Uber and McCarthy Tétrault effectively married technical and legal innovation to execute tax compliance agreements
Uber’s Nicolas Chaput, legal counsel, Nicole Chiarelli, associate counsel, Jeremy Millard, legal director (II), Kelly Kwan, senior counsel; and Nicolas Cloutier, partner at McCarthy Tétrault
It is expected that in-house counsel and external counsel should be able to work together toward a common goal.
What isn’t expected, however, is having an outside third party (and a provincial tax authority to boot) work in tandem with the original pair to create new technological solutions and tax policies, but that’s exactly the situation in which Uber Canada, McCarthy Tétrault LLP and Revenu Québec found themselves.
It started when Toronto-based Uber received an ultimatum from Revenu Québec: The company’s drivers (known as partner-drivers within the Uber framework) must become fully tax compliant if they wished to continue operating as ride-hailing drivers.
Knowing that not all of its drivers were willing or able understand tax calculation formulas or navigate tax filing processes, Uber decided that it needed to do something to help its drivers meet their government-imposed obligations. It just made sense, says the company’s legal director, Canada, Jeremy Millard.
“Because of the platform that we offer, all of their financial transactions essentially run through our platform, through our back end. It provides the opportunity for a very efficient mechanism of tax collection and remittance,” he explains.
“There really are advantages to all concerned. For the tax authority, not only is there compliance, but there's also record keeping and there's an auditable set of data — a verifiable set of data.”
For Uber, Millard says the advantage in offering a solution helps demonstrate that the company is a good corporate citizen that is willing to work with stakeholders to ensure laws are upheld.
Revenu Québec, however, wasn’t in a position to just accept data or permit Uber to act as a collection and remittance agency. There was a need for a formal agreement establishing the rules and procedures of how Uber would assist the government in collecting its taxes, says McCarthy Tétrault partner Nicolas Cloutier.
“Instead of heading toward a conflict or instead of seeking legislative changes, which would be traditional solutions, we came up with this idea of a tax contract — of a tax compliance agreement —putting together a series of steps that the parties would undertake to do voluntarily under no obligation, to help each other work through the problem in a manner that would make commercial sense. So, we've put together this agreement, a ‘tax compliance agreement,’ which I drafted working with Revenu Québec.”
Under the agreement, Cloutier says, sales tax is essentially treated like a source deduction. It also gives the drivers the ability to agree to work under a simplified accounting method where Uber only remits the net and the drivers are freed from accounting tasks such as saving receipts.
The agreement is a public document and is posted on the Revenu Québec website, and it has become a model for a similar arrangement with Airbnb and the province of Quebec.
Cloutier believes the agreement is on solid legal ground, and he bases that on Rosenberg v. Canada (National Revenue), 2016 FC 1376, where the judge recognized the binding nature of agreements between tax authorities and taxpayers.
Getting to the point where the agreement was finalized took a bit of effort and a lot of communication between parties, but Millard says the process was relatively easy to manage.
“Because we were all on the same page about where we need to go, there wasn't a lot of need to set out specific steps and assign roles.
“One of the nice things about working at Uber is that everyone understands the mission, understands what the company's goals are, understands how we make things work. That by itself provides a lot of direction to everyone when we’re carrying out a project.”
Even if he had wanted to formalize a strategy to manage the process more tightly, Millard says that wouldn’t have worked because what he and his team (which included senior counsel Kelly Kwan, legal counsel Nicolas Chaput and associate legal counsel Nicole Chiarelli) were trying to do was so novel that no roadmap existed for it and there was nothing to outline what should be phase one, phase two, etc.
It also helped that Uber found good partners, and that includes the team sitting on the other side of the table.
Cloutier says he understands companies being uncomfortable reaching out to regulators, but in his experience, approaching them and keeping the lines of communication open by proactively discussing business and having conversations about how the company can make compliance more feasible or more successful is the best approach and one that finds a receptive audience.
“We really did find a willing and helpful partner in Revenu Québec so this was not an adversarial relationship. In fact, it was quite the opposite. That helped to move the project along because everybody was involved in getting to the end goal. The only question was how are we going to do it, how are we going to build the agreement?”
As for the relationship between Uber and its outside counsel, Millard says it is so strong and effective because Cloutier and the McCarthy team really spent the time working with Uber and developing a deep understanding of its business. Over the years, the firm has even sent three externs to Uber, including one, Chaput, who permanently joined the team.
“We don’t really think of McCarthy as external counsel as much as in-house counsel who work in a different office,” says Millard.
Without that dedication and connection, Millard says, it would have been impossible for McCarthy to have been able to help Uber arrive at the agreement with Revenu Québec.
He notes, for example, a fine distinction in the two types of Uber’s driver-partners: those who pick up passengers and those who deliver food for the Uber Eats delivery service. He says that in Quebec passenger drivers “are taxed from the very first dollar. If you’re a delivery partner, you’re not. You’re subject to the same multiplier threshold that everybody else is, so $30,000 in earnings before having to set up a QST or GST number. Because Nick understood that much about our business, he was conversant in that distinction and made sure it got into the contract.”