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Isle Of Man Says It's Ahead Of OECD E-Commerce Tax Deliberations

Mandy Robinson, Tax-news.com, London

16 January 2001

The Isle of Man's e-commerce thinking has proved so accurate that the island appears to be ahead of the OECD. It transpires that the Manx authorities have already discussed the e-commerce taxation principles set down in last week's OECD report.

Tim Craine, the government's director of e-commerce, said: 'Essentially, they arrived at a solution that the Isle of Man was already looking at itself. The key is that the OECD has been looking at what activity takes place on a server, rather than where the server is based. That was the way the Isle of Man tax authorities were looking at it and it is something we are formulating at the moment.'

Mr Craine is referring to measures the OECD put forward dealing with the status of a server in e-commerce transactions as a permanent establishment.

Tim Craine was appointed director of the island's e-commerce sector last September as part of a initiative to make the Isle of Man a leading e-commerce jurisdiction. Dealing with the matter of Internet business taxation was seen as an important part of the process.

He added: 'We were aware of the OECD's deliberations on the matter, however, the pronouncement last week is a useful clarification. It is still only an interim solution and there’s still a long way to go at this stage. What they were discussing were principles. They have agreed a set of principles, from which more detailed taxation principles can cascade.'

The OECD announcement concluded that a permanent establishment would be created if a server was performing functions that formed a core part of its business activity, such as downloading software from databases, but that lesser use, or the mere onward transmission of data, would not imply any taxability.

The OECD said that the new rules and commentary would help standardise the approach taken by national tax authorities, some of which had raised questions on how to interpret tax treaties with other nations. But the more important question of the future usefulness of the 'permanent establishment' concept remains to be resolved.

The full text of the OECD's announcement is available in Tax-News Resources or at http://www.oecd.org/daf/fa/treaties/Clarif_e.pdf

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