Governments Urged To Adapt Existing Tax Rules For E-Commerce

Mandy Robinson, Tax-news.com, London

22 January 2001

The overall conclusions from the OECD Emerging Market Economy Forum on e-commerce, held in Dubai last week, called for countries worldwide to enhance international co-operation in the area of information and communication technology. Among the thorny issues surrounding the governance of e-commerce, taxation - as always - raised its ugly head.

Representing the European Information and Communications Technology Industry Association at the OECD/EMEF forum was director-general of the association, Oliver Bank. Mr Bank called for current tax regulations to be adapted so they can also apply to e-commerce activities: 'Adapt existing tax rules rather than create new ones, harmonise tax rules internationally and do not create new burdens and discriminatory taxes for e-commerce,' he said.

Mr Bank explained that a simplification of tax regulations would enable them to incorporate the issue of e-commerce. If there was more clarity, said Mr Blank, a business could concentrate on its operations rather than waste time working to complex rules and the laws must be flexible to facilitate this: 'E-commerce is moving so fast that it is difficult to predict how will it look like in five to ten years,' he said.

He added: 'We prefer if there is a consensus on global e-commerce laws rather than individual countries adopting their own laws.'

The current difficulties of e-taxation were highlighted recently by assistant director of the UK's Inland Revenue, Rachel Bradford, who explained that issues surrounding e-commerce taxation affect tax treaties, transfer pricing, consumption taxes and tax administration, including the problem of where to apply taxation if an e-company has no physical location. She said: 'There is an emerging consensus on many issues of e-commerce taxation. It is a challenging task to tax e-commerce.'

Last week, Tax-news.com reported that the OECD's Committee on Fiscal Affairs had reached a consensus on the issue of e-commerce taxation, or more precisely on the circumstances under which a website and server constitutes a taxable presence in a country. According to the OECD, a website alone is not a taxable presence but a server that carries out more than "preparatory or auxiliary" functions is a permanent establishment.

But this has attracted much criticism from tax experts worldwide and is not likely to be the last word on the subject. Ms Bradford said that one of the main conundrums of e-commerce taxation was how to establish a sound environment in which e-business can thrive but which at the same time delivers a flow of tax revenue to government.

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