Tax Court Rules That VISA's Services Are Subject To GST/HST

The Tax Court of Canada last week released a landmark decision on the GST/HST status of certain commonplace transaction processing services, namely VISA's payment platform offering to financial institutions.

In Canadian Imperial Bank of Commerce v Her Majesty the Queen, 2018 TCC 109, Chief Justice Rossiter held that the supply of services made by VISA to CIBC fell outside the financial service definition in the Excise Tax Act (Canada) (the "ETA") and therefore did not qualify as an exempt supply. VISA had correctly charged tax on its services fees.

As background, CIBC took the position that the services constituted an exempt financial service. Accordingly, CIBC applied to the CRA for a rebate for the tax it paid in error to VISA. The CRA denied the rebate and CIBC appealed.

The first issue before the Court was how to characterize VISA's services. There was no dispute that, even though VISA's services embodied different service activities and benefits, VISA made a single supply of a service. In other words, there was one transaction for GST/HST purposes, which included the following components:

Transaction processing; Licensing of the VISA brand; Payment network management; and Brand management and promotion. Having determined that there was a single supply, the next step was to establish the essential or predominant character of the supply. This would allow the supply's GST/HST status to be identified. After a substantial caselaw review, the Court ultimately characterized the supply as the provision "of a payment platform and facilitating payments on that platform".

The remaining question was whether VISA's services constituted a financial service as defined in the ETA. That definition is divided into two parts: the inclusionary paragraphs and the exclusionary paragraphs. To determine whether a service is a financial service, one first looks to see whether it is included in paragraphs (a) to (m) of the definition. If it is included, then one considers whether the service falls into any of the express exclusions listed in paragraphs (n) through (t). If it does fall into one or more of the exclusionary paragraphs, then the service is not a financial service.

Rossiter C.J. held that VISA's services fell into the inclusionary paragraphs (a), (i) and (l), but that they also fell into exclusionary paragraph (t). Paragraph (t) provides that excluded services may be prescribed by regulation, which in this case are the Financial Services and...