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OECD Agreement On E-Commerce Taxation "Lacks Clarity" Say Experts

Lisa Ugur, Tax-news.com, London

18 January 2001

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 whether 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. However, in the days since the OECD came out with its clarification of the rules of e-commerce taxation (at least in its eyes), tax experts have hit out at the OECD's framework for taxing e-business, saying that it lacks "clarity".

AccountancyAge reported this week that Chris Scott, e-tax partner at KPMG, was of the opinion that the OECD agreement would leave companies in too much of a muddle: 'The OECD document will give rise to uncertainty for many UK companies that own servers located overseas', he said. 'It means business will have to consider on a case-by-case basis whether servers in support of their e-commerce operations will constitute a permanent establishment.'

Businesses are naturally concerned at the prospect of having servers identified as permanent establishments, which under the OECD proposals would give a country the right to tax their profits. Countries would effectively have the right to decide the fate of e-businesses (to tax or not to tax, that is the question......) and of course there are some which will inevitably get the thin end of the wedge.

Mike Perkins, director of e-business tax at PricewaterhouseCoopers, warned: 'The fact that the OECD's decision does not need new legislation in member countries to become effective makes this an immediate issue for any business trading electronically.'

Other tax experts, however, see the OECD consensus as making clear where the tax burden lies. Graham Fisher, an analyst with Bloor Research, commented: 'The OECD announcement clarifies the taxable position of e-businesses. Businesses will now have to think carefully about their location' (and make sure that the servers aren't in the EU, presumably).

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