UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
CHALLENGES OF E-TAXATION
LOCATION
JURISDICTION
OF ACTIVITIES
ISSUES
ANONYMOUS
IDENTIFICATION
USERS
ISSUES
LESS
ENFORCEMENT
INTERMEDIARIES
ISSUES
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 2
UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
For goods which are
traded on-line
delivered physically
No new issues:
taxation at the
border
For goods that are
traded and delivered
electronically
(digitizable goods)
Problem of:
- identification of
taxpayer,
- definition of
jurisdiction,
- enforcement of
payment
Books, music, software,etc
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 4
UNCTAD
United Nations Conference on
Trade and Development
IMPORT TARIFFS FOR
DIGITIZABLE GOODS
Tax and
Tax and tariff Tax and tariff Tax and tariff
tariff revenue
revenue
revenue
revenue
(US$ 000) % of imp. rev. % of tax rev. % of total rev.
Africa
142,502
3.9
0.8
0.6
Caribbean
50,386
1.9
0.4
0.3
Dev. Asia
650,493
1.3
0.1
0.1
Developed
4,828,654
20.8
0.3
0.2
E. Europe
547,205
10.9
0.4
0.3
Lat Amer
560,131
5.8
0.6
0.4
M. East/N. Afr
128,352
1.9
0.3
0.2
World
6,907,724
9.2
0.4
0.3
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 5
UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
INCOME TAXATION
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 7
UNCTAD
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
UNCTAD
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
UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
CONSUMPTION
TAXATION
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 11
UNCTAD
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
UNCTAD
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
UNCTAD
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
UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
MORE MOBILE
PLAYERS
ATTRACT
PRODUCTIVE
INVESTMENT
NEW SERVICES
WIDER TAX
BASE
MORE EFFICIENT
ADMINISTRATION
MAINTAIN
REVENUE
LEVELS
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 16
UNCTAD
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
UNCTAD
United Nations Conference on
Trade and Development
WRAPPING-UP…..
INCOME TAXES
COMSUMPTION
TAXES
IMPORT TAXES
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001
Page 18
UNCTAD
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
UNCTAD
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