The Federal Court of Appeal ("FCA")
judgment in eBay Canada Ltd. and eBay CS Vancouver Inc. v.
M.N.R., 2008 FCA 348 ("eBay") is
the latest in a series of decisions extending the power of the
Minister of National Revenue
("Minister") to compel disclosure of
confidential taxpayer information. As a result of this judgment,
the appellants (collectively, "eBay
Canada") were required to disclose to the Minister
personal information stored on servers in the United States. The
information concerned so-called eBay "PowerSellers"
residing in Canada, including names and sales information, to
verify the PowerSellers' Canadian tax compliance. The
eBay case has ramifications for Canadian taxpayers
generally, as the FCA concluded that information stored on a server
in another country, but readily accessible by a Canadian company,
is not "foreign-based information" within the meaning of
that term under the Income Tax Act (Canada)
The Minister's requirement to produce taxpayer information
was imposed on eBay Canada under s. 231.2 of the Act. To challenge
the requirement, eBay Canada argued that;
the information sought was "foreign-based"
any demand for such information must be made pursuant to s.
231.6 of the Act; and
s. 231.6 of the Act did not authorize a requirement to provide
information in relation to unnamed persons, such as the information
the Minister was seeking about eBay's PowerSellers.
Thus, the issue before the FCA was whether the information
sought was "foreign-based" because it was "available
or located outside Canada" for the purpose of s. 231.6.
The FCA held that the information sought was not
"foreign-based" information. This was because although it
was stored on servers located outside Canada, it was also located
in Canada, in that it was readily electronically accessible by eBay
Canada. There was no evidence that eBay Canada had ever printed or
downloaded and stored the information sought by the Minister. At
best, the information was merely viewed electronically in
However, the FCA held that "with the click of a
mouse," eBay Canada could make the information appear on
computer screens in Canada as easily as they could access their own
filing cabinets in Canada. Therefore, the FCA considered the
distinction between information located in Canada and elsewhere
artificial and held that information in electronic form stored
outside Canada is capable of being located in Canada. Consequently,
the FCA concluded that the Minister was correct to have imposed on
eBay Canada the requirement to provide information under s. 231.2
of the Act, as the information was not subject to the provision of
the Act governing "foreign-based information".
The eBay judgment has wide-ranging ramifications.
Entities for whom client privacy is critical may be reluctant to do
business in Canada in the future. At the very least, non-resident
companies doing business in or with Canada in the future should be
reluctant to allow Canadian companies ready access to electronic
records stored on servers outside Canada. In fact, it may be
advisable for sensitive information and records stored outside
Canada to be available to Canadian entities in hard-copy only and
on a temporary basis, to reduce the risk of mandatory production to
A secondary issue the FCA considered in eBay was
whether the Minister was required to provide evidence that he was
conducting a "serious and genuine inquiry" into one or
more specific individuals for the purposes of issuing the
requirement to compel eBay's information. The FCA concluded
that, since the Greater Montreal Real Estate Board
judgment,1 the Minister is no longer obliged to prove that he is
conducting a "serious and genuine" inquiry into one or
more specific individuals in the group included with a requirement
to provide information. The FCA affirmed that the Minister must
only satisfy a judge that the information or documents sought are
required to verify compliance with the Act, a much lower standard
than the "serious and genuine" inquiry test.
The current trend in the case law expands the Minister's
powers to compel taxpayers to produce information. This enhances
the effectiveness of the Minister's compliance powers and it is
advisable to seek legal counsel before responding to any
requirement to produce information to the Minister. In light of the
eBay decision, moreover, it would be prudent to revisit
and update all document and information retention and management
1. M.N.R. v. Greater Montreal Real Estate Board,
2007 D.T.C. 5740 (FCA)
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