Place of supply
The rules that decide where a sale is considered to take place for sales tax purposes, and therefore which tax and rate apply.
In short
- In Canada, they decide whether HST, GST alone or GST plus QST applies to a sale.
- For goods, the key question is usually where they are delivered; for services, where the customer is located.
- Getting it wrong means charging the wrong rate, which the seller has to correct.
Place of supply rules determine the jurisdiction in which a supply is taxed. When the seller and buyer are in different provinces or countries, they settle which tax applies and at what rate.
In Canada
Canada's rates differ by province. The place-of-supply rules decide whether a sale bears 5% GST, 13% to 15% HST, or GST plus QST in Quebec. In general terms:
- Tangible goods: taxed where they are delivered or made available to the buyer.
- Services: generally taxed based on the customer's address obtained in the ordinary course of business, with specific rules for services related to real property, passenger transportation and several other categories.
- Intangible property: depends on where it can be used.
A Toronto firm providing consulting to a client in Alberta charges 5% GST, not Ontario's 13% HST. Selling to a client in Nova Scotia, it charges Nova Scotia's HST rate.
In the EU and UK
For business-to-business services, the general rule is that VAT is due where the customer is established, often accounted for by the customer through the reverse charge. For digital services sold to consumers, VAT is due where the consumer lives, which is why the EU offers a One Stop Shop to file for all member states in one return.
Place-of-supply errors are common on invoices issued across borders, and they can cost the seller the tax it failed to charge.
Worked example
One service, three rates
A Montréal software consultancy bills $10,000 of services to three clients. The Quebec client is charged GST and QST, $1,497.50. The Ontario client is charged 13% HST, $1,300. The Alberta client is charged 5% GST, $500. Same service, same price, three different taxes, all set by the client's location.