CRA finds that amounts retained by a Canadian independent agent to pay its fee constitute amounts "credited" by it to the non-resident principal for withholding tax purposes

Canadian withholding tax  is exigible on various types of amounts which are paid or "credited" by Canadian residents to non-residents.  CRA has indicated that in an arrangment under which a Canadian promoter collects fees from Canadian customers for placing their ads on a US website of an arm's length US publisher (calculated on the basis of $X per 1000 clicks on the customers' ads) and then remits the fees to the US publisher net of the promoter's compensation, CRA will consider the full amount of the fees collected by the promoter to have been paid or credited to the US publisher, notwithstanding that only the net amount is remitted.  CRA stated that it would consider the gross amounts of the fees to be collected by the promoter as agent for the US publisher.

CRA went on to indicate that, because it would construe the fees as being for services with their amount based on the quantum of the benefit to the Canadian advertisers (i.e., the number of clicks on their ads), the fees would have been subject to withholding under s. 212(1)(d)(iii)(A) of the Act but for a treaty exemption likely being available to the US publisher - such fees for services would not be royalties under the Canada-US Convention.

Neal Armstrong.  Summaries of 7 August 2012 T.I. 2011-0416181E5 under s. 212(1), s. 212(1)(d)(iii) and Treaties - Art. 12.