U N C T A D United Nations Conference on Trade and Development

TAXATION IN THE AGE OF E-BUSINESS Protecting revenue, seizing new opportunities

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 1

U N C T A D United Nations Conference on Trade and Development

CHALLENGES OF E-TAXATION

LOCATION OF ACTIVITIES JURISDICTION ISSUES ANONYMOUS USERS IDENTIFICATION ISSUES LESS INTERMEDIARIES ENFORCEMENT ISSUES High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 2

U N C T A D United Nations Conference on Trade and Development

TAXATION OF IMPORTED GOODS

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 3

U N C T A D United Nations Conference on Trade and Development For goods which are traded on-line delivered physically For goods that are traded and delivered electronically (digitizable goods) Books, music, software,etc No new issues:

taxation at the border

Problem of:

- identification of taxpayer, - definition of jurisdiction, - enforcement of payment

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 4

U N C T A D United Nations Conference on Trade and Development IMPORT TARIFFS FOR DIGITIZABLE GOODS Africa Caribbean Dev. Asia Developed E. Europe Lat Amer M. East/N. Afr World Tax and tariff revenue (US$ 000)

142,502 50,386 650,493

Tax and tariff Tax and tariff Tax and tariff revenue revenue revenue % of imp. rev. % of tax rev. % of total rev.

3.9

0.8

0.6

1.9

1.3

0.4

0.1

0.3

0.1

4,828,654 547,205 560,131 128,352

6,907,724

20.8

10.9

5.8

1.9

9.2

0.3

0.4

0.6

0.3

0.4

0.2

0.3

0.4

0.2

0.3

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 5

U N C T A D United Nations Conference on Trade and Development

DIGITIZABLE GOODS: POLICY IMPLICATIONS

• Revenue implications are not substantial • Heavy implementation burden of e-taxes

CONTINUE CURRENT MORATORIUM

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 6

U N C T A D United Nations Conference on Trade and Development

INCOME TAXATION

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 7

U N C T A D United Nations Conference on Trade and Development

FUNDAMENTAL PRINCIPLES OF INCOME TAXATION

• PERMANENT ESTABLISHMENT • RESIDENCE-BASED TAXATION • SOURCE-BASED TAXATION

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 8

U N C T A D United Nations Conference on Trade and Development RESIDENCE-BASED TAXATION

• Applied in the jurisdiction of the place of residence of the person/business

SOURCE-BASED TAXATION

• Applied in the jurisdiction where economic activity takes place, if permanent establishment is determined (“NEXUS”)

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 9

U N C T A D United Nations Conference on Trade and Development

Permanent establishment in the cyber-world

• Is a web-site a permanent establishment?

• Is a server operating a web-site a permanent establishment?

• Can ISP be considered to constitute a permanent establishment of the business whose web-sites they host?

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 10

U N C T A D United Nations Conference on Trade and Development

CONSUMPTION TAXATION

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 11

U N C T A D United Nations Conference on Trade and Development

• VAT & SALES TAX Collected by seller and borne by the consumer Different rules apply to different buyers (consumer vs. business; foreign vs. domestic) Requires the cooperation of intermediaries • E-COMMERCE CHALLENGE –Incentive to relocate outside countries imposing VAT –Elimination of intermediaries

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 12

U N C T A D United Nations Conference on Trade and Development

ADAPTING CONSUMPTION TAXES TO E-COMMERCE

IDENTIFY POTENTIAL NEW INTERMEDIARIES

ISPs credit card companies banking and payment system providers telecommunications companies

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 13

U N C T A D United Nations Conference on Trade and Development

ADAPTING COMSUMPTION TAXES TO E-COMMERCE

INTERNATIONAL COOPERATION

Agreement on whether taxation should take place in the country where consumer is based, or in the country where producer is based or, where consumption occurs

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 14

U N C T A D United Nations Conference on Trade and Development

SEIZING THE E-COMMERCE OPPORTUNITIES

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 15

U N C T A D United Nations Conference on Trade and Development

MORE MOBILE PLAYERS NEW SERVICES ATTRACT PRODUCTIVE INVESTMENT WIDER TAX BASE MORE EFFICIENT ADMINISTRATION MAINTAIN REVENUE LEVELS

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 16

U N C T A D United Nations Conference on Trade and Development

PRINCIPLES OF E-TAXATION

• TECHNOLOGICAL NEUTRALITY • EFFICIENCY • CERTAINTY AND SIMPLICITY • EFFECTIVENESS AND FAIRNESS • FLEXIBILITY

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 17

U N C T A D United Nations Conference on Trade and Development

WRAPPING-UP…..

COMSUMPTION TAXES INCOME TAXES IMPORT TAXES High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 18

U N C T A D United Nations Conference on Trade and Development

THE WAY AHEAD

• International cooperation: E businesses escape notions of residence and location • Cooperation with business: use solutions that do not hinder technological advance

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 19

U N C T A D United Nations Conference on Trade and Development

• PREPARE WHILE IMPACT REMAINS TOLERABLE • KEEP E-TAX LIGHT • PARTICIPATE IN INTERNATIONAL DEBATE • SEIZE THE OPPORTUNITIES

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 20