International Taxation of E-Commerce: Persistent Problems and Possible Developments
Basu, Subhajit, Journal of Information, Law and Technology
The relationships between taxation and technological developments have always been interactive, dynamic and complex. The current debate over taxation of e-commerce has, to some extent, been little more than a rehash of a similarly inconclusive scholarly and legislative debate that raged over mail-order sales during the 1980s. However, in the case of e-commerce, the added question is how to reconcile national fiscal boundaries with the borderless world of the internet.
A government's authority to tax had always been based on territory and jurisdiction. These systems now face a serious challenge from development of e-commerce. The trade in goods and services over the Internet has fundamentally altered the accepted boundaries and conventions. Some of the concepts underlying the principles of international consensus on taxation were always flawed, but those flaws have become much more apparent with the advent of e-commerce. E-commerce makes the concepts of permanent establishment (to determine location of manufacture), point of sale (for the application of relevant tax rates), income classification (based on source of income), product classification (for preferred tax rates), etc. difficult to apply. Within the borderless world of the internet (1), e-commerce effectively obliterates any footprints leading to the buyers and sellers' locations. Governments are already losing millions in tax revenue through the penetration of e-commerce within their jurisdictions, and their tax authorities are finding it increasingly difficult to stem this haemorrhage.
The definition of "tax" is far from straight forward, even if conventional taxes are considered. However, in many countries, in addition to legally imposed taxes, there are also arbitrary and irregular tax-like levies imposed by the authorities. These are part of a larger phenomenon of the necessity to make extra payments when interacting with government officials in many countries, particularly at the local level and at lower levels of bureaucracy. These also form a part of the burden of taxation and have socio-economic consequences. In most countries, conventionally defined legal taxes and levies constitute a significant proportion of GDP, and finance major parts of government expenditure. It is therefore essential that these systems be designed to achieve the appropriate trade-offs among revenue generation, allocation efficiency, equity, and administration and compliance costs.
Taxation is not simply a matter of efficient economic management and functional governance, but serves to define, enable and constrain the historical meaning of the state and the possibility of society (Cameron, 2006). However, emergence of international and possibly global dimensions of taxation is a far more recent phenomenon. "As this implies, the institutional practices of taxation have been subject to continuous if not constant renegotiation throughout their history in response to the changing forms and functions of the societies they help to constitute" (Ibid). Much argument about the internet proceeds as if the problem were new, and thousands of years of political and legal thought simply irrelevant in light of the internet's uniqueness. Some commentators have argued that this notion is manifestly false: many of the questions that apply to the Internet today arose in similar form during the popularization of other technologies, such as modern shipping, aviation, and telecommunications (to name only a few). The answers that human societies forged to those questions then can help us answer analogous questions today. Yet recognizing that the Internet lays on a historical continuum of transformative technologies leads us to ask two interrelated questions that merit attention before delving into others: What characteristics mark the Internet as a novel and genuinely disruptive technology? What about the Internet poses new challenges?
It is difficult to provide a comprehensive answer in this short article, however in response to the second; taxation is definitely one such area where internet and e-commerce have raised concerns. …