The Application of Taxation Principles to Electronic Commerce: A Comparative Study

Abstract

The Internet has revolutionized the computer and communication world. The world has become like a small village where people can easily communicate with each other anywhere. Internet technology has also created a new method of conducting business which has experienced tremendous development over the years. New challenges have arisen in areas such as taxation, where governments seek to raise revenue without restricting economic or technological choices. As of October 1998, the Ottawa Taxation Framework has provided broad taxation principles that should apply to e-commerce. One of these principles is neutrality, where taxation must be neutral and fair between forms of e-commerce and between conventional and electronic forms of commerce. Business decisions must be guided by economic, and not tax considerations. Similarly situated taxpayers involved in similar transactions should be subject to similar tax rates. This approach does not prevent new administrative or legislative measures, nor would it require changes to existing measures related to e-commerce.

It has to be understood that e-commerce provides a fundamentally new way of conducting commercial transactions, which requires new legislative measures, or changes to the existing measures, to fit into the e-commerce environment. Some scholars oppose this proposition and believe that e-commerce is only a method of communication similar to the telephone, fax, or mail order, which could easily fit into the current tax system without any changes. My analysis contends that e-commerce is not just a communication tool but a massive revolution in conducting commercial transactions worldwide. Therefore, consideration has to be given to developing new procedures or changing existing procedures to assist in the application of the recent taxation principles.

The theme for this paper is to examine the OECD, E.U. and U.S. approaches in regulating e-commerce tax considering whether the taxation principles that guide them in relation to conventional commerce could also guide them in relation to electronic commerce. The taxation principles that apply to conventional commerce have existed for a long lime and have been unanimously agreed upon by the international community. Therefore, any change to existing rules must be guided by these principles in order to insure neutral and equitable application of taxation and to avoid double taxation, non-taxation, or distortion of competition. This study will mainly focus firstly on the consumption tax of international cross-border e-commerce, considering whether the OECD adoption of principal of taxation at the place of consumption, the method applied to verify the customer status and jurisdiction, and the collection mechanism that has been adopted by the OECD members can effectively be applied to e-commerce transactions, or if changes have to be made to insure certainty and compliance with these rules and principles; secondly, on evaluating the United States' approach to e-commerce taxation, since the United States is the largest global e-commerce market and among the first to deal with the e-commerce taxation dilemma; thirdly, on analyzing the OECD application of tax treaty concepts to e-commerce especially, the issue of treaty characterization, permanent establishment, attribution of profit to a permanent establishment and place of effective management, and its impact on developing and less-developed countries. Finally, it will examine and evaluate the EU implementation of the Value-Added taxes on e-commerce tax transactions.

Subject Area

Law

Degree Date

4-1-2006

Document Type

Dissertation

Degree Name

S.J.D.

Department

Dedman School of Law

Advisor

Christopher H. Hanna

Second Advisor

Joseph J. Norton

Third Advisor

John J. Mylan

Fourth Advisor

Michael Kirsch

Number of Pages

xi, 332

Creative Commons License

Creative Commons Attribution-Noncommercial 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License

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