The short answer is that the Canada Revenue Agency may try even if they are not given the statutory authorization to ask a non-resident company for their complete financial records to be sent to Canada. Auditors might try to see what they can get their hands on and may even bully non-resident businesses into providing electronic information. This is very important given the increase in e-commerce businesses selling to Canadians. It is a real issue that will become a bigger issue.
We are aware of at least one situation where a Canada Revenue Agency (“CRA”) auditor has demanded that a non-resident (U.S.) company to provide a complete electronic copy of their financial records for the purposes of a goods and services tax/harmonized sales tax audit. The CRA’s request covers financial records of all U.S. transactions and all world-wide transactions that have no connection whatsoever with Canada (in addition to Canadian sales transactions). In other words, the CRA is not permitting the non-resident company to isolate transactions involving Canada – they want everything.
The CRA has stated in writing that the electronic data may be transferred to the CRA using the following:
- By pick up from the business location or representative office;
- File Transfer Protocol Secured; or
- USB key/DVD delivered to the CRA by hand or registered mail.
The electronic records requested include:
- Trial balances;
- General ledger chart of accounts;
- General ledger transactions (GL account number. account name, posting date, transaction date, transaction number, posting source and or description, reference number, document type, signed amount, currency code, exchange rate used, GL detail, etc);
- Vendor master (vendors, suppliers, vendor numbers, full addresses);
- Accounts payable detail; and
- Customer master (customer name, customer number, customer address, customer GST/HST status, customer PST status, ship to, produce numbers, units of measure, selling prices, quantity shipped, quantity sold, total amount receivable, currency code, foreign exchange rates, invoice discounts, invoice freight, invoice taxes, other charges, etc)
In essence, the Government of Canada is asking for very sensitive business information from a non-resident company. There is no requirement in the Excise Tax Act for a non-resident company to provide a copy of its entire financial records database to the CRA. The CRA’s policy GST/HST Memorandum 15.2 “Electronic Records”, clearly does establish a mandatory requirement for a non-resident registrant to send to the CRA an electronic copy of financial records. That being said, a registrant may choose to send records to the CRA if they do not wish to pay for a CRA auditor to come to them.
There is a requirement to maintain adequate books and records in Canada or at an agreed upon location outside Canada. The books and records are required to be in an appropriate form and to contain sufficient information to allow determination of the amount of tax to be paid or collected, or the amount to be refunded, rebated or deducted from net tax. Non-residents who wish to receive permission to maintain records at a specific location outside Canada normally make arrangements when they post security and register for GST/HST. More information about the CRA’s books and records policy is contained in GST/HST Memorandum 15.1 “General Requirements for Books and Records”.
This assertiveness by the CRA raises serious legal issues for companies as the CRA might issue an assessment based upon the financial records. What guarantees does the non-resident company have that its USB key will not be given to a Canadian competitor (besides confidentiality obligations of the CRA)? What can a company do about protected information, such as bank account numbers, credit card numbers, email addresses and other information gathered from customers? What happens if the CRA imposes GST/HST on transactions that have no connection to Canada in order to arbitrarily increase the amount of the assessment? These are just some of the issues that matter to the non-resident companies.
If you require more information, please contact Cyndee Todgham Cherniak at firstname.lastname@example.org or 416-307-4168. LexSage is a boutique sales tax and international trade law firm in Canada.