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The E-com Strain on Tax Law Concepts
Published online by Cambridge University Press: 17 February 2009
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It seems almost a truism to say that the Internet has changed the world. One can hardly find one area of economic life not strongly influenced by today's flow of information. Important aspects of people's lives have become dependent on a binary language manifested in bits and bytes. Furthermore, this new order is certainly not limited to business or economy. In fact, it applies to the whole issue of globalisation, such as the emerging of new political movements based on networks.
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References
1 See, for example, Doernberg and Hinnekens, , Electronic Commerce and International Taxation (The Hague: Kluwer Law International 1998)Google Scholar, and Boyle, and Sprague, , “Taxation of Income Derived from Electronic Commerce”, Cahiers de Droit Fiscal International, vol. 86a (The Hague 2001)Google Scholar (documentation for the 2001 International Fiscal Association Congress).
2 Skaar, , “Erosion of the Concept of Permanent Establishment: Electronic Commerce”, in: Lindencrona, , Lodin, , AND Wiman, , Bertil, (eds.), International Studies in Taxation: Law and Economics: Liber Amicorum Leif Mutén (Kluwer Law International 1999) p. 320.Google Scholar
3 To date, several international projects have been launched in the fight against tax evasion and money laundering, such as The Financial Action Task Force (FATF), created by the G7 group and recognised by the OECD. At an extraordinary Plenary on the Financing of Terrorism held in Washington D.C. on 29 and 30 October 2001, the Financial Action Task Force (FATF) expanded its mission beyond money laundering. It will now also focus its energy and expertise on the worldwide effort to combat terrorist financing, see <www.fatf-gafi.org> (homepage). Another important initiative is the Convention on Mutual Administrative Assistance in Tax Matters, developed by the OECD and the Council of Europe, which provides means for assistance among tax authorities. Yet another initiative, established by the European Council, is the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (the PC-R-EV Committee).
4 See, for example, Boyle and Sprague, supra n. 2, at p. 27.
5 For an extensive investigation of this field, see Skaar, , Permanent Establishment: Erosion of Tax Treaty Principle (Oslo: Ad Notam 1991).Google Scholar
6 See OECD, Clarification on the Application of the Permanent Establishment Definition in E-commerce: Changes to the Commentary on Article 5,
<http://www.oecd.org/daf/fa/material/mat_07.htm=material_final>, downloaded 22 October 2001.
7 In October 1998 the OECD hosted the Ministerial Conference “A Borderless World - Realising the potential of Electronic Commerce” in Ottawa, Canada.
8 According to the OECD member countries, as well as non-member economies welcomed the framework. The report is accessible at
<http://www.oecd.org/pdf/M000015000/M00015517.pdf>, downloaded 15 Jan. 2002. See also OECD, Committee on Fiscal Affairs, Implementing the Ottawa Taxation Framework Conditions, June 2000 <http://www.oecd.org/pdf/M000013000/M00013739.pdf>, downloaded 16 November 2001. Regarding the views of the European Union see COM (2000) 349 Final, 1.2.
9 It may be noted that some tax administrations have declared that they do not share the points of view of the OECD. The UK, for instance, has taken the view that servers of enterprises selling products on the Internet under no circumstances constitute a PE: see
<http://www.inlandrevenue.gov.uk/e-commerce/ecom15.htm>, downloaded 16 November 2001. The Swedish National Tax Board (RSV) has also expressed a critical opinion, see RSV:s remissvar den 18 februari 2000, Elektronisk handel och fasta driftställen – Yttrande över presenterat förslag till ändring i kommentaren till artikel 5 i OECD:s modell för skatteavtal beträffande inkomst och förmbgenhet.
