26 March 2001 GST/HST Interpretation 25959 - The Supply of Access to a Web Site

Dear XXXXX:

Thank you for your letter of January 28, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of a non-exclusive, nontransferable, limited licence to access information stored on a web site. Your request has been transferred from the XXXXX Technical Interpretation Services Centre to the Border Issues Unit of the General Operations and Border Issues Division of the Excise and GST/HST Rulings Directorate for response.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the supply described in your letter.

The following information was taken from your letter, our subsequent telephone conversations and your web site (XXXXX ):

•   XXXXX. (CANCO) is a Canadian resident company, registered for GST/HST purposes with business number: XXXXX. CANCO is in the business of supplying a limited licence to access industry specific information stored on its web site. To gain access to the web site, the Client must have their own connection to the Internet. CANCO provides the Client with a username and password that the Client may use to access certain web pages on XXXXX.

•   The Client receives access to over 17 reports, studies and databases that are focused specifically on the XXXXX industry. The web site is organized around the following XXXXX sections: Industry Profile, XXXXX, and Subscriber Services.

•   The web site is designed for use by both XXXXX service providers and XXXXX, and provides expert, reliable, unbiased information on the Canadian XXXXX industry.

•   Based on the XXXXX Subscriber Agreement (the "Agreement"), CANCO supplies the following:

1. The Client is granted a nonexclusive, nontransferable, limited licence to access, for its private use, the information contained within specified modules of XXXXX.

2. The right to electronically display the materials retrieved from specified modules of XXXXX by no more than one person at a time (unless the Client has paid for additional users of XXXXX).

3. The right to obtain a single printout of the materials retrieved from specified modules of XXXXX via printing commands contained within XXXXX and to create a single printout of the materials downloaded via downloading commands contained within XXXXX.

4. The right to retrieve via downloading commands within XXXXX and store in machine-readable form, primarily for one person's exclusive use, a single copy of insubstantial portions of those materials included in any individual module of XXXXX to which the Client is permitted access pursuant to the terms of the Agreement.

5. The right to make an insubstantial number of copies of the printouts referred to above strictly for the purposes of internal management use.

6. XXXXX of the Agreement states the following: in consideration of the granting of the License, the Client shall pay annually to CANCO the fees set out in XXXXX to the agreement. The subscriber fee is payable prior to the Client being permitted access to XXXXX and is non-refundable.

7. XXXXX of the Agreement states that only the Client's employees who are authorized users may access XXXXX. Each person authorized by the Client to access XXXXX will be assigned a unique password and user identification number by CANCO. The Client shall be responsible for the security of all account numbers, passwords and user identification numbers. The Client shall pay a fee for each additional user who is authorized to access XXXXX. This fee is set out in XXXXX to the Agreement.

8. XXXXX to the Agreement provides access rate information based on the type of business the Client is engaged in along with the dollar volume of gross revenues. This schedule also specifically states that the Client shall pay a fee equal to XXXXX of their total single user access fees for each additional user password to XXXXX for all annual or one month access packages.

•   All right, title and interest (including all copyrights and other intellectual property rights) in XXXXX and the material contained in XXXXX (in both print and machine-readable forms) belong to CANCO or its third party suppliers of material. The Client expressly acknowledges and agrees that it will acquire no proprietary interest in XXXXX the material contained within XXXXX, and any copies of the foregoing.

•   All the work associated with the population and ongoing maintenance/operation of the site is performed in Canada (including hosting).

Interpretation Requested

Is the supply by CANCO of a nonexclusive, nontransferable, limited licence to access, for its private use, the information contained on CANCO's web site (XXXXX) zero-rated (taxed at 0%) when supplied to a person who is not resident in Canada?

Interpretation Given

A taxable supply made in Canada is generally subject to GST/HST at the rate of 7% (15% when made in a participating province; Nova Scotia, New Brunswick or Newfoundland) of the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%).

The supply of a nonexclusive, nontransferable, limited licence to access information stored on a web site is considered to be a supply of intangible personal property (IPP) for purposes of the Excise Tax Act (the "Act").

A supply of IPP is deemed to be made in Canada pursuant to paragraph 142(1)(c) of the Act if the IPP may be used in whole or in part in Canada. Conversely, where the IPP may not be used in Canada the supply is deemed to be made outside Canada pursuant to paragraph 142(2)(g) of the Act. A supply made outside Canada is not subject to GST/HST.

With respect to the supply in question, there does not appear to be any restrictions regarding where the IPP may be used. Where there are no restrictions, it will always be the case that the IPP may be used in Canada. Consequently, the supply is subject to GST/HST at the rate of 7% (15% when made in a participating province) of the value of the consideration for the supply unless it is zero-rated.

Section 10 of Part V of Schedule VI to the Act is the only relevant zero-rating provision for a supply of IPP made in Canada to a non-resident person. Section 10 zero-rates a supply of a copyright or other intellectual property or any right, licence or privilege to use any such property, provided the recipient is not resident in Canada and is not registered for GST/HST purposes at the time the supply is made. For example, a supply of a copyright to information may be zero-rated pursuant to section 10 of Part V of Schedule VI to the Act. The supply under consideration does not appear to qualify for zero-rating under section 10 of Part V of Schedule VI to the Act.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the 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 CCRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8812.

Yours truly,

Jeffrey Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate