GST/HST Place of Supply for Services

Coincident with the 2010 implementation of the HST in Ontario and British Columbia, the place-of-supply (POS) rules, which govern whether GST or HST applies on the supply of property or services, were revamped. In particular, the POS rules that govern the supply of intangible personal property and services were modified to focus more on the place of consumption and not the vendor's location, thus bringing the rules in line with one of the founding principles of a value-added tax. The June 2010 Technical Information Bulletin (TIB) B-103 contained various helpful examples that illustrated the changes, but many interpretive issues remained. The redraft of the bulletin, "Harmonized Sales Tax--Place of Supply Rules for Determining Whether a Supply Is Made in a Province"--was released in June 2012 for public comment and incorporates many new examples that answer some questions that were left hanging. The TIB redraft does not introduce new rules or significant new concepts, but its examples may be useful to taxpayers and practitioners who are struggling to understand the POS rules in the context of specific transactions.

A number of POS rules target specific services such as transportation, customs brokerage, telecommunications, and repair and maintenance. Other rules that encompass services in relation to real or tangible property apply if a sufficiently direct connection exists between the service and the underlying property. For example, the TIB redraft delineates a sales agent whose services do not "relate to a particular good that is known . . . to be situated at a particular location, but rather [consist] of the selling" of a generic good. Because the connection to specific identifiable goods is not sufficiently direct, the CRA is of the view that the POS rule for services in relation to tangible property is not relevant: instead, the general services rule (discussed below) applies.

If no specific rule fits the circumstances, the default rule is the general services rule, which focuses primarily on the address of the recipient--the person liable to pay for the service--as a proxy for the place of consumption. The general services rule establishes the POS and rate of tax by reliance in the first instance on the Canadian home or business address of the recipient that is obtained by the vendor in the ordinary course of business. The TIB redraft reiterates that such an address is relevant only if it is obtained in connection with the supply, but it does not have to be the address that is determined for every supply made to the recipient: thus, the relevant rule can vary from supply to supply. Notably, the CRA states that it must be reasonable for the supplier to be able to conclude, on the basis of information available to it or provided to it by the recipient, that a valid business address has been obtained. However, the redraft reaffirms that the supplier is not required to verify the validity or appropriateness of the address.

If more than one address is obtained, the POS is based on the one address that is most closely connected with the supply, as represented--in decreasing order of preference--by the contracting address, the address that the supplier has the most contact with, and the billing address. This hierarchy of addresses has led to a number of unresolved interpretive issues, including the question of which contracting address should be used when both a master services agreement and a statement of work or a purchase order (PO) exist, as is often the case. The TIB redraft sheds light on this question by citing the example of a recipient, headquartered in Ontario, that contracts with a consultant under a global framework agreement (GFA). The GFA incorporates definitions, the extent of the parties' liabilities, confidentiality obligations, performance standards, dispute resolution, and payment terms between the contracting parties. The GFA does not constitute an agreement for the supply of any specific services and does not impose an obligation on either party for future supplies: each regional office issues a PO for specific services under the GFA umbrella. The redraft concludes that the most closely connected business address is the one associated with the PO and not with the GFA, presumably because the PO-connected address is the locus of the actual supply, whereas the GFA-connected address is merely the locus of an agreement that establishes the relationship's ground rules in the event that a supply is made.

If there is no Canadian home or business address, the default POS is the place where the service is performed. The CRA interprets this POS to potentially include the location from which a person physically performs the work or the location of the supplier's equipment that is used to supply the service; the location where a report is prepared; and the location of a customer's property if the vendor can remotely access it to provide electronic services. Under the CRA's expanded interpretation, each supply must be analyzed to pinpoint the various locations where elements of the supply are performed before the predominant location can be determined.

Audrey Diamant
PricewaterhouseCoopers LLP, Toronto

Canadian Tax HighlightsVolume 20, Number 8, August 2012
©2012, Canadian Tax Foundation