Post by Mlynarzek on Mar 13, 2009 8:27:03 GMT 4
Canada: Canadian tax authorities can require information stored on foreign servers
Recently, the Federal Court of Appeal unanimously upheld the Federal Court's decision in eBay Canada Limited and eBay CS Vancouver Inc. v MNR.
The taxpayers appealed against an order obtained by the Canada Revenue Agency (CRA) requiring the production of information identifying unnamed "PowerSellers" on the basis that the provisions of the Income Tax Act (ITA) relied on by CRA did not apply to the requested information, which was not owned by the taxpayers and was stored on computer servers located outside Canada. The ITA has separate provisions that specifically authorise CRA to require the production of "foreign-based information". The mechanics and consequences of requests under the two sets of rules are different.
The court concluded that electronic information stored on servers outside Canada is capable of being located in Canada for purposes of the ITA.
The records in eBay were regularly accessed from Canada via computer, though not downloaded or printed, and were used by the Canadian companies in their business. The court held that these records were located in Canada and must be produced. The court reasoned that the electronic records were as easily accessible in Canada as documents in filing cabinets in the taxpayers' Canadian offices. This decision is not being appealed.
The decision in eBay follows other recent decisions that have interpreted CRA's powers to require production of documents and information very broadly. It is also noteworthy that the court followed a recent ruling that the threshold for a requirement to produce information regarding unnamed taxpayers is a good faith audit by CRA, rather than the more stringent "genuine and serious inquiry" test that some thought was the applicable standard.
International organisations should consider these new developments and consult their advisers when designing information systems and deciding what information is made available in Canada, through what means, and under what conditions.
Luke Mlynarczyk (luke.mlynarczyk@blakes.com) Vancouver and Jeffrey Shafer (jeffrey.shafer@blakes.com) Toronto
Recently, the Federal Court of Appeal unanimously upheld the Federal Court's decision in eBay Canada Limited and eBay CS Vancouver Inc. v MNR.
The taxpayers appealed against an order obtained by the Canada Revenue Agency (CRA) requiring the production of information identifying unnamed "PowerSellers" on the basis that the provisions of the Income Tax Act (ITA) relied on by CRA did not apply to the requested information, which was not owned by the taxpayers and was stored on computer servers located outside Canada. The ITA has separate provisions that specifically authorise CRA to require the production of "foreign-based information". The mechanics and consequences of requests under the two sets of rules are different.
The court concluded that electronic information stored on servers outside Canada is capable of being located in Canada for purposes of the ITA.
The records in eBay were regularly accessed from Canada via computer, though not downloaded or printed, and were used by the Canadian companies in their business. The court held that these records were located in Canada and must be produced. The court reasoned that the electronic records were as easily accessible in Canada as documents in filing cabinets in the taxpayers' Canadian offices. This decision is not being appealed.
The decision in eBay follows other recent decisions that have interpreted CRA's powers to require production of documents and information very broadly. It is also noteworthy that the court followed a recent ruling that the threshold for a requirement to produce information regarding unnamed taxpayers is a good faith audit by CRA, rather than the more stringent "genuine and serious inquiry" test that some thought was the applicable standard.
International organisations should consider these new developments and consult their advisers when designing information systems and deciding what information is made available in Canada, through what means, and under what conditions.
Luke Mlynarczyk (luke.mlynarczyk@blakes.com) Vancouver and Jeffrey Shafer (jeffrey.shafer@blakes.com) Toronto