Visa Does Not Supply GST/HST Exempt 'Financial Services', Tax Court Rules In A Landmark Decision

The Tax Court of Canada has dismissed a Canadian bank's (the "Bank") appeal in connection with GST/HST rebates for tax paid in error that were claimed by the Bank.1 The Court found that the transaction processing services provided by Visa Canada ("Visa") for the credit cards issued by the Bank were in respect of a taxable supply and that the GST/HST was therefore correctly charged. Background

As part of its retail banking business, the Bank issues Visa-branded credit cards to its customers. Customers are granted credit by the Bank so as to facilitate the payment system managed and operated by Visa.

Visa develops, operates, manages, and promotes a proprietary global retail electronic payments network. Its participants, including the Bank, use its Visa-branded payment instruments and are charged fees by Visa pursuant to a services agreement. Indeed, it was precisely the fees charged to the Bank by Visa, in exchange for the bundle of rights and services supplied to the Bank by Visa (the "Visa Supply"), that formed the subject of this case.

Between September 1 and November 30, 2013, the Bank paid to Visa amounts as GST/HST calculated on the fees invoiced for the Visa Supply. The Bank then filed tax rebate claims under section 261 of the Excise Tax Act ("ETA") on the basis that the Visa Supply constituted a GST/HST exempt supply for a "financial service", as defined in subsection 123(1) of the ETA. In other words, the Bank argued that it paid taxes in error and was entitled to a rebate. All of its rebate claims were denied by the Canada Revenue Agency, whose decision prompted the Bank's appeal.

THE ISSUE

The issue in this case was whether the Visa Supply constituted a taxable or an exempt supply for the purposes of the ETA, specifically whether the Visa Supply meets the definition of "financial service" under subsection 123(1) of the ETA without being subject to the exclusionary paragraphs in such definition.

Generally, under the ETA, a supply is a financial service (and is therefore exempt) if it is described within any of paragraphs (a) to (m) of the definition (the "Inclusions"). However, if such supply also falls within any of the exclusions in paragraphs (n) to (t) of the definition (the "Exclusions"), it is not a financial service (and is therefore taxable).

THE RULING

The Court first summarized the legislative landscape relating to the foregoing question. Under the ETA, GST/HST is imposed on the recipient of a "taxable supply", which is...