Canadian Court Opens Up eBay Data to Tax Agency

The partial decision by the Federal Court has concerned some privacy advocates in Canada.
It also provides a twist on a longstanding privacy concern in Canada. Many Canadians worry that when their personal data is stored on computers in the United States, government officials in that country might examine it. The eBay ruling, however, found that Canada’s government has the right, at least concerning tax issues, to gain access to computer files stored on servers in other countries.
“Such information cannot truly be said to ‘reside’ in one place or to be ‘owned’ by one person,” Justice Roger T. Hughes, a former intellectual property lawyer, wrote in his decision. “It is both here and there.”
The issue landed in court after eBay Canada, which is wholly owned by eBay through a holding company, rebuffed a request by the Canada Revenue Agency to turn over contact information and gross sales data for high-volume sellers based in Canada.
Canada’s laws, the judge wrote, give Canadian tax officials “the power to engage in what amounts to some sort of fishing expedition.” Effectively, the tax agency can demand that anyone give it any information it needs to enforce tax collection.
While the Canada Revenue Agency declined to comment specifically on why it wants eBay’s data, the ruling suggests that it intended to cross-reference the sales reports with the income reported by major sellers, or PowerSellers in eBay’s marketing jargon, on their tax returns.
When asked why eBay Canada challenged the request, Laura Watton, a spokeswoman for the company, replied by e-mail: “EBay takes the privacy of all users very seriously. In addition, we expect all users to comply with and conform to applicable laws in the countries in which they do business.”
Ms. Watton added that she was unable to elaborate because one aspect of the case was still under review by the judge.
Michael Geist, who teaches Internet law at the University of Ottawa, said that eBay’s response fits a broad pattern of resistance by Internet-related companies when governments make sweeping requests for data.
“I think eBay quite rightly assumed that its users are going to act lawfully,” Professor Geist said. “With PowerSellers we are mostly talking about small businesses here.”
EBay Canada argued in court that the data sought by tax collectors was not its to give.
The managing director of eBay Canada, Jordan Banks, testified that his operation relied on its parent to process all transactions made by buyers and sellers registered to Canadian addresses. As a result, all customer data, Mr. Banks told the court, is stored on servers in San Jose, Calf., and is owned by the parent company.
In his ruling, however, the judge appeared more interested in another part of Mr. Banks’s testimony. While eBay Canada does not own or store the data about its customers, the company apparently has unlimited access to it. EBay Canada regularly analyzes the selling and buying habits of individual customers to focus its advertising and marketing campaigns.
In ordering that the government be given access, the judge wrote: “The information can be summoned up in Canada and for the usual business purposes of eBay Canada. The situation may be different if the information never had been used in Canada.”
The court still has to rule on eBay’s contention that the tax agency is not making a “genuine and serious inquiry.” That issue has been suspended until another case cited by eBay’s lawyers goes through appeal.