CRA characterizes cloud software access fees as fees for services

A taxpayer inquired about whether fees paid to a non-resident for access to "an on-line marketplace trading platform" ("similar to eBay" - and using "cloud software") were royalties under s. 212(1)(d)(i), and therefore subject to withholding tax.

CRA's reply was that the fees would not be considered royalties under the OECD Model Convention and instead would be business profits.  Although CRA's response rather oddly jumped directly to Treaty interpretation even though the question was directed to the interpretation of the domestic withholding provision, it is implicit that CRA regards the "licence fee" for the provision of such cloud software as fees for "the provision of digital services" rather than as a royalty described in s. 212(1)(d)(i).

Scott Armstrong.  Summary of 2 August 2012 T.I. 2011-0422781E5 under s. 212(1)(d)(i).