would deem the supply to be made in Canada, and not paragraph 142(2)(c)(i), as stated by XXXXX.

If you have any questions or require further information, please contact Mr. Garry Ryhorchuk of my staff at (613) 952-6743.

H.L. Jones
Director
General Tax Policy
Excise/GST
Policy and Legislation