E - Commerce tax Policy Project

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Current State of International Law

Organization for Economic Co-operation
 

 

     The Organisation for Economic Co-Operation and Development(OECD) is the leading organization in reviewing and analyzing issues related to E-Commerce.  This section will discuss a report titled "Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-Commerce?"

     The OECD published in May 2001 a 232-page monograph titled "Taxation and Electronic Commerce."  This publication includes conclusions and recommendations that allow for "greater certainty among businesses and consumers in relation to the taxation of electronic commerce."  

See http://213.253.134.43/oecd/pdfs/browseit/2301011E.pdf.

TAG - January 1999

    The Technical Advisory Group on Monitoring the Application of Existing Treaty Norms for Taxing Business Profits (TAG) was created in January 1999 by the OECD Committee on Fiscal Affairs.  The TAG was charged with examining  "how the current treaty rules for the taxation of business profits apply in the context of electronic commerce and examine proposals for alternative rules."

 

TAG – September 1999

  1. Consideration of how the current treaty rules for the taxation of business profit apply in the context of electronic commerce.

  2. A consideration of the pros and cons of applying the existing treaty rules taking into account anticipated developments in electronic commerce.

  3. The development of criteria to facilitate the evaluation of existing treaty rules in the context of electronic commerce.

  4. An assessment of whether, and if so, how the current treaty rules should be clarified in the light of electronic commerce.

  5. The identification of alternatives to the current treaty rules for determining the taxing rights of source and residence countries and to the current treaty rules for the allocation of profit between taxing jurisdictions.

  6. An assessment of the alternatives to the current rules on the basis of the evaluation criteria.

 

TAG – February 2001

     In February 2001 the discussion draft on "Attribution of Profit to a Permanent Establishment Involved in Electronic Commerce Transactions" was released.

TAG – May 2003     
 
      In May 2003 the discussion draft on the "Place of Effective Management Concept:
Suggestions for Changes to the OECD Model Tax Convention.

TAG – June 2004

     In June 2004 the final report titled "Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-Commerce?" was presented to the Committee on Fiscal Affairs.
See www.oecd.org/dataoecd/58/53/35869032.pdf

 

FINAL REPORT

 

The final 83-page report titled "Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-Commerce?" begains with a background discussion of new business models and functions that have been enabled or impacted by new Internet-related technologies. 

The Second part of the report described the current treaty rules for taxing business profits.

    Major issues in this area were identified as:
            1. Liability to a country's tax
            2. Permanent establishment
            3. Computation of profits
            4. The treaty rules for sharing the tax base between states where there is nexus

The Third part of the report presented a critical evaluation of the current treaty rules with respect to E-Commerce.

    Major issues in this area were identified as:
            1. Consistency with the conceptual base for sharing the tax base
            2. Neutrality
            3. Efficiency
            4. Certainty and simplicity
            5. Effectiveness and fairness
            6. Flexibility
            7. Compatibility with international trade rules
            8. The need to have universally agreed rules

The Fourth part of the report listed some alternatives to the current treaty rules for taxing business profits.

These alternatives were divided into those changes that would not require a fundamental modification of the existing rules and those changes that would require a fundamental modification of the existing rules.

Two appendices were included in the report.  The first appendix included the mandate and composition of the TAG.  The second appendix listed examples of new business models and functions. 

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World Trade Organization

 

The Second (Geneva) Ministerial Conference adopted a declaration on global e-commerce on May 20, 1998.  The declaration urged the WTO General Council to establish a comprehensive work program to examine all trade-related issues arising from global electronic commerce.  The World Trade Organization through its WTO General Council established a work program for e-commerce issues on September 25, 1998.
Under the work program issues related to electronic commerce are examined by the Goods, Services and TRIPS (intellectual property) Councils and the Trade and Development Committee.  

     Various progress reports are linked on the WTO e-commerce website.  The website also refers to e-commerce seminars held on February 19, 1999, June 14, 2001, and April 22, 2002.

     See WTO e-commerce website at:
http://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm

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European Union

    

The European Union has a website for e-business.  The webiste location is:

http://ec.europa.eu/information_society/ecowor/ebusiness/index_en.htm.

    The e-business website has a link to an e-commerce page.  The E-Commerce page notes that "[p]romoting the development of electronic commerce is one of the key factors in the effort to make the European Union the most competitive and dynamic knowledge-based economy in the world." 

See http://ec.europa.eu/internal_market/e-commerce/expert_en.htm

    The site refers to Directive 2000/31/EC which "created the basic legal framework for electronic commerce in the Internal Market. The Directive removes obstacles to cross-border online services in the European Union and provides legal certainty to business and citizens alike."

    The Expert Group on E-Commerce was created on October 24, 2005.  Subsequent meetings of the Expert Group have been held on November 17, 2005, April 6, 2006, and February 20, 2007.

The E-commerce website lists the objectives of the Expert Group to be:
   1. to enhance/facilitate administrative co-operation between Member States and
        Member States and the Commission
   2. to discuss problems in the application of the directive
   3. to discuss emerging issues in the area of e-commerce

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© 2008 Larry Garrison & Rita Marie Cain

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