TEI-Department of Finance liaison meeting agenda: excise tax issues

Tax Executive, The, Nov, 1999

December 8, 1999

On December 8, 1999, Tax Executives Institute held its annual liaison meeting with the Canadian Department of Finance on pending commodity and excise tax issues. The written agenda for the meeting was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Glen S. Pye of Nortel Networks Corporation. Marlie R.M. Burtt, the Institute's Vice President-Region I, coordinated preparations for the liaison meeting.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on several pending commodity and excise tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 8, 1999, liaison meeting. If you have any questions about these comments, please do not hesitate to call either Marlie R.M. Burtt, TEI's Vice President for Canadian Affairs, at (403) 269-8736 or Glen S. Pye, chair of the Institute's Canadian Commodity Tax Committee, at (905) 863-6118.

Background

Tax Executives Institute is an international organization of more than 5,000 professionals who are responsible -- in an executive, administrative, or managerial capacity -- for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,800 of the leading corporations with 52 chapters located in Canada, the United States, and Europe.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our eight geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

Questions

1. Some taxpayers are having difficulty with the deemed financial institution rules and the resultant restriction of input tax credits. Although section 149 of the Excise Tax Act excludes interest and dividends from related corporations from the deeming provision, the exclusion is not extended to related partnerships. Will the Department of Finance consider expanding the exclusion to include interest and dividends received from related partnerships?

2. A corporation resident in Canada is a GST registrant and acts as Importer of Record for goods. The importer does not take ownership of the goods, but provides services in respect of the goods as part of its normal commercial activities. Is the importer entitled to claim back the GST paid on importation as an input tax credit, in the following circumstances:

(a) The importer provides a service of warehousing the imported goods in Canada.

(b) The importer further manufactures the imported goods and then exports them from Canada to a related party.

(c) The importer breaks the shipment into smaller parcels and then ships the goods to customers located both inside and outside of Canada.

3. Please clarify the Department of Finance's interpretation of the words "rendered to" in section 7 of Part V of Schedule VI. Is a service "rendered to" the contracting party or to the person making use of the service? The technical notes describe a supply made to a non-resident corporation but rendered to one of its employees in Canada as excluded from zero-rating. Is the rationale that the employee is considered part of the non-resident corporation -- and therefore the contracting party -- or does the example have a broader application? For example, if a Canadian GST- registered corporation provides a help desk service to a non-resident corporation, are the services rendered (i) to the non-resident corporation or (ii) to the unrelated persons (i.e., the customers of the non-resident) who may call in for assistance?

4. A Canadian resident corporation that is a GST registrant, provides managed computer operations services (also referred to as computer outsourcing services) to its customers from a location in Canada. One customer is a non-resident corporation and is not required to register for the GST. This customer has a specific piece of equipment for which it wishes to retain title. This equipment -- together with other computer equipment owned by the provider of the managed operations services -- will be used to provide the outsourcing service. If the customer ships the equipment to the GST-registered corporation, is the service to the non-resident corporation zero- rated under section 7 of Part V of Schedule VI? Or will it be excluded because the service is in respect of tangible personal property situated in Canada at the time that the service is performed? If the service is excluded from zero-rating, is section 179 of the Excise Tax Act available to relieve the supply from tax? If tax cannot be relieved under either provision, is this the correct policy result to ensure that the Canadian provider can compete effectively on a global basis?