CRA finds that a non-resident pharmaceutical company engaged in contract manufacturing in Canada was not carrying on business in Canada

A non-resident pharmaceutical corporation (“NonResCo”) agreed with an indirect Canadian subsidiary (“CanCo”) that CanCo would devote approximately 10% of its Canadian premises to the manufacturing of pharmaceutical products for NonResCo using equipment and materials provided to it by NonResCo at no charge, with the finished products shipped to NonResCo for sale by it. In addition, NonResCo agreed to a “Technology Transfer”, primarily in order to assist CanCo in getting into production. NonResCo further agreed to provide “Business and Management Services” to CanCo for a fee. Such services were performed almost entirely in the foreign country, but NonResCo employees would occasionally travel to Canada to provide the services in person.

In finding that the provision of the Business and Management Services and CanCo’s involvement (as described above) in CanCo’s pharmaceutical manufacturing (the “Pharmaceutical Manufacturing Business”) constituted two separate businesses, CRA stated:

Manufacturing pharmaceutical products involves specialized know-how and techniques to manufacture products at precise specifications, whereas Business and Management Services could apply to a wider scope of businesses that have corporate tasks to complete including those of a financial or administrative nature. …[T]here is not a sufficient connection between the two business activities to say they are one business.

In finding that the Business and Management Services business was not carried on in Canada, CRA stated:

… NonResCo’s physical presence in Canada providing Business and Management Services is not substantial, so it is not a business that is carried on in Canada by NonResCo.

In also finding that NonResCo did not have a substantial presence in Canada regarding the Pharmaceutical Manufacturing Business, it stated:

The Equipment is not at the disposal of NonResCo – possession and control of the Equipment has passed to CanCo. It is CanCo whose business benefits from the revenues earned from manufacturing, and CanCo is the entity that carries out the day to day operations of the Equipment. …

NonResCo does not have a long term physical presence that is conducting some substantial aspect of their business in Canada. Once the “Technology Transfer” is complete, NonResCo has a very limited physical presence in Canada for the Pharmaceutical Manufacturing Business at all, as the Equipment is at the disposal of CanCo.

Accordingly, NonResCo was not required to register for regular GST/HST purposes and (based on a similar analysis) could not voluntarily register.

Neal Armstrong. Summary of 29 April 2025 GST/HST Interpretation 247054 under ETA s. 240(1).