U N C T A D

High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 1
United Nations Conference on
Trade and Development
TAXATION IN THE AGE OF
E-BUSINESS

Protecting revenue,
seizing new opportunities
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 2
United Nations Conference on
Trade and Development
CHALLENGES OF E-TAXATION
LOCATION
OF ACTIVITIES
JURISDICTION
ISSUES
ANONYMOUS
USERS
IDENTIFICATION
ISSUES
LESS
INTERMEDIARIES
ENFORCEMENT
ISSUES
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 3
United Nations Conference on
Trade and Development
TAXATION OF IMPORTED
GOODS
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 4
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)
No new issues:
taxation at the
border
Problem of:
- identification of
taxpayer,
- definition of
jurisdiction,
- enforcement of
payment
Books, music, software,etc
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 5
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
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 6
United Nations Conference on
Trade and Development
DIGITIZABLE GOODS:
POLICY IMPLICATIONS
Revenue implications are not substantial
CONTINUE CURRENT
MORATORIUM
Heavy implementation burden of e-taxes
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 7
United Nations Conference on
Trade and Development
INCOME TAXATION
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 8
United Nations Conference on
Trade and Development
FUNDAMENTAL PRINCIPLES
OF INCOME TAXATION
PERMANENT ESTABLISHMENT
SOURCE-BASED TAXATION
RESIDENCE-BASED TAXATION
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 9
United Nations Conference on
Trade and Development
SOURCE-BASED TAXATION
Applied in the jurisdiction where economic
activity takes place, if permanent
establishment is determined (NEXUS)
RESIDENCE-BASED TAXATION
Applied in the jurisdiction of the place of
residence of the person/business
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 10
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?

U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 11
United Nations Conference on
Trade and Development
CONSUMPTION
TAXATION
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 12
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
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 13
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
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 14
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
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 15
United Nations Conference on
Trade and Development
SEIZING THE E-COMMERCE
OPPORTUNITIES
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 16
United Nations Conference on
Trade and Development
MORE MOBILE
PLAYERS
NEW SERVICES
MORE EFFICIENT
ADMINISTRATION
ATTRACT
PRODUCTIVE
INVESTMENT
WIDER TAX
BASE
MAINTAIN
REVENUE
LEVELS
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 17
United Nations Conference on
Trade and Development
PRINCIPLES OF E-TAXATION
TECHNOLOGICAL NEUTRALITY
EFFICIENCY
CERTAINTY AND SIMPLICITY
EFFECTIVENESS AND FAIRNESS
FLEXIBILITY
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 18
United Nations Conference on
Trade and Development
WRAPPING-UP..
IMPORT TAXES
INCOME TAXES
COMSUMPTION
TAXES
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 19
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
U N C T A D
High-level Meeting on Electronic Commerce, Customs and Taxation, Brussels,June 2001 Page 20
United Nations Conference on
Trade and Development
PREPARE WHILE IMPACT REMAINS
TOLERABLE
KEEP E-TAX LIGHT
PARTICIPATE IN INTERNATIONAL
DEBATE
SEIZE THE OPPORTUNITIES