Federal Court Of Appeal Decides That Visa Services To CIBC Are Exempt Financial Services, Not Administrative Services For GST/HST Purposes

• Published date: 26 January 2021
• Subject Matter: Finance and Banking, Tax, Financial Services, Sales Taxes: VAT, GST
• Law Firm: Osler, Hoskin & Harcourt LLP
• Author: Mr Alan Kenigsberg, Al-Nawaz Nanji, D'Arcy Schieman and Roger Smith

On January 22, 2021 the Federal Court of Appeal (FCA) released its reasons in Canadian Imperial Bank of Commerce v. The Queen, 2021 FCA 10, overturning the decision of the Tax Court of Canada (the "TCC") and finding that services provided by Visa to CIBC were exempt from the GST/HST as financial services. The decision has important implications for what constitutes an exempt financial service under the Excise Tax Act, especially as this definition applies to issuers of credit cards.

The facts

CIBC, an issuer of Visa credit cards, sought rebates for tax paid in error on fees it paid to Visa for the supply CIBC received as a participant in the Visa payment system. CIBC sought these rebates on the basis that the supply that it received from Visa was an exempt supply of a financial service. The Minister of National Revenue denied the rebate claims.

In a typical transaction under the Visa payment system, a cardholder presents a Visa card to a merchant for payment, the merchant transmits an authorization request to an acquirer, the acquirer transmits the request to Visa, and Visa transmits the request to the card issuer (CIBC). The authorization process is nearly instantaneous. The system also provides for settlement of amounts owing by CIBC to Visa, Visa to the acquirer, and the acquirer to the merchant (net of interchange fees and chargebacks) on a daily basis. Visa provides a dispute resolution mechanism and also indemnifies its customers and cardholders against a variety of risks.

The TCC found that Visa's services "form an essential part of the ability for CIBC to offer credit card based services to their clients," and that they "[give] CIBC customers the ability to purchase goods and services anywhere in the world without CIBC having to individually contact each merchant to set up payment arrangements with them."

The TCC then characterized the supply as "the facilitation of the transactions between CIBC, CIBC customers, merchant acquirers and participating merchants," or "the providing of a payment platform and facilitating payments on that platform." As a result, the TCC concluded that paragraphs (a) and (l) or paragraph (i) of the definition of "financial service" applied.

However, the TCC also characterized the supply as "quintessentially administrative in nature" because "the benefit that Visa offered CIBC was cost saving and logistical simplification". As a result, the TCC concluded that the supply was excluded by paragraph (t) of the definition of...