>Following more horror stories in regards to this enforcement by the Canadian GST Ruling Department in order to force Level Extreme to charge the New Brunswick 15% HST tax to all of its international customers, considered by Level Extreme as one of worst ruling even done on a Canadian company, we have released tonight all the details.
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>http://www.levelextreme.com/News/LevelExtremeVSTheCanadianGovernment.asp
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>Thank you for your cooperation

For those interested, there is relevant information at http://www.fin.gc.ca/hst/hst4a-e.html#BASIC4 , especially the section around Example 4.21.

The crux of the matter seems to be the so-called "place of supply". From an initial reading (especially considering Example 4.21) it seems clear that the place of supply for the UT's services is at each member's location. In that case, residents of HST provinces would pay HST (15%), residents of non-HST Canadian provinces would pay just GST (7%), and foreigners would be "zero-rated" (effectively not taxed). This interpretation seems to be reinforced by the general provision that HST taxation should not impact the competitiveness of companies within the HST area with respect to other companies outside it.

However, it seems the Canada Revenue Agency (CRA) is taking the position that, since all "activity" happens on LE's servers in New Brunswick, the place of supply is New Brunswick for all members, regardless of where they actually reside worldwide. IOW, they are treating the situation as if each member (international or domestic) is travelling to New Brunswick to use the forum. That might not be so bad if there were some way for foreigners to retrieve the tax, but I have not found any. The closest I have found is a tourism-oriented rebate system ( http://www.cra-arc.gc.ca/E/pbg/gf/gst176/README.html ) but that specifically can't be used in this case.

Canadian companies should be aware that it is very important to have an official written letter/ruling from CRA if there is any doubt about their tax status and what they should be charging. Over the last few years I have seen articles outlining legal cases similar to this, where companies have received an oral advice/"ruling" from CRA which is later countermanded by an official written ruling. The outcome has been uniformly bad - basically, the CRA is not responsible for its employees' mistakes unless they are officially in writing. In this case, the former accountant being a witness may or may not be a mitigating factor, especially if he/she is a CA/CGA etc. Unfortunately the CRA may be right about the accountant's lack of professionalism in not advising the immediate acquisition of an official written ruling for LE upon its establishment in New Brunswick, and LE may need to sue the accountant for damages caused if it ends up that LE is responsible for back taxes, penalties and interest.

So, yes, it is an unpleasant position for LE.

A few general things I'd like to point out:

- The Canadian GST/HST is a so-called "value-added" tax (VAT). LE does not receive a penny of this tax, it all goes straight to the Canadian government. LE is not the "bad guy" here - it is required to collect the tax, and will be heavily penalized if it fails to do so

- Any Canadian GST/HST registrant (regardless of province) can claim the entire HST amount as an Input Tax Credit, reducing its own GST/HST bill by that amount. This is one of the nice features about how a VAT tax works

- Our American friends may be concerned about the "bottom-line" increase in cost. Some is due to the fact that the C$ is now worth about US$0.90 rather than US$0.62 just a few years ago. Add in the 15% HST and that is a large increase in US$ terms. However, bear in mind that again, LE is not the bad guy here.

- Finally, don't be "penny-wise, pounds-foolish". If you considered a PUTM a good value at its pre-tax price, very likely it will still be so for an extra C$21.30. Not renewing a PUTM on that basis only harms LE, who are not the bad guys here, and has no noticeable effect on the CRA. If you need to vent, it would do more good to do so to the CRA. Perhaps Michel could post an e-mail address for a CRA contact, or he could collect e-mails himself and forward them appropriately.