Nestlé Canada Inc. v. The Queen (March 17, 2017 – 2017 TCC 33, Lamarre A.C.J.).
Précis: The taxpayer claimed ITCs for GST/HST purposes on what it termed “instant rebate coupons” for its products sold at Costco. The problem was that it did not issue any coupons, either in paper form or in electronic form. Costco just automatically applied a discount to the products when they were purchased. CRA denied the ITCs on the basis that the discount was not a coupon but a promotional allowance under section 232.1 of the Excise Tax Act. The taxpayer appealed. Associate Chief Justice Lamarre reached the somewhat inevitable conclusion that without coupons the taxpayer had no case. The appeal was dismissed with costs.
Decision: The facts were straightforward:
6. In carrying on its business during the period May 2006 to October 2008 (the “relevant period”), the Appellant offered paper coupons (the “Paper Coupons”) that provided consumers with a fixed dollar discount on the purchase price of Nestlé Products, when the coupons are accepted by a retailer. The Paper Coupons could be: (a) mailed directly to consumers, (b) placed on the product shelf for all customers purchasing the products to pick up, (c) provided to customers at the entrance of a Costco warehouse or, (d) kept at the store cashier. In the latter case, at the time of check‑out, the cashier would either clip the coupon for the purchaser or scan the barcode on the Paper Coupon.
7. During the relevant period, the Appellant also offered another type of fixed dollar discount in respect of the Nestlé Products sold at Costco for which a Paper Coupon was neither: (a) mailed directly to consumers, (b) placed on the product shelf for all customers purchasing the products to pick up, (c) kept at the store cashier. This type of promotion was named “IRC” which stood for “instant rebate coupons” in Nestlé’s contracts with Costco (the “IRC”). The acronym “IRC” and the terms “promotion” and “instant rebate coupons” are used neutrally in this partial agreed statement of fact without admissions by either party as to whether the transaction is a “coupon”, “promotional allowance” or a “rebate”.
8. The IRCs provided purchasers with a fixed dollar discount on the purchase price of taxable Nestlé Products.
9. In the Costco warehouse, on the product shelf to which the IRC applied, an 8 ½” x 14” on‑the‑shelf sign card clearly indicated the purchase price of the Nestlé Product, the product’s and/or Costco’s barcode for the Nestlé Product, the amount of the fixed dollar discount provided for by the IRC, the amount the purchaser would have to pay at the register after application of the discount and a notification that the applicable taxes would be applied before the amount of the discount was applied. When an IRC program is run, sales of the associated Nestlé Products significantly increased.
10. A list of all the IRCs offered, during the relevant period, is attached with true copies, hereto as Exhibit “B”. In addition, Exhibit “B” lists the Paper Coupons identified in handwriting with “-P” as well as Halloween promotions identified in hand writing with “WC HALLOWEEN” that were offered during the relevant period.
11. Costco’s computer system linked the IRCs to the applicable Nestlé Product such that when the barcode on the Nestlé Products being purchased was scanned at the cash register, the fixed dollar value of the IRC was accessed from Costco’s central database and was automatically applied; whether the customer requested the discount or not.
12. The Costco Membership Card itself did not contain any information about the specific IRC physically, electronically or otherwise.
The law was similarly straightforward:
 According to the interpretation of section 181 set out in the Tele-Mobile case, Parliament requires the customer to tender some kind of coupon as a bright‑line condition that must be met before the provider of the coupon can obtain the benefit of an input tax credit for the excess GST/HST paid by the customer. If this requirement is not met, the transaction will fall under the promotional allowances regime, which constitutes a residual category.
The Court rejected the taxpayer’s somewhat tired argument that the result was a windfall to the fisc:
 I accordingly conclude that the IRCs were promotional allowances, not coupons. Nestlé will therefore not be able to claim ITCs on the IRCs and the customer will not recover the tax overpaid. In a promotional allowance context, GST/HST should have been collected only on the post‑discount price. In that context, I realize that the Minister has received a windfall. C. Miller J. of the Tax Court addressed that issue in Tele‑Mobile, stating (at para. 30) that, although he was troubled by the windfall, it did not justify “torturing the language” of the statute:
. . . I am troubled by the result that the Government may have got a windfall in this situation. But the purpose is not met by torturing the language to, as one of my favourite expressions puts it, fit a round peg into a square hole: TELUS cannot make the square hole big enough. S.181 of the ETA is a recognition that while tax is collectible on the price charged by a vendor for a service or supply, if that price is partially covered by the vendor, it would be unreasonable to consider that portion as part of the value of the consideration from the recipient for the supply: but only if the Registrant plays by the rules and can point to a coupon or device. I suggest the Registrant, in this case, is attempting to bend the rules to overcome a result brought on by itself by establishing a program without due consideration of GST ramifications.
As a result the appeal was dismissed with costs to the Crown.