So did a bit of digging on what’s going on and found a good explanation of what you are saying. And yes based on what they are doing you are right. They are not collecting HST. But as a contractor providing a service you need to colect HST on the fare over the threshold. Uber just does not want that to be added to what’s already being paid. 

Uber’s global tax avoidance strategy

Uber pays no Corporate Income Tax in Canada nor will it ever pay Corporate Income Tax as long as its present tax structure stays in place. The tax scheme Uber uses to facilitate this tax dodge is called Double Dutch and the Canadian version is virtually identical to the schemes in place in all territories where Uber operates. Nor is it very different from the tax structures put in place by tech firms such as Google, Apple and Facebook.

Here’s how it works.

Let’s say an Uber user in Toronto uses his smartphone to summon an UberX driver. At the end of the ride the details are recorded, and the rider walks away. No cash changes hands; it’s all billed through the rider’s credit card automatically. There’s no tipping and no fumbling with wallets/purses for cash.

Let’s also say, for argument’s sake, it’s a $50 ride. The fare is credited and sent electronically across national borders into the account of a company in Holland called Uber B.V. This company collects the fare and then, through another Dutch subsidiary (Raiser Operations B.V.), sends, in this case, $40 to the Toronto driver’s account. The remaining $10 enters a labyrinth of Dutch offshore entities.

The secret to the tax strategy is twofold. One, there is no recorded income for Uber in Canada. The Canadian driver, hopefully, pays provincial and federal personal income tax and HST on his Uber earnings, but Uber is invisible to the Canada Revenue Agency in this transaction – therefore no Canadian corporate tax.

Second, Uber B.V. is not Uber headquarters (that’s in San Francisco). Nor is Uber B.V. the international arm of Uber, set up to manage its operations. That’s Uber International C.V., another Bermuda-registered Dutch subsidiary. Basically, Uber B.V. keeps a small proportion of the Toronto fare to cover its expenses, and then transfers the remainder to Uber International C.V. through an “intangible property licence agreement.” Crucially, under Dutch law this royalty payment is nottaxable.

This strategy is called Double Dutch because it uses two companies resident in the Netherlands connected by a licence agreement. The approach creates a mechanism for transferring revenue from tax-paying sources anywhere in the world to offshore entities tax-free.

Uber has 10 subsidiaries in the Netherlands, all of which are housed in the same building in Amsterdam. Only one of the companies, Uber B.V., has real employees. The rest are holding companies or shells.

Uber’s Double Dutch royalty income is not taxed in Canada, in Holland or in the United States (the home of Uber and most of its employees) – nor anywhere else for that matter. This income exists in a “grey zone” of international tax avoidance that’s growing by the day.

Tax strategies such as the ones that Uber (and Google, Facebook and Apple) use are enhanced by the very nature of their businesses—the fact that so much of the value of companies like Uber is in their intellectual property. It’s simply a lot easier to move your company’s intellectual property and the profits it generates to a tax-friendly offshore destination like the Netherlands than it is to relocate your manufacturing operations with its plants and heavy machinery.

The bigger problem with Uber – like many global corporations today – is that it avoids paying federal and provincial corporate taxes while displacing traditional businesses (such as taxis) that do. Corporate tax avoidance of this sort is exploding, and it’s burning a big hole in Canadian government treasuries.

For example, the federal government’s revenues have increasingly shifted towards personal income tax (PIT) paid by you and me. For the first time ever, personal income taxes provided more than 50% of Ottawa’s revenues in 2014/15 – and are forecasted to keep rising. That’s up from a 30% share fifty years ago and even lower shares before then.

On the other hand, despite record profits, corporations provide just 13.6% of the federal government’s revenues in corporate income taxes. That’s a third less than the over 20% share they provided during the boom years from 1946 to 1970.