Commenting on the proposed new rules last week, Craig Elliffe, a tax partner with accounting firm KPMG, said one of the most important questions was whether the use of a web server in a foreign country would cause a firm to be liable for income tax in that country. Did it constitute a "permanent establishment" and therefore a taxable presence in that country? "Where an enterprise effectively rents the foreign server equipment, the conclusion is that it will not constitute a permanent establishment. Since the firm has no tangible assets in the country it is thought there is no physical presence," Mr Elliffe said. "The OECD's conclusion is that ISPs [internet service providers] will not normally constitutes permanent establishments of the taxpayers whose web pages they host, as they will not have authority to conclude contracts in the taxpayers' names and furthermore they are acting as independent agents in the ordinary course of their business, as evidenced by the fact that they host many enterprises' web sites."

The General Manager of the New Zealand Inland Revenue Service, Robin Oliver, said that tax authorities had to accept that as a result of e-commerce some economic activities will move offshore resulting in tax revenue losses, but that these will be offset by the efficiency gains firms can achieve through e-commerce. "I don't think it opens up avoidance opportunities. We're 100 per cent behind it" said Mr Oliver.