Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Based on the hypothetical facts provided, whether suppliers who provide digital content to a digital interface are "users" of the digital interface and whether that digital interface is an "online marketplace".
Position: Yes, the suppliers are users of the digital interface and the digital interface is an online marketplace in the context of the hypothetical facts.
Reasons: Based on the text of the "online marketplace" and "user" definitions, the meaning of “interact” and the policy intent of the "online marketplace" definition, the suppliers interact with the digital interface as well as with other users of the digital interface.
XXXXXXXXXX Ann Kippen
2024-104569
April 24, 2025
Dear XXXXXXXXXX:
Re: Technical interpretation regarding “user” and “online marketplace” for purposes of the digital services tax
We are writing in response to your December 2, 2024 and March 6, 2025 letters regarding whether certain suppliers that have digital content available for sale on an intermediary’s digital interface would be considered users of that digital interface based on the definition of “user” in the Digital Services Tax Act (footnote 1) (“DSTA”). If those suppliers are users, you have asked whether that digital interface would be an “online marketplace” as defined in the DSTA.
This technical interpretation provides general comments about the provisions of the DSTA. It does not confirm the digital services tax implications of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. All section references herein are to the DSTA unless otherwise indicated.
Hypothetical Facts
The relevant hypothetical facts that you have outlined, on which our interpretations are based, are as follows:
1. An online retailer (“Online Retailer”) operates various websites and mobile applications that constitute a single business enterprise and a single digital interface (the “Digital Interface”).
2. The Digital Interface allows customers (“Customers”) to purchase digital content that is owned and supplied by various third-party entities (“Suppliers”) and have it delivered to the Customers’ electronic device(s). As such, the Digital Interface facilitates the supply of digital content between Suppliers and Customers.
3. Suppliers have entered into agency agreements with Online Retailer pursuant to which Online Retailer sells the Suppliers’ digital content on the Digital Interface on behalf of the Suppliers.
4. The digital content of the Suppliers does not relate to any of the financing or payment type activities outlined in paragraph (b) of the “online marketplace” definition.
5. Pursuant to the sales agency agreements between Suppliers and Online Retailer:
a. The digital content of the Suppliers is maintained on the Digital Interface using the technology of the Online Retailer, with a copy of the digital content being generated by the Online Retailer for distribution to a purchasing Customer.
b. Online Retailer is responsible for listing the Suppliers’ digital content on the Digital Interface and for advertising and marketing the content. In connection with this, Suppliers may provide Online Retailer with product descriptions, photos, and/or other media.
c. Suppliers determine the selling prices of the digital content and advise Online Retailer of the prices. However, Online Retailer has some discretion in reducing the prices, but any reduction to the sales prices that have been established by Suppliers is borne by Online Retailer.
d. Online Retailer is responsible for processing Customer orders and collecting gross sales price and sales tax. Online Retailer is also responsible for customer service, including transaction issues and usage of the digital content. In the event of damaged or defective digital content, Online Retailer issues a credit to the Customer and deducts the credit provided from the net sales proceeds that Online Retailer remits to the Supplier.
6. The Customers of the Digital Interface do not communicate or transact directly with the Suppliers.
7. Online Retailer earns a commission fee for its activities in connection with the sale of the Suppliers’ digital content to Customers.
In addition to the Online Retailer acting as agent in connection with the sale of Suppliers’ digital content, Online Retailer also acquires title to other digital content itself and resells it. However, as the technical interpretations requested pertain to the definitions of “user” and “online marketplace” in the context of agency sales, our comments do not extend to Online Retailer’s resale activities. The hypothetical facts outlined above pertain solely to the Suppliers’ agency sales.
Views and Analysis
Meaning of “user” and its application to the Suppliers
A “user” is defined in section 2 to include an entity that “interacts (directly or indirectly in any manner whatever)” with a digital interface, with certain exceptions that are not relevant to the requested interpretations. The phrase “directly or indirectly in any manner whatever” ensures that “interact” is given the widest meaning and interpretation possible for purposes of the “user” definition.
The meaning of “interact” is stated in the Merriam-Webster Dictionary as “to act upon one another”. The Oxford English Dictionary defines “interact” to mean “to act reciprocally, to act on each other” where “reciprocally” means “mutually; on or by both sides; with regard to each other”. The Collins Dictionary states “(W)hen one thing interacts with another or two things interact, the two things affect each other's behaviour or condition”. These dictionary definitions do not state nor suggest that the meaning of “interact” is limited solely to direct communication or to any other type of direct interrelationship. In our view, these definitions, as well as the purpose for which the DSTA was introduced, which includes the “online marketplace” definition in which “interact” is a key factor, support a conclusion that “interact” includes both direct and indirect interaction, even without the modifying phrase “directly or indirectly, in any manner whatever”. Moreover, these dictionary definitions support the conclusion that the word “interact” generally has a broader meaning than mere communication.
In the “user” definition, the phrase “interacts (directly or indirectly in any manner whatever)” captures passive activities that would not typically constitute direct or indirect interaction. The Explanatory Notes for the “user” definition illustrate a type of passive interaction which would constitute interaction “directly or indirectly in any manner whatever” with the example of a person carrying a smartphone while allowing a digital interface to collect certain data from the phone.
