France, Australia also seeking information on Shopify clients as part of tax audits

The CRA’s requests are part of a larger effort to fight tax non-compliance by taxpayers who make money operating a business on e-commerce websites, documents show

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OTTAWA – Canada isn’t the only country looking for tax cheats among Shopify’s clients. Australian and French authorities have also requested the Canada Revenue Agency provide them with extensive information on their local businesses using the Ottawa-based e-commerce giant’s platform, National Post has learned.

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In April, the CRA filed a request asking a Federal Court judge to make Shopify hand over information about all Canadian-resident merchants on the platform over the last six years to ensure they were complying with the country’s tax laws.

Though the application does not specify which data the CRA is seeking specifically, it notes that Shopify has records on their clients’ identities and sales amounts.

On the same day, the CRA filed a second data request, this time on behalf of the Australian Taxation Office, requesting information about Shopify vendors with Australian billing addresses between April 1, 2021, to March 31, 2022.

In both cases, the CRA filed an application for an Unnamed Persons Requirement (UPR), a legal tool it can use to require organizations to fork over taxpayer information as long as the request meets certain criteria and is approved by a judge.

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But Shopify top brass have recently committed to fighting the agency’s request in court, accusing it of trying to obtain information about its clients via “backchannels.”

Information obtained by the National Post from CRA and court documents show that the agency’s requests are part of a larger effort to fight tax non-compliance by taxpayers who make money operating a business on e-commerce websites, namely Shopify.

Documents also show that CRA’s auditors that focus on high-net-worth individuals and businesses received requests from both France’s and Australia’s tax authorities within the last year for information about Shopify’s merchants. The documents say both countries’ governments are auditing unspecified Shopify merchants as well as the company itself.

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The CRA has tax treaty agreements with both countries that oblige it to provide certain information when requested. To date, the CRA has not filed a UPR request seeking information about Shopify merchants with French addresses.

In a statement, an Australian Tax Office (ATO) spokesperson said the agency could not comment on the request made to the CRA because of local privacy laws. The spokesperson noted that ATO actively works “closely with all our global treaty partners to ensure that non-resident businesses are aware and are complying with Australian laws.”

Emails to the France’s Department of Finance went unanswered.

CRA spokesperson Anne-Flore Gnamaka declined to comment on the Shopify requests specifically.

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She noted that the CRA generally uses information received via UPRs to compare taxpayers’ reported income with transaction records held by companies. For example, the CRA might discover an individual who declared no revenue last year, but owned a very lucrative personal business on Shopify.

Documents show that the CRA is also expecting to receive additional requests for information about Shopify merchants from other treaty partners.

The documents also note that the CRA suspects it could receive a noticeable amount of voluntary disclosures from Shopify merchants once they are informed the agency is trying to find out who they are and how much they’ve made.

The CRA has increasingly — and often successfully — turned to UPRs recently to target industries in which it suspects there is more risk of tax fraud, such as clients of cryptocurrency exchange Coinsquare or Kent Building Supplies. The CRA’s first major UPR was for another e-commerce giant, eBay, over a decade ago.

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Shopify spokesperson Jackie Warren said that Federal Court hearings on the matter were only set to begin early next year and that the company was “challenging” both of the CRA’s UPR applications.

Warren also pointed to a note on Twitter by CEO Tobi Lutke last week in which he accused the government of using the UPR tool contained in the Income Tax Act as a “backchannel.”

“I don’t particularly want a fight with the CRA (Canada’s tax authority)- but we got asked to backchannel them 6 years of records for all Canadian Shopify stores. This feels like low-key overreach to me. We will fight this,” Lutke wrote.

On Monday, Shopify Chief Operating Officer Kaz Nejatian told attendees of a conference organized by Toronto-based media outlet The Logic that the CRA’s request was “outrageous.”

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“To backchannel to a tech company and say, ‘Give me all the data for all of your merchants and I’m not going to allege that any of them have done anything wrong,’ is just outrageous,” Nejatian said.

“It’s going to cost us lots of money to fight the government. And I don’t want to be in the business of fighting the CRA, but this is just a step too far,” he said.

Although the CRA has been relatively successful in convincing judges to grant it UPRs, there have been cases where a judge has only agreed to approve the release of a limited set of data.

In one case where the CRA was seeking information about every single Hydro-Québec commercial employee, a judge even lambasted the agency for going on a “full-fledged fishing expedition”.

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