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OECD To Move On Internet Taxation

by Caroline Maxwell, Tax-News.com, London

23 October 2001


In its latest attempt to address the thorny issue of internet taxation, the OECD's Tax Advisory Group has recommended that websites be excluded from the tax nets of member countries.

If the proposed 2002 model tax code is adopted next year by the multilateral organization's 30 member countries, websites will not be considered as permanent establishments for the purposes of levying taxes on foreign enterprises. Web servers, however, will constitute a permanent establishment in the country in which they are located, and will therefore oblige their owner to pay taxes in that country under the planned legislation.

However, if the server is not considered a fully-fledged facility of the business, and is not used exclusively by it, it will not constitute a permanent establishment, and will therefore not incur tax liability.

OECD officials seem confident that these new proposals mark a satisfactory compromise in the long running dispute over how to legislate and implement internet taxation, and say that the recommendations are likely to be accepted by the 30 member countries by 2002. It's not clear how they square this statement with the UK's oft-repeated insistence that it will not treat a server, on its own, as a permanent establishment under any circumstances.


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