The Explanatory Notes for the “user” definition conclude in stating “(W)henever an individual’s or an entity’s actions have an impact on an interface, it is intended that it constitute an interaction for the purposes of this definition”. The Suppliers provide digital content and product information to the Online Retailer for posting on the Digital Interface, set prices, receive net sales proceeds, and enter into agency agreements for the sale of digital content to Customers through the Digital Interface. These actions of the Suppliers have an impact on the Digital Interface, thereby making a Supplier a “user” of the Digital Interface as a Supplier would be interacting, directly or indirectly in any manner whatever, with the Digital Interface.
Meaning of “online marketplace” and its application to the Digital Interface
An “online marketplace” is defined in section 2 to mean a digital interface that allows users to “interact” with other users and that facilitates the supply of property or services, including digital content, between those users. There are exceptions to what constitutes an “online marketplace”, none of which are relevant to the requested interpretations.
The Suppliers and Customers are users of the Digital Interface. The Suppliers’ actions of providing digital content to the Digital Interface and establishing prices have an impact on, and affect the behaviour and condition of, the Customers who browse the Digital Interface and purchase content from it. Similarly, the Customers’ browsing and purchasing activities on the Digital Interface influence the Suppliers’ behaviour and condition, for example in establishing pricing and content strategies and in earning revenue. Consequently, in our view the Digital Interface allows Suppliers and Customers to interact with each other based on the meaning of “interact”, even though no direct communication between them may occur. Because the Digital Interface also facilitates the supply of the digital content between Suppliers and Customers, the Digital Interface would be an “online marketplace” for purposes of the DSTA. The fact that the Online Retailer is the agent for the Suppliers in connection with the sale of digital content does not alter our view that the Digital Interface allows interaction between Suppliers and Customers, as the actions of one user impact upon the behaviour or condition of the other user.
The purpose for which the DSTA was enacted, which contains the definitions of “online marketplace” and “online marketplace services revenue”, further supports our view that the Digital Interface would be an “online marketplace”. The proposal to introduce a DST was outlined in Annex 7 – Consultations on Other Tax Measures, Supplementary Information (“Annex 7”) in the 2021 Budget. Draft legislative proposals were subsequently included in the December 2021 Notice of Ways and Means Motion (NWMM) and explained in the Finance Backgrounder and in the Explanatory Notes. Annex 7 outlined the purpose of the DST in stating “(T)he proposed tax is intended to ensure that revenue earned by large businesses – foreign or domestic – from engagement with online users in Canada, including through the collection, processing and monetizing of data and content contributions from those users, is subject to Canadian tax.” One of the business models outlined in Annex 7 to which the proposed DST was intended to apply was described as “intermediation platforms that create online markets for sellers and buyers of goods or services (e.g., taxi rides, short-term accommodations), exchange information across the platform about those on the other side of the market and facilitate transactions between them.”
The draft legislative proposals in the December 2021 NWMM introduced an “online marketplace” definition which contained the same “digital interface that allows users to interact with other users” language that appears in the DSTA that was enacted in June 2024. The Finance Backgrounder released in December 2021 to provide an overview of the NWMM stated that online marketplace services revenues would include those revenues earned from providing an online marketplace that helped to “match sellers of goods and services with potential buyers”, including revenues from providing “access to, or the use of, the online marketplace” and “commissions from facilitating supplies between users of the online marketplace.”
Consequently, based on the stated purpose of the DSTA and its “online marketplace” definition, the textual meaning of “interact”, and the impact that Suppliers and Customers have on the behaviour and condition of each other, in our view the Digital Interface of the Online Retailer would constitute an “online marketplace”.
Finally, in your technical interpretation request, you assert that Example 2 in the July 2024 Explanatory Notes under the heading “Subsection 15(2) – Interpretation – revenue exclusion”, concerning the paragraph 15(2)(a) exclusion from the “online advertising services revenue” definition, would support a conclusion that the Digital Interface would not be an “online marketplace”. This example describes an “advertising server” whereby an application installed on the websites of small website owners selects ads from the advertising server’s inventory of advertisements from a large number of marketers and displays those targeted advertisements on the websites. In this example, there is no input from, nor involvement of, website owners or marketers in the selection of online targeted advertisements to be displayed. The Explanatory Notes state that because website owners and marketers “interact only with the advertising server,” the arrangement does not meet the “online marketplace” definition.
You suggest this example demonstrates that an intermediary platform interacting with users on behalf of others (which you view as similar to the situation of the Online Retailer interacting with Customers on the Digital Interface as agent of the Suppliers) does not qualify as an “online marketplace” because in your view “interact” requires direct user-to-user communication. We do not agree with this view. The advertising server example differs fundamentally from the Digital Interface. In the advertising server example, the marketers do not choose the websites on which their online targeted advertisements are to be displayed (i.e., they do not make specific purchasing decisions with respect to website spaces) nor do the websites select the online targeted advertisements to be displayed on their websites. In contrast, with respect to the Digital Interface, Suppliers and Customers directly affect one another’s behaviour and condition. Suppliers set prices and provide digital content, while Customers make specific purchasing decisions. This constitutes interaction between Suppliers and Customers for purposes of the “online marketplace” definition.
We trust the above comments will be of assistance.
James Atkinson
Manager, DST and Global Tax Section
Specialty Tax Division
Income Tax Rulings Directorate
Canada Revenue Agency
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Digital Services Tax Act, S.C. 2024, c. 15, s. 96
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2025
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2025
Email this Content