TEI comments on possible GST/HST registration requirements.

• Position: Tax Executives Institute, goods and services tax/harmonized sales tax - Canada

On June 27, TEI submitted a letter to the Canadian Department of Finance observing that requiring foreign e-commerce suppliers to register with Canadian Revenue Authority and collect GST/HST on sales to final consumers would restore neutrality to the Canadian sales tax system and mitigate the pricing difference resulting from the ineffectiveness of self-assessment of the tax. The Institute's comments went on to discuss several areas to be addressed if a mandatory registration system for foreign e-commerce providers is created. The letter was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Robert J. Smith of McKesson Canada. Contributing substantially to the development of TEI's comments were Dan Karvonen of Bell Canada, and Richard Taylor of Rogers Communications Inc. Daniel B. De Jong of the Institute's legal staff coordinated the development of the Institute's comments.

On February 11, 2014, the Government through the Federal Budget invited "input from stakeholders on what actions Canada should take to ensure the effective collection of sales tax on e-commerce sales to residents of Canada by foreign-based vendors. For example, should Canada adopt the approach taken in some other countries (such as in South Africa and the European Union) and require foreign-based vendors to register with the Canada Revenue Agency ("CRA") and charge the Goods and Services Tax/ Harmonized Sales Tax ("GST/ HST") if they make e-commerce sales to residents of Canada?" Tax Executives Institute, Inc. ("TEI" or "the Institute") commends the Government for recognizing the importance of the growing digital economy and the difficult issues that arise in the application of sales tax rules to cross-border e-commerce. TEI is pleased to participate in this effort by providing the comments contained in this letter. We would also be pleased to meet with you to discuss our comments.

Background on Tax Executives Institute

TEI is the preeminent international association of in-house tax professionals worldwide. The Institute's nearly 7,000 professionals manage the tax affairs of more than 3,000 of the leading companies across all industry sectors in North America, Europe, and Asia. Canadians constitute approximately fifteen-percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Vancouver, and Toronto (which is TEI's largest chapter). TEI members must contend daily with the planning and compliance aspects of Canada's business tax laws.

Many TEI members (including those in Europe and Asia) work for companies involved in the sale, distribution, and purchase of digital products and services on a global basis. Those members, and those of other businesses, constantly monitor sales tax and value-added tax ("VAT") developments around the world. TEI espouses organizational values and goals that include integrity, effectiveness and efficiency, and dedication to improving the tax system for the benefit of taxpayers and tax administrators alike. The comments set forth in this letter reflect the views of TEI as a whole, but more particularly those of our Canadian constituency.

TEI Comments

The growth of "[t]he digital economy has increasingly allowed the delivery of services by businesses from a remote location to consumers around the world without any direct or indirect physical presence of the supplier in the consumer's jurisdiction." (1) Remote sales of digital services and intangibles place new pressures on national and sub-national VAT and sales tax systems that have traditionally relied on physically present sellers to act as tax collectors. For business-to-business ("B2B") transactions, purchasers buying from foreign, non-registered sellers self-assess the tax where required through the normal filing of their returns. In the equivalent business-to-final-consumer ("B2C") transaction, the final consumer must self-report and pay the tax. In practice, however, compliance by consumers in the B2C context rarely occurs.

One of the pillars of a properly functioning international VAT / GST system is the neutrality principle, which stands for the proposition that businesses should not bear the burden of the tax. Instead...