1 outline: tax, e-commerce & law the development of the digital economy prospects for electronic...

1Legal Framework: Isle of Man

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?


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


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?


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 …


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


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…..?

Consumption Tax Options 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:


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


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


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..

Compliance 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

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>


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.


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

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.


Plus points for E-business

1. Telecommunications network;

2. Infrastructure support services;

3. Resident company taxation.


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.


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: Virtual PE 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


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)


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


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


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

24Virtual Reality Law

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 ?????

1 outline: tax, e-commerce & law the development of the digital economy prospects for electronic...

Documents

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compliance tax options11

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tax default position