Law Times

Law Times • sepTember 3, 2018 Page 15 www.lawtimesnews.com Victory for feds in battle with banks BY MICHAEL MCKIERNAN For Law Times T he federal government has scored a win over the country's big banks after the Tax Court of Canada upheld its decision to deny GST/HST rebates for pay- ment processing services pro- vided by Visa. The ruling in Canadian Imperial Bank of Commerce v. The Queen concerned the CIBC's claim for rebates worth around $20 million for tax paid on its bills from Visa between 2003 and 2013. The bank claimed the fees it paid for Visa's credit card pay- ment fell under the "financial service" exemption in s. 123 of the Excise Tax Act, but in his June 22 judgment, Tax Court of Canada Chief Justice Eugene Rossiter found the exemption did not apply, writing that the services supplied by Visa were better described as administra- tive in nature. The judge also rejected the CIBC's contention that Visa's potential liability engaged a saving provision in regulations under the act that allow other- wise-administrative services to be characterized as financial services when the provider is a "person at risk." Toronto tax lawyer David Rotf leisch says the case would have been followed closely by many of the country's largest fi- nancial institutions. "Obviously, it's a big win for the government, because if it had gone the other way, they would have made a huge loss, not only from CIBC, but from all the big banks who have been using similar services," says Rot- f leisch, founder of tax law firm Rotf leisch & Samulovitch PC. Despite the setback for banks, Neal Armstrong, a partner in the tax practice at Davies Ward Phillips and Vineberg LLP, says Rossiter's ruling offers much- needed guidance on the applica- tion of the financial service ex- emption, considering the dearth of case law in the area. "I don't believe there was any other case dealing with the per- son-at-risk test, and that for me is the most important aspect of the case," he says. Rotf leisch says the lack of ju- risprudence was emphasized by the judge's repeated reference to foreign cases, including deci- sions related to the U.K.'s value added tax. "These are very high-end and difficult issues, so it's not sur- prising that there is not a lot of case law on them," he says. "You can't fault the bank for challeng- ing, but it seems to me the right decision was reached." The CIBC's appeal concerned its objections to five Canada Revenue Agency assessments made between 2011 and 2015. Witnesses from the two com- panies described the "constant contact" between them and the complex web of infrastructure provided by Visa to allow seam- less payments at the point of sale, while funds f low behind the scenes to and from merchants, their banks, card issuers, card- holders and Visa Canada itself. A CIBC employee admitted that while it was possible for the bank to build its own payment platform in Canada, it would not be able to match the global reach achieved by Visa. Under s. 123 of the ETA, GST is imposed on a recipient that pays for a "property or a service in any matter whatsoever." How- ever, s. 123(1) lists a number of exempt supplies, including the provision of a financial service. Lawyers for both the CIBC and the federal government agreed that Visa's services con- stituted a "single compound supply" made up of several inter- twined and inseparable compo- nents: • Transaction processing • Licensing of the Visa brand; • Payment network manage- ment; and • Brand management and pro- motion For the purposes of his deci- sion, Rossiter characterized Vi- sa's supply as the provision of "a payment platform and facilitat- ing payments on that platform," ruling that "the other elements of the supply that have been out- lined by the Respondent, such as the Visa brand name, as well as administrative and data pro- cessing services used to main- tain the Visa network, are pe- ripheral elements that can more accurately be described as being inputs in the creation of the final end product." The judge's next task was to determine whether that met the statutory definition of an exempt financial service. Ac- cording to the decision, Visa met the elements described in three paragraphs of the ETA defini- tion: "Visa acts as a financial in- termediary by facilitating the transfer of payments between is- suers, acquirers and merchants," Rossiter wrote. "The services provided by CIBC and the ser- vices provided by Visa are linked in their purpose to a degree where it can be said that Visa is 'arranging for' the credit services offered by CIBC, through acting as an intermediary in the trans- fer of money. As a result, the TAX LAW SOLVING CANADIAN CUSTOMS & TRADE PROBLEMS ISN'T ROCKET SCIENCE! WE HELP CANADIAN LAWYERS ON THESE ISSUES EVERY DAY! 416.864.6200 | 416.864.6201 (FAX) | TAXANDTRADELAW.COM Third Floor, 24 Duncan St. Toronto Ontario, Canada M5V 2B8 2015-16 TOP 5 Tax Law BOUTIQUE C A N A D I A N L AW Y E R M A G A Z I N E AW A Y W E E C A N A D I A N M A M G A A Z I N E 2015 16 OP 5 T w BOUTIQU 22001155--1 -1 - 6 16 TTOO TOP O 55 TTax Law ax Law Tax Law ax L x L BBO BOU O T UTIIQ IQU QUE U A N L A L W A Y W E Y R M A M HELPING YOU. HELP YOUR CLIENTS. ® TAX & TRADE LAWYERS MillarKreklewetz_LT_Apr9_18.indd 1 2018-04-05 9:55 AM See There's, page 16 David Rotfleisch says a recent Tax Court of Canada case would have been followed closely by many of the country's largest financial institutions. Visa acts as a financial intermediary by facilitating the transfer of payments between issuers, acquirers and merchants. Justice Eugene Rossiter

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