Transcript Legal Framework: Isle of Man

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?
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Digital Economy: Issues
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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
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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?
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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 …
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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…..?
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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:
Consumption Tax Options
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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
Consumption Tax Options
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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
Consumption Tax Options
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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..
Consumption Tax Options
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XML : Software solutions
• XML is the “lingua franca of the Internet”
• The future of the further evolution of online transactions and TRANSACTION
COMPLIANCE (“Tax-Web”)
• Payment Providers and Tax Authorities
Common Utility
Compliance Tax Options
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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:-<CUSTOMER>
<NAME.Hengist Craig</NAME>
<ADDRESS>Malcolm's Mount</Address>
<CITY>Stonehaven</CITY>
<COUNTRY>Scotland</COUNTRY>
<PRODUCT>190023467#56</PRODUCT>
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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.
Consumption Tax Options
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Legal Framework: Isle of Man
The Isle of Man is an internally selfgoverning 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
Legal Framework: Isle of Man
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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.
Legal Framework: Isle of Man
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Plus points for E-business
1. Telecommunications network;
2. Infrastructure support services;
3. Resident company taxation.
Legal Framework: Isle of Man
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Legislation
The Island’s 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.
Legal Framework: Isle of Man
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Legislation
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Electronic Transactions Act 2000
Data Protection Act 2002
Computer Security Act 1992
Disaster Recovery (Temporary Business
Continuity Operations) Regulations 2002
VAT – e-billing
Legal Framework: Isle of Man
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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 Ecommerce only
• Various alternatives for change
Legal Framework: Virtual PE
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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)
Legal Framework: Virtual PE
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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
Legal Framework: Virtual PE
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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
Legal Framework: Virtual PE
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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
Legal Framework: Virtual PE
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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 ?????
Virtual Reality Law
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