Outline: Tax, E-commerce & law

1. Outline: Tax, E-commerce & law • The development of the digital economy • Prospects for electronic commerce • Electronic commerce and the need for a coherent “e-tax strategy” • Appropriate solutions: Law or technology?

2. Digital Economy: Issues • Economic Growth and social development • Electronic commerce • Measuring and analysing e-commerce and its impacts • Access • Security and Trust • Regulatory framework • Maximising and Sharing the benefits • International co-operation

3. Prospects for Electronic Commerce • Electronic commerce is still in its infancy • B2C is relatively small compared to B2B • Only a modest proportion of internet users make e-commerce purchases • Internet and e-commerce infrastructure continues to expand • Broadband rollout is gathering pace • New e-commerce and e-business applications and platforms (phone & distributed networks) • Technology creates problem… and solves it?

4. User Trust • Consumer protection – Guidelines, cross-border issues, new forms of fraud, ADR, Chip & PIN • Privacy protection – Guidelines, Privacy Policy Statement Generator, trans-border data flow Authentication – electronic signature, certification, PKI • Security – Guidelines, viruses and hacking, cyber-crime, cyber-terrorism, dependence on availability and security of networks • Cryptography – Guidelines • Spam • Content -Liability …

5. Regulatory Environment • Taxation – Taxation framework conditions, consumption taxes, international direct taxation issues, tax administration • Trade policy and market access – • Competition law and policy – e-marketplaces, international delivery and customs procedures • E-Finance – cross-border trade in financial services, contract law, insurance

6. Electronic Commerce & E-Tax Strategy • The Real and the Virtual • Uniting the stakeholders; authorities, technologists, PPs & Consumers • Market forces: entrepreneurship, innovation and the human factor • Getting fundamental compliance right • Legal and/or technological solutions…..?

7. Technology Collection Options • Global Registration Body: (multilateral agreement?) • Self-assessment/Reverse Charge: (Compliance, Certainty?) • Source Taxation and Allocation: (Costs, Efficiency?) • Bespoke Software, In-house: • Intermediaries/Payment providers: Consumption Tax Options

8. Bespoke Software (In-house) • “Tax.Web”: Expensive alternative in short term • Appeal is to large companies and MNEs • Future: More practical with compliance certification of “off-the shelf” product Consumption Tax Options

9. Intermediary/Payment Provider • Security & legality in E-commerce is most consistent issue for ALL parties • Trusted (Certificated) third parties have a crucial role • Major financial institutions “approved” in listed jurisdictions • Cost-effective for consumer and small business Consumption Tax Options

10. Jurisdictional Border Logic This allows the system to determine which country, state or region has jurisdiction over a transaction; Allowing the user to know where it is taxable, and what rates and rules to apply.. Consumption Tax Options

11. XML : Software solutions • XML is the “lingua franca of the Internet” • The future of the further evolution of on-line transactions and TRANSACTION COMPLIANCE (“Tax-Web”) • Payment Providers and Tax Authorities Common Utility Compliance Tax Options

12. XML: Possibilities • XML sends tags with data when it is transmitted from one computer to another, allowing the receiving computer to interpret what it is getting. • For example:-<CUSTOMER> <NAME.Hengist Craig</NAME> <ADDRESS>Malcolm's Mount</Address> <CITY>Stonehaven</CITY> <COUNTRY>Scotland</COUNTRY> <PRODUCT>190023467#56</PRODUCT>

13. Exemption & Relief Management “Tax Web” manages exemption certificates and relief status. Without a valid exemption certificate from the buyer, the seller must either collect tax, or become responsible for the tax (default position). European VAT, where sellers must collect VAT in cross-border sales, unless they have valid VAT registration information for business buyers. Consumption Tax Options

14. Legal Framework: Isle of Man The Isle of Man is an internally self-governing territory of the British Crown which is not part of the United Kingdom. The Island enjoys a high degree of domestic, legislative and political autonomy. This effective independence, whilst operating within the stability of the British Isles, has provided a platform for business success Legal Framework: Isle of Man

15. Legal Framework: Isle of Man Protocol 3 to the UK Treaty of Accession: This creates a special relationship with the European Union for the Island. The Island neither contributes to, nor receives from, the funds of the European Union. As a result, very few EU Directives are directly applicable to the Isle of Man. The Isle of Man Government is therefore at liberty to adopt EU legislation where it believes it would benefit business on the Island whilst being under no pressure to adopt EU legislation. Legal Framework: Isle of Man

16. Plus points for E-business • Telecommunications network; • Infrastructure support services; • Resident company taxation. Legal Framework: Isle of Man

17. Legislation The Island’s e-business related legislation is therefore designed to enable entrepreneurs to maximise the opportunities presented by e-business rather than to control or over regulate e-business and risk stifling growth in trade. Legal Framework: Isle of Man

18. Legislation • Electronic Transactions Act 2000 • Data Protection Act 2002 • Computer Security Act 1992 • Disaster Recovery (Temporary Business Continuity Operations) Regulations 2002 • VAT – e-billing Legal Framework: Isle of Man

19. Profit Taxes: “New PE” • De Beers; Piedras Negras; AOL…..? • Altering the NEXUS in Model Treaties; (Art 5 & 7 of OECD Model) • Virtual Permanent Establishment to apply to E-commerce only • Various alternatives for change Legal Framework: Virtual PE

20. Virtual PE: Options • Create “Virtual Fixed Place of Business”VFPB, (electronic version of present PE) • Create “Virtual Agency”VA,(electronic version of dependent agent PE) • Create “Virtual Presence” VP(declared or designated on-site presence) Legal Framework: Virtual PE

21. Virtual PE: VFPB • PE created when an enterprise maintains a web site on a server owned or operated by another business located in a given jurisdiction. • Web site is the “place of business” and is virtual • Problems with the “Arms length principle” for attributing profits Legal Framework: Virtual PE

22. Virtual PE: VA • Extends the current “Agent” PE to recognise electronic equivalents. • Electronic Agents now increasingly accepted Law • The web site would be the place of business and be regarded as binding the principal in contract law • This would need changes to Art 7 as well as Art 5 of the OECD Model to allow attributation of profits to the Electronic Agent Legal Framework: Virtual PE

23. Virtual PE: VP • A new threshold for taxation at source not based on any fixed place of business • Provision of service at “Business Interface” (where the customer interacts with the service; phone, cash-point etc) • Requires setting of thresholds of sufficient activity; monetary or durational: compliance issues Legal Framework: Virtual PE

24. Welcome The Electronic Agent • Deals with the essence of the E-commerce tax problem: use of market without actual presence and “Ottawa contradiction” • Same treatment of all concluded bargains by whatever means (in line with Ottawa) • Allows for future flexibility in the Law to keep pace with technology • MACHINE INTELLIGENCE ????? Virtual Reality Law