Sustainable development and the new economy : forum highlights

232 Pages·2001·3.223 MB·English

by  OECD

«
TAXATION
Taxation and Electronic Commerce Taxation and
IMPLEMENTING THE OTTAWA TAXATION FRAMEWORK
Electronic
CONDITIONS
Commerce
How should governments tax e-commerce? What does e-commerce mean for
existing international tax principles and systems? What are the administrative
challenges of taxing e-commerce, and how can these be tackled? How can IMPLEMENTING THE
governments harness the new technology to improve taxpayer service and reduce OTTAWA TAXATION
compliance costs? These are just some of the pressing questions addressed in
FRAMEWORK CONDITIONS
this book.
This volume provides a comprehensive guide to the status of the OECD-led
international work on these questions, and hence to emerging conclusions and TAXATION
recommendations across a wide span of tax policy and tax administration issues.
It sets out the latest thinking of the OECD's Committee on Fiscal Affairs on the
taxation aspects of electronic commerce, and on progress toward implementing
the Ottawa Taxation Framework Conditions. It includes a number of documents
for public review and comment, and details the outputs from the past two years
T
intensive dialogue with the international business community and with a
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non-member economies. As such it is an invaluable reference for all those a
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interested in how governments around the globe are responding to the taxation i
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challenges presented by e-commerce. n

