Taxation on Ecommerce: A Case Illustration

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Taxation on E-commerceA Case Illustration
-commerce
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What is E-commerce?
-commerce

• Business transactions taking place through the
  electronic transmission of data over
  communication networks such as the Internet.

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Taxation Implication on E-commerce
-commerce

• E-commerce operates in a world without boundaries
• but
• Traditional tax systems are still tied to
  national territories

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Case Illustration
Venus Music is a Hong Kong based retailer CDs
through its network of shops in Hong Kong. Now
Venus Music develops her e-business by using
digital delivery of MP3-encoded music to her
customers.
Hong Kong
B 2 C for Digital Music
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Case Illustration
Panama
Venus Music setup a server in Panama, a tax
heaven and this server can perform full
independent function. A backup server is setup
in Hong Kong office.
Hong Kong
B 2 C for Digital Products
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Case Illustration
Panama
MP3-coded music is periodically upload to main
sever and Customer transactions are download from
main server.
Hong Kong
B 2 C for Digital Products
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Case Illustration
Panama
HK customer can download the music from the main
server in Panama.
Hong Kong
B 2 C for Digital Products
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Case Illustration
Panama
Hong Kong
United Kingdom
B 2 C for Digital Products
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Case Illustration
Panama
Hong Kong
United Kingdom
Japan
B 2 C for Digital Products
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Case Illustration
Panama
Hong Kong
United Kingdom
Japan
USA
B 2 C for Digital Products
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Case Illustration
Panama
Hong Kong
United Kingdom
Japan
USA
B 2 C for Digital Products
Anywhere
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Major Tax Problem on E-commerce
-commerce

• Difficult to locate the source of profit of
  Venus Music. Whether the server in Panama
  constitute a permanent establishment (PE)?

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A Suggested Solution
-commerce

• Modify the exist PE concept to cope with the tax
  on e-commerce. Venus Music is a Hong Kong
  company and the profit derived from Hong Kong
  should be liable to Hong Kong profit tax even the
  server in Panama can constitute as a PE.

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A Suggested Solution
-commerce
Taxable
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Not Taxable
Not Taxable
Not Taxable
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Taxation on E-commerceA Case Illustration
-commerce
End of PresentationThank you
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