10 See, for example, Doernberg and Hinnekens, supra n. 1, p. 137, Skaar, supra n. 7, and Appelqvist, , “Internationella skatteregler i ljuset av elektroniska fenomen”, Skattenytt 2001, at p. 630.Google Scholar
11 Skaar, ibid., at p. 320.
12 See Art. 4 of the OECD Model Tax Convention on Income and Capital.
13 For an international overview, see Boyle and Sprague, supra n. 2, pp. 29-40.
14 See Sugrue and Tober, “Taxation of Income Derived from Electronic Commerce”, National Report of the United States to the International Fiscal Association 2001 San Francisco Congress, Cahiers de Droit Fiscal International, vol. 86a (The Hague 2001) p. 727Google Scholar, with reference to Piedras Negras Broadcasting Co. v. Comm'r., 43 B.T.A. 297 (1941), nonacq., 1941-2 C.B. 22. Aff d, 127 F.2d 260 (5th Cir. 1942).
15 Conseil d'Etat 13 juillet 1968, n° 66 503, Dupont 1968, p. 447, referred to by Pons and Gelin, “Taxation of Income Derived from Electronic Commerce”, French National Report to the International Fiscal Association 2001 San Francisco Congress, Cahiers de Droit Fiscal International, vol. 86a (The Hague 2001) p. 387.Google Scholar
16 This is defined as “un ensemble d'operations commerciales, artisanales ou industrielles dirigées vers un but déterminé et formant un tout cohérent détachable de l'activité excercée par le siège”. See Pons and Gelin, supra n. 15.
17 Treas. Reg. § 1.861-4(b)(l);Prop.Treas.Reg. § 1.861-4(b)(l)(21 January 2000), as quoted in Tillinghast, , “Reflections on Determining the Source of E-Commerce Income Characterized as Income From the Provision of Services”, in: Andersson, , Melz, and Silfverberg, (eds.), Liber Amicorum Sven-Olof Lodin, Series on International Taxation (Kluwer Law International and Norstedts Juridik 2001) at p. 285.Google Scholar
18 See Tillinghast, ibid., at p. 284, with reference to Tipton & Kalmbach Inc. v. United States, 480 F.2d 1118 (10th Cir. 1973).
19 See Boyle and Sprague, supra n. 2.
20 See OECD, Attribution of Profit to a Permanent Establishment Involved in Electronic Commerce Transactions; Draft for public comment, p. 33,
<http://www.oecd.org/pdf/M000015000/M00015525.pdf>, downloaded 18 November 2001.
21 Tax Treaty Characterization Issues Arising From E-commerce. Report to Working Party No. 1 of the OECD Committee on Fiscal Affairs by the Technical Advisory Group on Treaty Characterization of Electronic Commerce Payments, 1 February 2001,
<http://www.oecd.org/pdf/M000015000/M00015536.pdf>, downloaded 14 November 2001.
22 In the field of company income taxation there are two directives, the Parent-subsidiary Directive (90/435/EEC) and the Merger Directive (90/434/EEC). These are certainly important achievements but their scope is limited to certain transactions.
23 The most important in the field of VAT is the Sixth Directive (77/388/EEC). It is noteworthy, however, that not all VAT issues have been made subject to harmonisation. It is, for example, still up to the Member States to decide on administrative procedure and, to some extent, on tax rates.
24 However, the ECJ has to date not explicitly dealt with taxation of electronic commerce.
25 See COM (2000) 349 Final.
26 The directive is expected to be adopted during 2002. For discussions regarding the issue of VAT and electronic commerce, see, for example, Eicker, , “Taxation of E-commerce – only little progress”, International Tax Review (2000) 395Google Scholar, or Alhager, and Eliasson, , “Några synpunkter på Internet och mervaräesskatt”, Skattenytt 2001, at p. 19.Google Scholar
27 See COM (2000) 349 Final.
28 OECD, Committee on Fiscal Affairs, Implementing the Ottawa Taxation Framework Conditions, June 2000, <http://www.oecd.org/pdf/M000013000/M00013739.pdf>, downloaded 16 November 2001.