http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/111114/index.do
Tele-Mobile Company v. The Queen (August 6, 2015 – 2015 TCC 197, C. Miller J.).
Précis: The issue in this decision was whether roaming airtime services (“RAT”) provided to Tele-Mobile customers making long distance calls from the United States to Canada were a separate supply or simply part of the supply of telephone services by Tele-Mobile. If the former, the supply would not be taxable in Canada since the supply was not “made” in Canada. If the latter, the supply would be taxable since it would be “made” in Canada.
The Court held that RAT was not a single supply separate from Tele-Mobile’s other telephone services. The telephone customer had one objective - to make a phone call. How that call is provided and billed does not change the transaction into the provision of multiple separate services.
Decision: The issue in this case was straight forward:
[9] The issue is whether GST is exigible on the RAT charges incurred on long distance calls made by a subscriber to Canada while travelling in the United States. The answer depends on whether the RAT charge is for a single supply of that telecommunication service (being the transmission from the cell phone in the United States to the MTSO) or whether that supply, to which the RAT charge relates, is part of an overall supply of telecommunication services that includes both the long distance element (being the transmission from the MTSO to the Canadian recipient of the call) and the RAT element. In other words, was Telus supplying, and the subscriber receiving, two separate supplies:
a) the transmission between the cell phone and a toll switch (MTSO) in the United States where the transmission is then transferred to a cross-border transmission; and
b) the transmission from there to the Canadian recipient of the call.
To be clear, GST was charged and collected on (b), the second supply, but not on (a) the charge for the transmission from the cell phone to the toll switch at the MTSO. It is only the latter that is in dispute.
The question was whether the RAT charge stopped at the border toll switches or formed part of one long distance supply between the United States and Canada:
[15] It is agreed that Telus has a billing location in Canada as described in subsection 142.1(1) of the Act. It is subsection 142.1(2) of the Act, however, where the dispute arises, and specifically the application of subparagraph 142.1(2)(b)(ii) of the Act. With respect to a cellular call from the United States to Canada made by a Telus customer: (i) if the telecommunication service is viewed as a single supply of the entirety of the transmission (that is from the cell phone in the United States to a phone (cell or landline) in Canada) then because it is received in Canada it is subject to GST, or (ii) if the telecommunication service is viewed as two separate telecommunication services or supplies, one being the transmission from the cell phone in the United States to the toll switch at the border for which there is a RAT charge and the other from the toll switch at the border to the Canadian recipient for which there is a long distance charge, then only the latter transmission is received in Canada and therefore considered a supply made in Canada and the RAT charge would relate to a supply neither emitted nor received in Canada and therefore not subject to GST.
The taxpayer argued that RAT was a separate supply based on five different factors:
[24] The Appellant, in presenting a review of this case law, suggests there are five criteria to be applied in the determination of whether there is a single or multiple supply:
a) Do each of the supplies have commercial efficacy?
b) Is the recipient aware of the specific elements of each of the supplies?
c) Are there separate fees for each of the supplies?
d) Are any of the supplies an optional component?
e) Are any of the supplies useful on their own?
[25] I am prepared to review the facts before me addressing each of these factors, but it is important to distinguish at the outset the difference between viewing two alleged separate supplies in context versus viewing them unattached to one another. For example, it is of no assistance to point to the pizza parlour and say that because a customer can buy pizza directly from that place, it must be a separate supply. The analysis should not be centered on a different circumstance: the circumstance in that case was the purchase of home delivered pizza. Likewise, with respect to the telecommunication service it is faulty analysis to look just at the RAT and say that because a customer can simply buy that, it must be a separate supply. No, it must be viewed in context of the end result to the recipient of the overall supply. In effect, you cannot have one without the other to achieve the result. So you cannot have pizza without delivery nor delivery without pizza for home delivered pizza. You can, however, have a ferry service without the stateroom though, as you can have health advice without the vaccination.
The Court carefully reviewed the factors advanced by the appellant but in the end adopted a very direct, common sense approach:
[37] Finally, I wish to address the Appellant’s argument that “two very distinct and separate services are being provided”. The Appellant presents the analogy of a transaction at a dry cleaner, where a customer takes in a shirt to be cleaned and to be mended, tasks completed by different subcontractors and identified and billed separately by the dry cleaner.
The Appellant argues:
124. In the example each of the cleaning and mending services has commercial efficacy on its own, the customer is aware of the separate elements, separate fees and charged for each service, either of the services is an optional component and both services are useful on their own. The mending and cleaning services are accordingly separate supplies.
125. In contrast, the opposite conclusion would arise in a situation where the customer came in to have the shirt cleaned and the dry cleaner told the customer that he would be charged $2 for cleaning solution and $8 for the cleaning service. This situation is an example of the type of artificial transaction the Courts have ruled must be considered as a single supply. (For example, the minimal quantity of cleaning solution used had no commercial efficacy on its own, and it is an integral and non-optional part of the cleaning service). In this example a single supply of a cleaning service is being rendered with an artificial separation of an integral non-optional element that does not alter the nature of the supply.
[38] This analogy does not work for me. The Telus customer is looking to Telus for one thing – the ability to phone Canada by cell phone while travelling in the United States. The ferry passenger has two distinct objectives – the transportation and the comfort of a stateroom. The dry cleaner customer has two distinct objectives – the clean shirt and the repaired shirt. The telephone customer has one objective – the phone call. How Telus provides that and charges for it does not turn it into multiple distinct and separate supplies.
[39] Appellant’s counsel has done a masterful job of gleaning tests from the case law to support her client’s position. It has not been enough though to overcome my common sense view that the interdependence of the RAT service and the long distance service is such that there is a single supply of a transmission from cell phone in the United States to recipient in Canada, and as that transmission is received in Canada it is caught by subparagraph 142.1(2)(b)(ii) of the Act.
In the result the appeal was dismissed with costs to the Crown.