28 July 2000 GST/HST Interpretation 31558 - GST Status of Services Provided to Non-residents

Dear Sirs:

Thank you for your letter of May 25, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the services that one of your clients intends to supply in Canada on behalf of non-residents.

Facts

You advised that your client is a consulting firm that provides expert opinions to their customers world-wide in the very technical area of tubular products, fabricated structures, industrial goods and other equipment. Your client's business includes the visual inspection of quality control procedures and visual inspection of product testing procedures. They also provide the service of expediting the export of supplies of this type from the point of manufacture to their eventual destination.

Your client intends on conducting business in Canada in the near future and most of your client's customers will be non-residents of Canada who will be acquiring goods manufactured in Canada. These customers will not take possession of the goods until they are exported out of Canada and therefore they will not pay GST because the supply will be deemed to be made outside Canada pursuant to paragraph 142(2)(a) of the Excise Tax Act (the Act).

Interpretation Requested

Whether the service your client intends to provide in Canada to their non-resident customers would be zero-rated pursuant to either section 5 of Part V of Schedule VI to the Act as a service of arranging for, procuring or soliciting orders for supplies to a non-resident person, or section 23 of Part V of Schedule VI to the Act as consulting service made to a non-resident person.

Interpretation Given

Section 5 of Part V of Schedule VI to the Act zero-rates a supply made to a non-resident person of a service of acting as an agent of the person or of arranging for, procuring or soliciting orders for supplies by or to the person, where the service is in respect of (a) a supply to the person that qualifies as a zero-rated export or (b) a supply made outside Canada by or to the non-resident person. Generally only the marketing/solicitation function (obtain orders, initiate purchases) performed by purchasing or sales representatives would be zero-rated under this section.

Whether a person is arranging for, procuring or soliciting orders for supplies on behalf of another person is a question of fact. The description, in the agreements, of the services to be performed and the actions of the parties will determine if a supply of a service to a non-resident is zero-rated under section 5 of Part V of Schedule VI to the Act.

Section 23 of Part V of Schedule VI to the Act zero-rates a supply of an advisory, professional or consulting service made to a non-resident person but excludes a supply of a service enumerated in paragraphs (a) to (d) of that section. Specifically, a service in respect of tangible personal property that is situated in Canada at the time the service is performed is excluded from the zero-rating provision by paragraph 23(c) of Part V of Schedule VI to the Act. For the purposes of paragraph 23(c), our administrative position is that the service is in respect of tangible personal property if there is more than a mere indirect or incidental nexus or connection between the service and the underlying tangible personal property.

Once again, whether the relationship between the service and the property is sufficiently direct for the service to be considered to be in respect of the property, and therefore excluded from zero-rating, will depend on the particular circumstances of each case.

Generally, a service of inspecting quality control procedures or product testing procedures would not be excluded from zero-rating provided such services are not in relation to a specific property.

If you wish us to provide a more definite ruling as to whether the services to be provided by your client would fall within the zero-rating provisions of either section 5 or 23 of Part V of Schedule VI to the Act, please send us a sample of a typical agreement between your client and their customers describing the type of service to be supplied by your client.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4291.

Yours truly,

B. Mulinda
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate