Ebay Canada Limited v. Minister Of National Revenue, 2008 FCA 348 [PDF]

The Federal Court of Appeal upheld a Federal Court decision (2008 FC 180) which affirmed an ex parte order under section 231.2 of the Income Tax Act, authorizing the Minister of National Revenue to require Ebay Canada Limited to produce information related to unnamed persons identified as “PowerSellers” in Canada.

Section 231.2(1) empowers the Minister to require any “information” or “document.” However when the request relates to “unnamed persons”, section 231.2(1) requires the authorization of a judge by ex parte application, which itself if subject to judicial review under section 231.2(5).

The Court of Appeal found the electronic information relating to Canadian Ebay users was not “foreign-based information” under section 231.6, which does not authorize a requirement to produce foreign-based information relating to unnamed persons, in that “it was also located in Canada because of its ready accessibility to and use by [eBay].”

Ebay Canada objected claiming since the information at issue is electronically stored on servers in the United States owned by eBay Inc., and compiled and maintained by eBay International AG, they fall under a distinct “foreign-based information” scheme in section 231.6. “Foreign-based information” is defined as “any information or document that is available or located outside . . . .” A “document” includes a “record”, which is broadly defined as “any other thing containing information, whether in writing or in any other form.”

The Court noted “[i]n order to interpret statutes consistently with legislative intent, courts must determine their meaning by reference to their text, context and purpose.” In particular the court noted the integrity of the Canadian “self-reporting tax system” may require random monitoring by authorities in the absence of evidence of wrongdoing.

Ebay Canada argued until downloaded or printed under section 231.6 electronic information stored on a server is “located” where the server is situated as a matter of law. It followed that “the fact that information is ‘available’ in another country to those who have access to the server through their computers is not sufficient to make it ‘located’ in that other country for the purpose of section 231.6.” Ebay Canada distinguished cases where telecommunications were described as being “here and there” on the basis that, unlike the present case, telecommunications by their nature have two end points; the communicator and the recipient. The Court agree this logic would apply to physical documents, but took note that a separate statutory regime existed for foreign-based information which should inform the examination of electronic information accessed remotely from servers.

The Court reasoned that both the unreasonableness safeguards and the physical location of the servers were irrelevant to the current request because “with the click of a mouse, the appellants make the information appear on the screens on their desks in Toronto and Vancouver, or anywhere else in Canada. It is as easily accessible as documents in their filing cabinets in their Canadian offices.” The Court found it would be “formalistic in the extreme” in light of the ease and level of accessibility of the information to require the information be downloaded, for the same reason it would be improbable the servers would ever be physically accessed to retrieve the information. The court concluded, and found similar reasoning in the trial court judgement, that “the information in question could be ‘located’ at places other than the site of the servers where it is stored.” This was because the information stored electronically in the United States “cannot truly be said to ‘reside’ only in one place,” and thus for the purposes of section 231.6 was capable in law of being located in Canada. The application of this legal finding to the facts of the case included the consideration that eBay US and eBay International had allowed eBay Canada to “access to information about Canadian PowerSellers for the purpose of their business, and that they indeed used it for this purpose.”