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ISBN 92-64-18595-X
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Taxation and
Electronic
Commerce
Implementing the Ottawa
Taxation Framework Conditions
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960,
and which came into force on 30th September 1961, the Organisation for Economic
Co-operation and Development (OECD) shall promote policies designed:
– to achieve the highest sustainable economic growth and employment and a
rising standard of living in Member countries, while maintaining financial
stability, and thus to contribute to the development of the world economy;
– to contribute to sound economic expansion in Member as well as non-member
countries in the process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-
discriminatory basis in accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada,
Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom and the United States. The following countries became Members
subsequently through accession at the dates indicated hereafter: Japan
(28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New
Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic
(21stDecember1995), Hungary (7th May 1996), Poland (22ndNovember1996),
Korea (12th December 1996) and the Slovak Republic (14th December2000). The
Commission of the European Communities takes part in the work of the OECD
(Article 13 of the OECD Convention).
Publié en français sous le titre :
COMMERCE ÉLECTRONIQUE ET FISCALITÉ
Mise en œuvre des conditions cadres d’Ottawa sur la fiscalité
© OECD 2001
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Preface by the Chair
of the Committee on Fiscal Affairs
Electronic Commerce: Realising the Potential
The OECD has taken a significant step forward in reaching an international consensus
on the tax treatment of electronic commerce.
Electronic commerce has enormous potential to change the way we work, play and orga-
nise our lives. It is already changing the ways in which multinational enterprises (MNEs) oper-
ate – making globalisation a reality – and it has enabled consumers and small enterprises to
operate and shop beyond their national boundaries.
If this potential is to be fully realised we must provide a Taxation Framework which
provides certainty, fairness, neutrality and avoids putting in place new tax obstacles to the
development of this new form of doing business. At the same time this Framework must
ensure that taxpayers pay the right amount of tax, in the right jurisdictions and at the right
time.
This publication goes a long way towards implementing the Taxation Framework Con-
ditions agreed in Ottawa in1998. The Ottawa Taxation Framework Conditions provide the
principles which should guide governments in their approach to e-commerce. It also states
that e-commerce should be treated in a similar way to traditional commerce and empha-
sises the need to avoid any discriminatory treatment. This Framework was welcomed by
Member countries and non-member economies, as well as by the business community.
The conclusions reached in this publication provide the certainty that business and
governments are seeking. I am particularly pleased that the proposals set out in this publi-
cation are the outcome of discussions between OECD governments, non-OECD govern-
ments and business. Non-member economies need to be involved in the OECD work since
e-commerce requires globally accepted standards. Business needs to be involved since
ultimately they have to operate any tax provisions put in place by governments.
This publication covers all aspects of the 1998 Ottawa Taxation Framework Conditions:
– International tax issues.
– Consumption tax issues.
– Tax administration issues.
– Taxpayer service issues. 3
© OECD 2001
Taxation and Electronic Commerce
Several of the chapters in this publication have also recently been released for public
comment. This reflects the OECD’s commitment to transparency and ensures that decisions
are made in the context of wide consultation.
The Committee on Fiscal Affairs, which is the OECD body leading the work, will now be
following up this work. They have agreed to continue with the Technical Advisory Groups
(TAGs) and to deepen the involvement of non-member economies and business in our
work.
Gabriel Makhlouf
Chair, Committee on Fiscal Affairs
4
© OECD 2001
Table of Contents
Part I. Emerging Conclusions and Recommendations by the Committee
on Fiscal Affairs
Chapter 1. An Overview of Progress Since the Ottawa1998 Conference............................ 9
Chapter 2. Consumption Tax Aspects of Electronic Commerce: Developing
International Guidelines and Recommended Approaches.......................................... 17
Chapter 3. Tax Administration Aspects ofElectronicCommerce: Responding
totheChallenges and Opportunities............................................................................... 49
Chapter 4. Application of Tax Treaty Concepts toElectronicCommerce........................... 79
4.1. Clarification on the Application of the Permanent Establishment Definition
in E-commerce: Changes to the Commentary on Article 5............................................. 79
4.2. Treaty characterisation issues............................................................................................. 85
4.3. Attribution of Profit to a Permanent Establishment Involved in Electronic
Commerce Transactions (A Discussion Paper from the Technical Advisory
Group on Monitoring the Application of Existing Treaty Norms for the Taxation
of Business Profits).............................................................................................................. 102
4.4. Impact of the Communications Revolution on the Application of “Place of Effective
Management” as a Tie Breaker Rule (A Discussion Paper from the Technical
Advisory Group on Monitoring the Application of Existing Treaty Norms
for the Taxation of Business Profits).................................................................................. 143
Appendices to Chapter 4........................................................................................................... 161
Part II. Input from the technical advisory groups (TAGs)
Chapter 5. An Overview of the TAG Process anditsContribution to the CFA’s Work...... 181
5.1. Main findings/conclusions of the Consumption Tax Technical Advisory
Group (TAG)......................................................................................................................... 182
5.2. Main findings/conclusions of the Technology Technical Advisory Group (TAG)............. 188
5.3. Main findings/conclusions of the Professional Data Assessment
Technical Advisory Group (TAG) ...................................................................................... 199
5.4. Main findings/conclusions of the Technical Advisory Group on Monitoring
the Application of Existing Treaty Norms for the Taxation of Business
Profits (Business Profits TAG)............................................................................................. 211
5.5. Main findings/conclusions of the Treaty Characterisation Technical
Advisory Group (TAG) ........................................................................................................ 214 5
© OECD 2001
Taxation and Electronic Commerce
Part III. Taking Forward the CFA’s Work on Taxation and Electronic Commerce
Chapter 6. The Next Phase of Implementing the Taxation Framework Conditions:
Progressing Further Work and Strengthening the International Dialogue...................... 223
Annexes
I. The Ottawa Taxation Framework Conditions................................................................. 227
II. Electronic Commerce: Taxation Framework Conditions............................................... 228
III. Composition of the Technical Advisory Groups (TAGS) (1999-2000).......................... 236
6
© OECD 2001
Part I
EMERGING CONCLUSIONS AND RECOMMENDATIONS
BY THE COMMITTEE ON FISCAL AFFAIRS
Chapter 1
An Overview of Progress Since the Ottawa 1998
Conference
Electronic commerce can provide a fundamentally new way of conducting
commercial transactions. It has potentially far-reaching economic and social impli-
cations on many facets of life including the environment, the nature of work, and
the role of governments. Accepted ways of doing business are likely to be pro-
foundly changed by it. The economic distance between producers and consumers
will shrink, traditional intermediaries will be replaced in many instances, new
products and markets will be created, and new and far closer relationships will be
forged between businesses and consumers and between the different parts of glo-
bal enterprises.
New challenges will arise in areas such as taxation, where governments will
continue to seek to raise revenue without distorting economic or technological
choices. These changes require a reassessment both of the effectiveness of govern-
ment policies towards commerce and of traditional commercial practices and proce-
dures, most of which were formed with a much different image of commerce in mind.
This chapter provides readers with a progress report on one of the most
important areas in which e-commerce poses issues for government and business:
taxation. The chapter describes the extensive programme of work that is currently
underway by the Committee on Fiscal Affairs (CFA) to implement the Ottawa Taxa-
tion Framework Conditions.
There has been considerable speculation as to what overall response govern-
ments will adopt towards the taxation of e-commerce in this new complex environ-
ment. At one extreme, there was the view that e-commerce should in some sense
be allowed to take place in a tax-free environment – either by specific legislation
or by continued government inaction. At the other extreme, there has been specu-
lation on the introduction of new taxes specifically designed to tax e-commerce
(for example, the Bit tax).
Neither of these views has proved acceptable to governments. The first would
lead to governments being unable to meet the legitimate demands of their citi-
zens for public services. It would also induce tax distortions in trade patterns. The 9
© OECD 2001