TAXATION OF ELECTRONIC COMMERCE
(2002)Department of Law
- Abstract
- The electronic commerce has raised complicated tax-related matters, not least connected to the OECD Draft Double Taxation Convention on Income and Capital (hereinafter Model Convention) on which more than 1,500 double taxation treaties are based. The Internet makes business solutions where commerce carried out in one country but taxed in another easier. According to article 7 of the Model Convention business profits are to be taxed in the state where the corporation has its residence, unless the business is carried out from a permanent establishment in another state. If the latter is the case the other state is allowed to tax income attributable to the permanent establishment. The article is hard to apply on electronic commerce. According... (More)
- The electronic commerce has raised complicated tax-related matters, not least connected to the OECD Draft Double Taxation Convention on Income and Capital (hereinafter Model Convention) on which more than 1,500 double taxation treaties are based. The Internet makes business solutions where commerce carried out in one country but taxed in another easier. According to article 7 of the Model Convention business profits are to be taxed in the state where the corporation has its residence, unless the business is carried out from a permanent establishment in another state. If the latter is the case the other state is allowed to tax income attributable to the permanent establishment. The article is hard to apply on electronic commerce. According to article 12 royalties are taxed the same way as other income. This paper deals with four issues raised by applying today's regulation on electronic commerce: Firstly, it is uncertain how to determine the residence of a corporation using electronic commerce since the residence is depending on where the corporation has its factual seat. The members of the board of the corporation can be residents in different states and take decisions via electronic networks. Secondly, the Commentary to the Model Convention deals only with the characterisation of transfers of software. It is unclear how it applies to other digital goods. Thirdly, it is uncertain what constitutes a permanent establishment. Perhaps the most discussed question concerning electronic commerce is whether or not a server constitutes a permanent establishment. Finally, electronic commerce makes it difficult to attribute a taxable amount of income to the permanent establishment. The uncertainty of how to apply the Model Convention has negative effects on international trade. Due to this uncertainty, corporations are facing risks of double taxation, unpredicted tax liabilities and litigations. The national tax administrations face the same problems and experience difficulties with characterising what is attributable income and overcome the increasing possibilities of tax evasion. OECD is of the opinion that the existing concepts and principles of taxation shall apply to electronic commerce. Practically this would result in taxation, irrespective of whether it is royalty income or business profits, only in the state of residence. This, in turn, is depending on a reliable definition of residence and international consensus on what constitutes residence. Such consensus will be difficult to reach and therefore alternative concepts of residence are analysed in this paper. It could be even more difficult to reach a consensus on if and how to distribute the right of taxation between residence states and source states. Within this paper tax bases and alternative ways of taxation distributing income between state of residence and the source state are discussed and analysed. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1563116
- author
- Wolff, Richard
- supervisor
- organization
- year
- 2002
- type
- H3 - Professional qualifications (4 Years - )
- subject
- keywords
- Skatterätt
- language
- English
- id
- 1563116
- date added to LUP
- 2010-03-08 15:55:31
- date last changed
- 2010-03-08 15:55:31
@misc{1563116,
abstract = {{The electronic commerce has raised complicated tax-related matters, not least connected to the OECD Draft Double Taxation Convention on Income and Capital (hereinafter Model Convention) on which more than 1,500 double taxation treaties are based. The Internet makes business solutions where commerce carried out in one country but taxed in another easier. According to article 7 of the Model Convention business profits are to be taxed in the state where the corporation has its residence, unless the business is carried out from a permanent establishment in another state. If the latter is the case the other state is allowed to tax income attributable to the permanent establishment. The article is hard to apply on electronic commerce. According to article 12 royalties are taxed the same way as other income. This paper deals with four issues raised by applying today's regulation on electronic commerce: Firstly, it is uncertain how to determine the residence of a corporation using electronic commerce since the residence is depending on where the corporation has its factual seat. The members of the board of the corporation can be residents in different states and take decisions via electronic networks. Secondly, the Commentary to the Model Convention deals only with the characterisation of transfers of software. It is unclear how it applies to other digital goods. Thirdly, it is uncertain what constitutes a permanent establishment. Perhaps the most discussed question concerning electronic commerce is whether or not a server constitutes a permanent establishment. Finally, electronic commerce makes it difficult to attribute a taxable amount of income to the permanent establishment. The uncertainty of how to apply the Model Convention has negative effects on international trade. Due to this uncertainty, corporations are facing risks of double taxation, unpredicted tax liabilities and litigations. The national tax administrations face the same problems and experience difficulties with characterising what is attributable income and overcome the increasing possibilities of tax evasion. OECD is of the opinion that the existing concepts and principles of taxation shall apply to electronic commerce. Practically this would result in taxation, irrespective of whether it is royalty income or business profits, only in the state of residence. This, in turn, is depending on a reliable definition of residence and international consensus on what constitutes residence. Such consensus will be difficult to reach and therefore alternative concepts of residence are analysed in this paper. It could be even more difficult to reach a consensus on if and how to distribute the right of taxation between residence states and source states. Within this paper tax bases and alternative ways of taxation distributing income between state of residence and the source state are discussed and analysed.}},
author = {{Wolff, Richard}},
language = {{eng}},
note = {{Student Paper}},
title = {{TAXATION OF ELECTRONIC COMMERCE}},
year = {{2002}},
}