Outline: Tax, E-commerce

1
Outline Tax, E-commerce law

• The development of the digital economy
• Prospects for electronic commerce
• Electronic commerce and the need for a coherent
  e-tax strategy
• Appropriate solutions Law or technology?

2
Digital Economy Issues

• Economic Growth and social development
• Electronic commerce
• Measuring and analysing e-commerce and its
  impacts
• Access
• Security and Trust
• Regulatory framework
• Maximising and Sharing the benefits
• International co-operation

3
Prospects for Electronic Commerce

• Electronic commerce is still in its infancy
• B2C is relatively small compared to B2B
• Only a modest proportion of internet users make
  e-commerce purchases
• Internet and e-commerce infrastructure continues
  to expand
• Broadband rollout is gathering pace
• New e-commerce and e-business applications and
  platforms (phone distributed networks)
• Technology creates problem and solves it?

4
User Trust

• Consumer protection Guidelines, cross-border
  issues, new forms of fraud, ADR, Chip PIN
• Privacy protection Guidelines, Privacy Policy
  Statement Generator, trans-border data flow
  Authentication electronic signature,
  certification, PKI
• Security Guidelines, viruses and hacking,
  cyber-crime, cyber-terrorism, dependence on
  availability and security of networks
• Cryptography Guidelines
• Spam
• Content -Liability

5
Regulatory Environment

• Taxation Taxation framework conditions,
  consumption taxes, international direct taxation
  issues, tax administration
• Trade policy and market access
• Competition law and policy e-marketplaces,
  international delivery and customs procedures
• E-Finance cross-border trade in financial
  services, contract law, insurance

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Electronic Commerce E-Tax Strategy

• The Real and the Virtual
• Uniting the stakeholders authorities,
  technologists, PPs Consumers
• Market forces entrepreneurship, innovation and
  the human factor
• Getting fundamental compliance right
• Legal and/or technological solutions..?

7
Technology Collection Options

• Global Registration Body (multilateral
  agreement?)
• Self-assessment/Reverse Charge (Compliance,
  Certainty?)
• Source Taxation and Allocation (Costs,
  Efficiency?)
• Bespoke Software, In-house
• Intermediaries/Payment providers

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Bespoke Software (In-house)

• Tax.Web Expensive alternative in short term
• Appeal is to large companies and MNEs
• Future More practical with compliance
  certification of off-the shelf product

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Intermediary/Payment Provider

• Security legality in E-commerce is most
  consistent issue for ALL parties
• Trusted (Certificated) third parties have a
  crucial role
• Major financial institutions approved in listed
  jurisdictions
• Cost-effective for consumer and small business

10
Jurisdictional Border Logic

• This allows the system to determine which
  country, state or region has jurisdiction over a
  transaction
• Allowing the user to know where it is taxable,
  and what rates and rules to apply..

11
XML Software solutions

• XML is the lingua franca of the Internet
• The future of the further evolution of on-line
  transactions and TRANSACTION COMPLIANCE
  (Tax-Web)
• Payment Providers and Tax Authorities Common
  Utility

12
XML Possibilities

• XML sends tags with data when it is transmitted
  from one computer to another, allowing the
  receiving computer to interpret what it is
  getting.
• For example-ltCUSTOMERgt
• ltNAME.Hengist Craiglt/NAMEgt
• ltADDRESSgtMalcolm's Mountlt/Addressgt
• ltCITYgtStonehavenlt/CITYgt
• ltCOUNTRYgtScotlandlt/COUNTRYgt
• ltPRODUCTgt19002346756lt/PRODUCTgt

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Exemption Relief Management

• Tax Web manages exemption certificates and
  relief status. Without a valid exemption
  certificate from the buyer, the seller must
  either collect tax, or become responsible for the
  tax (default position).
• European VAT, where sellers must collect VAT in
  cross-border sales, unless they have valid VAT
  registration information for business buyers.

14
Legal Framework Isle of Man

• The Isle of Man is an internally self-governing
  territory of the British Crown which is not part
  of the United Kingdom. The Island enjoys a high
  degree of domestic, legislative and political
  autonomy. This effective independence, whilst
  operating within the stability of the British
  Isles, has provided a platform for business
  success

15
Legal Framework Isle of Man

• Protocol 3 to the UK Treaty of Accession
• This creates a special relationship with the
  European Union for the Island. The Island
  neither contributes to, nor receives from, the
  funds of the European Union. As a result, very
  few EU Directives are directly applicable to the
  Isle of Man. The Isle of Man Government is
  therefore at liberty to adopt EU legislation
  where it believes it would benefit business on
  the Island whilst being under no pressure to
  adopt EU legislation.

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Plus points for E-business

• Telecommunications network
• Infrastructure support services
• Resident company taxation.
•  

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Legislation

• The Islands e-business related legislation is
  therefore designed to enable entrepreneurs to
  maximise the opportunities presented by
  e-business rather than to control or over
  regulate
• e-business and risk stifling growth in trade.
•   

18
Legislation

• Electronic Transactions Act 2000
• Data Protection Act 2002
• Computer Security Act 1992
• Disaster Recovery (Temporary Business Continuity
  Operations) Regulations 2002
• VAT e-billing

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Profit Taxes New PE

• De Beers Piedras Negras AOL..?
• Altering the NEXUS in Model Treaties (Art 5 7
  of OECD Model)
• Virtual Permanent Establishment to apply to
  E-commerce only
• Various alternatives for change

20
Virtual PE Options

• Create Virtual Fixed Place of Business VFPB,
  (electronic version of present PE)
• Create Virtual Agency VA,(electronic version of
  dependent agent PE)
• Create Virtual Presence VP(declared or
  designated on-site presence)

21
Virtual PE VFPB

• PE created when an enterprise maintains a web
  site on a server owned or operated by another
  business located in a given jurisdiction.
• Web site is the place of business and is
  virtual
• Problems with the Arms length principle for
  attributing profits

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Virtual PE VA

• Extends the current Agent PE to recognise
  electronic equivalents.
• Electronic Agents now increasingly accepted Law
• The web site would be the place of business and
  be regarded as binding the principal in contract
  law
• This would need changes to Art 7 as well as Art 5
  of the OECD Model to allow attributation of
  profits to the Electronic Agent

23
Virtual PE VP

• A new threshold for taxation at source not based
  on any fixed place of business
• Provision of service at Business Interface
  (where the customer interacts with the service
  phone, cash-point etc)
• Requires setting of thresholds of sufficient
  activity monetary or durational compliance
  issues

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Welcome The Electronic Agent

• Deals with the essence of the E-commerce tax
  problem use of market without actual presence
  and Ottawa contradiction
• Same treatment of all concluded bargains by
  whatever means (in line with Ottawa)
• Allows for future flexibility in the Law to keep
  pace with technology
• MACHINE INTELLIGENCE ?????