Uber and Lyft could be avoiding $153 million in Canadian taxes every year by relying on contract workers, report says

Dara Khosrowshahi logan green
Uber CEO Dara Khosrowshahi and Lyft CEO Logan Green

  • Uber and Lyft could avoid a combined $153 million in taxes annually in Canada, a new report claims.
  • Canadians for Tax Fairness blamed lax disclosure laws and companies classifying drivers as contractors.
  • Uber and Lyft both disputed the findings, telling Insider they paid all required taxes in Canada.
  • See more stories on Insider’s business page.

Uber and Lyft could be avoiding a combined $153 million in taxes every year in Canada, according to a new report from the nonprofit Canadians for Tax Fairness (C4TF).

The report estimated Uber and Lyft avoid $53.9 million in corporate taxes as well as $81.3 million in unemployment insurance and benefits taxes by taking advantage of lax financial disclosure requirements around corporate taxes, in addition to classifying drivers as contractors.

While not illegal, the tactics let Uber and Lyft benefit from taxpayer-funded programs like roads, pensions, and unemployment insurance, despite paying very little into those programs, C4TF argued.

“Uber and Lyft both depend to a huge degree on publicly funded infrastructure to make their revenues, but they provide very little of the funding for that infrastructure because they pay next to nothing in taxes,” DT Cochrane, the report’s author and a policy researcher at C4TF, told Insider.

While the lack of transparency around corporate taxes makes it impossible to know exactly how much the companies paid, he added: “it’s doubtful that it approaches the level that we think that it should.”

Uber and Lyft told Insider they disputed the report’s findings, and said they have paid all taxes required by Canadian law.

“Uber contributes millions of dollars in the form of ridesharing fees, which help local and provincial governments pay for ridesharing, transit, and other initiatives,” an Uber Canada spokesperson told Insider.

“We file all of our taxes in Canada, including federal and provincial corporate income tax, payroll taxes, GST/HST, QST and applicable provincial sales tax,” a Lyft spokesperson told Insider, adding that the company “is in good standing with the Canadian tax authorities.”

But C4TF’s report cited several ways it says Uber and Lyft may have been able to significantly cut their tax bills.

First, C4TF estimated the companies brought in $203 million in combined profit in Canada in 2019, which should amount to $53.9 million in federal and provincial corporate taxes. Neither company discloses how much they pay in Canadian corporate taxes, but according to C4TF, using Uber’s global average effective tax rate of 1.9%, Uber and Lyft would have paid roughly $8.6 million.

Multinational corporations have come under increasing scrutiny for attempting to lower their global tax bills by routing profits through low-tax countries. An Australian research group accused Uber of using Dutch shell companies to turn $5.8 billion in global revenue into $4.8 billion in losses on paper, allegedly sidestepping millions of dollars in taxes.

Until recently, Uber’s Canada subsidiary was owned by its Dutch subsidiary, which C4TF claimed may have let it avoid Canadian taxes as well by booking Canadian revenue in the Netherlands where corporate taxes are lower (Uber claimed it had discussed plans to spin off its Canadian subsidiary as early as 2018).

In response, C4TF argued Canadian authorities should require more transparency from companies like Uber and Lyft to ensure they are paying their full tax bill.

C4TF’s report also estimated Uber and Lyft avoid $81.3 million in unemployment insurance and pension taxes by classifying drivers as contractors – a growing source of legal and political headaches for the companies in the US, the UK, Spain, and other countries. In a ruling last year, Canada’s Supreme Court opened the door for a class-action lawsuit that could chip away at the companies’ ability to classify drivers there as contractors.

Lyft’s spokesperson told Insider the Canadian government “recognizes drivers on Lyft as independent contractors and assigns taxes accordingly.”

One such tax includes Canada’s sales taxes. Because Canadian law requires individual contractors to collect and pay sales tax (except in Quebec, where the contracting company is responsible), C4TF argued Uber and Lyft drivers are unfairly shouldering those costs.

C4TF also claimed that because Uber and Lyft don’t withhold those sales taxes – an estimated $217 million per year – from drivers’ earnings upfront, they’re overstating how much drivers are really making.

Cochrane told Insider the report was also a critique of Canadian authorities that do not hold companies accountable for paying their fair share.

“We don’t know exactly what [Uber and Lyft’s] bookings are, what their revenue is, what their take rate is, what their profit margin might be, what their taxes paid are simply because the Canadian government is falling behind on requiring greater corporate transparency,” he said.

Read the original article on Business Insider