Quebec tax authorities raided the Montreal headquarters of ride-sharing service Uber Technologies Inc. Thursday morning, saying the company may have violated provincial tax laws.
About 20 Revenue Quebec investigators and technicians executed search warrants at two separate Uber places of business in Montreal, the department said. The main target was the company's third-floor offices on Notre-Dame Street in Montreal's old quarter.
The raids underscore the difficulty Uber is experiencing securing legitimacy in certain cities where it has come in and disrupted traditional taxi services. The privately held Silicon Valley startup nevertheless enjoys widespread support among users and it's backed by serious financiers who believe it will grow globally in the years ahead.
"The issue that Uber is facing is whether it can exist legally in Quebec at all," said Jui Ramaprasad, a specialist in IT-enabled business models at McGill University. Uber frequently confounds the legal framework in various markets, she said. "As they negotiate through those things in all the cities they're in, we're going to see the model evolve."
Revenue Quebec has reasonable grounds to believe that "offences were committed in regards to tax legislation," the department said in a statement Thursday. It said the goal of the searches was to collect evidence pertinent to an investigation of the company that started several weeks ago.
Infringing tax laws in Quebec can result in charges, fines and maximum prison terms of five years, Revenue Quebec spokesman Stéphane Dion said. "This is a message of fairness that we're sending to the population," he said. "Revenue Quebec is on the ground to make sure everyone respects their tax obligations."
Revenue officials are believed to be focusing on proof that Uber does not collect taxes from the drivers of its most popular service, UberX, and does not require its drivers to have a tax number for GST and provincial sales tax collection. Drivers say they are treated as independent contractors and receive weekly waybills they use to prepare their own income declarations.
"We look forward to continuing to work with all stakeholders in Quebec to foster innovation, create jobs and provide consumers with much-needed affordable transit options," Uber Canada spokeswoman Susie Heath said in an e-mailed statement. She declined to comment further.
Uber is a technology company based in San Francisco that connects drivers with passengers looking for car transport. Passengers register their credit cards with the company and then book a ride through an app on their smartphones. The financial transaction, typically cheaper than a comparable cab fare, happens without any exchange of paper between the driver and the passenger.
Fuelled by significant backing from investors including Goldman Sachs Group Inc.'s wealth-management clients, Uber has been expanding operations in cities around the world and now has a valuation topping $40-billion (U.S.) based on a financing earlier this year. Some have praised the car-booking service as the future of transport.
Political and regulatory reaction to the company, meanwhile, has been mixed. Germany is among the jurisdictions that have banned the service outright, and others have questioned its safety and insurance practices.
In Canada, the company has received a particularly rough ride in Quebec, with both the provincial Transport Minister and Montreal's mayor declaring UberX illegal because it operates without proper taxi permitting.
"You can't come in here like a lout and say, 'I'm here. I'm going to do what I want,'" Montreal Mayor Denis Coderre said Thursday in reaction to the raids. "Unless they have $1.2-billion to buy all our taxi permits. Then we'll talk."
Inspectors with Montreal's taxi bureau have been granted special powers to seize Uber vehicles and, as of the end of April, about 40 cars had been seized. Off the Island of Montreal, officials with Quebec's traffic control agency have seized 32 vehicles since February, spokesman Eric Santerre said. He said drivers face fines between $350 and $1,050.
Uber has challenged the seizures in court and vowed to defend its drivers. But passengers in recent days have noticed drivers are now asking them to sit in the front seat of their vehicles to avoid scrutiny.
In Toronto, where Mayor John Tory made recent remarks supporting Uber, more than 100 taxi drivers and owners brought traffic to a standstill Thursday outside City Hall to protest the company. "We want to stop Uber because it's killing our taxi industry," taxi driver Iamtaiz Mohammad said.
Hatched in 2010 by two entrepreneurs frustrated over their experience ordering a cab in Paris, Uber has ballooned and is now present in some 270 cities globally.
With a report from Ann Hui