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OECD Working Group Reports On Characterisation Of E-Commerce Payments

Ulrika Lomas, Tax-News.com, Brussels

05 February 2001

The OECD's Technical Advisory Group on Treaty Characterisation of Electronic Payments last week issued its final report on Treaty Characterisation Issues Arising from E-Commerce to Working Party No. 1 of the organisation's Committee on Fiscal Affairs.

The report deals with the characterisation of payments made in respect of e-commerce supplies, ie whether they should be treated (taxed) as normal business revenue, as royalties, as know-how payments and so on. Under most double tax treaties different rates of withholding tax apply to these different types of payment. Although the Report is at this stage just a recommendation, the TAG reached a consensus, and its members represented most of the OECD's member states, plus a good number of businesses, so that it is highly likely it will be adopted and will find its way into the 'Commentary' which is used by member states in interpreting double tax treaties when it comes to difficult subjects like the Internet.

As regards payments for downloaded product, perhaps the most important of the issues addressed by the TAG, a clear conclusion is reached that if the download (whether by an individual or a company) is for the use and enjoyment of the recipient, then payment for it is not a royalty, and is normal business income. Only if the download carries with it a permission to reproduce the material downloaded for further commercial purposes will payment for it have the characteristics of a royalty. (Payment for product or services received in the ordinary course of business would not be subject to withholding tax, whereas payments classified as royalties are usually subject to withholding.)

The report also deals with a number of other types of payment involving elements of license fee, technical fee, know-how payment and similar types of payment to which withholding usually applies. Its conclusions seem common-sensical, separating those parts of a payment which clearly relate to the provision of products or services from those elements which should be subject to withholding.

The report is available as a pdf file in Tax-News resources: Click here.

 

 






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