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Editor's Box - The law of unintended consequences

|Written By Kelly Harris

Recently the Canadian Federal Court of Appeal ordered eBay Canada to hand over anonymous customer records held in the United States.

At the core of the decision was the desire of the Canadian Minister of National Revenue to see records of eBay’s “PowerSellers,” or large volume vendors, that may have unpaid taxes. The records are held in California and are anonymous. An earlier ruling forcing the minister to show cause before acquiring anonymous records was tossed out by the latest decision.

Then there was a story of an American customer of Swiss bank UBS AG, petitioning a Swiss court to stop the bank from handing over his records to U.S. tax authorities, claimed handing over his records contravened Swiss banking laws.

It seems in Switzerland in order for authorities to seize banking records they have to prove almost beyond a shadow of a doubt that tax fraud has occurred. Yes, to see the records you have to prove tax fraud, but to prove tax fraud you have to know the assets, but you can’t really know what the assets are unless you can see the bank records, which you can’t see unless you can prove tax fraud. It’s like “Who’s on First” for bankers.

That takes it too far. A country needs to be able to use the courts to seek information on assets when they have reason to believe a person is evading their taxes.That's far from calling on the courts to force a company to hand over records of anonymous customers, held offshore mind you, that may or may not be avoiding their taxes, simply to troll for deviants. Aside from it being a fishing expedition, it is anti-business. When regimes in the world like Switzerland exist, going to ridiculous lengths to protect customer records, how can Canada compete?

If the same rule was applied — as several lawyers have said it could be — to Canadian-based UBS AG affiliates, or ABN AMRO or the Hong Kong Service Bank or Merrill Lynch, what would their response be? They’d more than likely shut down Canadian-based operations rather than hand over customer records.

The irony is the tool the authorities are using to shore up tax leakage may lead to companies pulling out of Canada, thereby costing the government tax revenue. Making this law truly a law of unintended consequences.


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