15 April 1999 GST/HST Ruling HQR0001507 - Services Supplied to Unregistered Non-resident

Dear XXXXX

I refer to XXXXX  letter dated October 20, 1998, addressed to XXXXX and our telephone conversation on January 7, 1999, concerning the tax status for GST/HST purposes of services supplied by your firm's client, XXXXX  XXXXX[.]

Statement of Facts

The following facts have been obtained from previous correspondence between the Department and your firm and between the XXXXX[.]

1. XXXXX[.]

2. XXXXX is a XXXXX[.]

3. On May 1, 1995, XXXXX for its XXXXX operations XXXXX entered into an agreement with XXXXX, an unregistered non-resident, to promote and market information programs in Canada. Section 3.1 of the agreement states that XXXXX Canada will:

•   use its best endeavours to advertise and promote the information programs subject, however, to the specific prior approval in writing in all cases of XXXXX the form, manner, extent and wording of such advertising and promotion and shall be responsible for all expenses incurred for such advertising and promotion;

•   give to XXXXX all information which XXXXX may reasonably require in respect of the promotion of the information programs; and

•   conduct all promotional activities in accordance with the highest business standards and not perform any act which will or may affect adversely upon the business integrity or goodwill of XXXXX or the image or reputation of the managed service bureau telecommunications facilities operated by XXXXX[.]

4. Section 4.1 of the agreement states that XXXXX will be paid for its services based on the usage per minute of the information programs by the callers based on the rates specified in Schedule I to the agreement.

5. The programs offer a variety of information, including dental health, eye care, cosmetic surgery, horse race results, cooking recipes, local XXXXX events, weather reports, ghost stories XXXXX[,] etc.

6. Callers from Canada access the information over the telecommunications network of XXXXX whose principal activities are the provision of telecommunications services.

7. XXXXX operates XXXXX facilities which enable callers from designated countries outside XXXXX to access information over the telecommunications network of XXXXX offers the information programs through the XXXXX facilities and earns its revenue from the international carrier responsible for the transmission of the (last "leg" of the) call into XXXXX[.]

8. XXXXX has marketed and promoted XXXXX information service through advertisements that have appeared in newspapers, direct mailings, television and radio.

9. The information programs are offered as part of XXXXX long distance telecommunications services. For example, the brochure dealing with XXXXX "XXXXX for its customers. These numbers allow the XXXXX customers to access XXXXX information programs offered by XXXXX[.]

10. There is no separate charge to the caller for accessing the information programs. Rather, the caller will incur the normal long distance charges (which may be 0¢ per minute) through its long distance service provider which, in this case, is XXXXX[.]

11. On November 28, 1997, a GST application ruling was issued to your firm's client by the XXXXX XXXXX[.]  The ruling stated that XXXXX is making a taxable supply of a promotional or marketing service to XXXXX[.]  The ruling further stated that this supply does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 7 to the Excise Tax Act (Act) but is subject to the GST at 7%.

12. On September 25, 1998, the XXXXX XXXXX[.]  Revenue Canada issued a ruling to your firm stating that XXXXX is making a supply of an information service (rather than a supply of a promotional or marketing service) to XXXXX and that this supply is subject to the GST at 7%. The ruling also stated that the service supplied by XXXXX does not qualify for zero-rating under Schedule VI to the Act.

Rulings Requested

A. The service supplied to XXXXX by XXXXX is zero-rated under the provisions of Schedule VI, Part V, section 5 to the Act.

B. The service supplied to XXXXX by XXXXX is zero-rated under the provisions of Schedule VI, Part V, section 7.

C.The service supplied to XXXXX by XXXXX  is zero-rated under the provisions of Schedule VI, Part V, section 8 to the Act.

Rulings Given

Based on the facts set out above, the following rulings are provided:

A. The promotion and marketing service (i.e., advertising service), as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX, does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 5.

B. For the period May 1, 1995, to June 30, 1996, the advertising service, as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 7. However, effective July 1, 1996, the supply of the advertising service qualifies for zero-rating under the provisions of Schedule VI, Part V, section 7.

C. The advertising service, as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX qualifies for zero-rating under the provisions of Schedule VI, Part V, section 8.

These rulings are 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 these rulings provided that none of the above issues is currently under objection or appeal, that there are no relevant changes in the future to the Act or to departmental interpretative policy, and that you have fully described all necessary facts and transactions for which you requested a ruling.

A copy of this letter is being forwarded to Mr. XXXXX for his information.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Garry L. Ryhorchuk
Technical Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate