Electronic CommerceElectronic Commerce COMP2113 COMP2113

Week 4: Richard Henson Week 4: Richard Henson February 2008February 2008

Legal and Taxation IssuesLegal and Taxation Issues

Week 4: Legal and Taxation IssuesWeek 4: Legal and Taxation Issues

Objectives:Objectives:Recall the main items of UK/EU legislation Recall the main items of UK/EU legislation

relating to on-line tradingrelating to on-line tradingExplain how particular laws have become Explain how particular laws have become

issues for e-commerceissues for e-commerceApply relevant legislative principles to the Apply relevant legislative principles to the

construction of on-line trading websitesconstruction of on-line trading websites

The Legal FrameworkThe Legal Framework Global tradingGlobal trading

Therefore International implicationsTherefore International implications Most important for e-commerce developers:Most important for e-commerce developers:

adapted UK lawsadapted UK laws New UK/EU legislationNew UK/EU legislation US legislationUS legislation

Building a compliant siteBuilding a compliant site customer rightscustomer rights taxation aspectstaxation aspects trademarkstrademarks

RIP and DP Acts re-visitedRIP and DP Acts re-visited

Legal issues in e-commerceLegal issues in e-commerce

Trust Trust Security/encryption/digital signaturesSecurity/encryption/digital signatures Data protectionData protection Contract law/emailContract law/email Rules on JurisdictionRules on Jurisdiction TaxationTaxation Libel/defamationLibel/defamation

WWhy thehy the problem problemss??

Nature of eNature of e-business -business takes place… takes place…

» in multiple locationsin multiple locations» without borderswithout borders

Whose laws apply?Whose laws apply? goodgoods ordered mights ordered might cross national border between cross national border between

advertising and fulfillmentadvertising and fulfillment Balancing actBalancing act::

providing the right environment for E-Commerce and providing the right environment for E-Commerce and also controlalso control

Impact onImpact on e-e-trade trade growth growth prospects in the UK?prospects in the UK?

Legal minefield! Legal minefield!

SolutionsSolutions??AAdopted or adapteddopted or adapted existing legislation existing legislation

» e.g. extensions to Consumer Credit Acte.g. extensions to Consumer Credit Act» customers usingcustomers using online stores based in the UK online stores based in the UK

have the same rights as when have the same rights as when theythey shop in the shop in the high streethigh street

General aGeneral advice dvice sites sites on the legal on the legal aspects of the web and E-Commerce:aspects of the web and E-Commerce:Office of Office of FFair air TTrading www.oft.gov.ukrading www.oft.gov.ukNational Computer Centre National Computer Centre www.www.nccncc.co..co.ukuk

Regulations on Regulations on E-CommerceE-Commerce

US Department of Commerce ”Memorandum US Department of Commerce ”Memorandum of Co-operation” (1997)of Co-operation” (1997) general principle - keep regulation to a minimumgeneral principle - keep regulation to a minimum all changed after 9/11…all changed after 9/11…

International conflicts of economic International conflicts of economic philosophy:philosophy: e.g. compare Amazon in US and UKe.g. compare Amazon in US and UK

» http://www.amazon.com/privacy-noticehttp://www.amazon.com/privacy-notice» http://www.amazon.co.uk/privacy-noticehttp://www.amazon.co.uk/privacy-notice

UK: e-commerce regulated even before 9/11:UK: e-commerce regulated even before 9/11: Regulation of Investigatory PowersRegulation of Investigatory Powers (2000) (2000) Electronic Communications BillElectronic Communications Bill (2000) (2000)

Existing legislation & Existing legislation & E-commerceE-commerce

Agreed that existing UK legislation Agreed that existing UK legislation would still apply:would still apply:Trade Descriptions Act 1968Trade Descriptions Act 1968

» describe products and services correctlydescribe products and services correctlySales of Goods Act 1979/Sales and Supply Sales of Goods Act 1979/Sales and Supply

of Goods Act 1994of Goods Act 1994Trade Marks Act 1994Trade Marks Act 1994Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977

» last threelast three can be appl can be appliedied to web adverts… to web adverts…

Further Existing legislationFurther Existing legislation

Consumer Credit Act 1974Consumer Credit Act 1974 Misrepresentation Act 1967Misrepresentation Act 1967 Control of Misleading Advertisements Control of Misleading Advertisements

Regulations 1988Regulations 1988 Defamation Act 1952Defamation Act 1952 Lotteries and Amusements Act 1976Lotteries and Amusements Act 1976 Obscene Publications Act 1959Obscene Publications Act 1959

UK Internet LawsUK Internet Laws

Electronic Communications Bill (received Electronic Communications Bill (received Royal assent on 25th July 2000)Royal assent on 25th July 2000) a framework for legal aspects of E-Commercea framework for legal aspects of E-Commerce electronic signatures the same status in law as electronic signatures the same status in law as

hand-written signatureshand-written signatures

Regulation of Investigatory Powers (RIP) Bill - Regulation of Investigatory Powers (RIP) Bill - - passed by Parliament on 28th July 2000- passed by Parliament on 28th July 2000 contents encouraged by the police and National contents encouraged by the police and National

Criminal Intelligence Service (NCIS)Criminal Intelligence Service (NCIS) Part 3 highly controversialPart 3 highly controversial

EU Legislation, 2000EU Legislation, 2000

Less restrictive than UK legislationLess restrictive than UK legislation CCoveroverss::

distance sellingdistance sellingcopyrightcopyrightjurisdiction jurisdiction contract formationcontract formation

Also United Nations body Also United Nations body UNCITRALUNCITRAL provided an early model for a Law on provided an early model for a Law on Electronic CommerceElectronic Commerce

US Internet Tax policyUS Internet Tax policy

“The Administration supports:”a permanent ban on taxes on Internet access &

no customs duties on electronic transmissionsa continuation of the moratorium on multiple

and discriminatory taxesinternational tax rules that are neutral, non-

discriminatory, simple and certainsimplification of state and local sales taxes and

telecommunications taxes

US LegislationUS Legislation

ApplAppliesies to all businesses trading with to all businesses trading with US customers:US customers:US Dept of Transport fined Virgin Atlantic US Dept of Transport fined Virgin Atlantic

for misleading prices on its web sitfor misleading prices on its web siteetraders traders MUST to MUST to studystudy the legislation the legislation

carefully or risk getting caught out!carefully or risk getting caught out! Raft of post-911 legislation:

notably the US Patriot Act (2001)

EU E-Commerce Directive EU E-Commerce Directive (2000)(2000)

Introduced to clarify and harmonise the rules Introduced to clarify and harmonise the rules of on-line business throughout Europeof on-line business throughout Europe aim - boosting consumer confidence in online aim - boosting consumer confidence in online

tradingtrading applies to all Member States of the European applies to all Member States of the European

Economic Area (EU plus Iceland, Norway, Economic Area (EU plus Iceland, Norway, Liechtennstein)Liechtennstein)

UK missed the deadline by more than 8 UK missed the deadline by more than 8 months…months…

UK: Electronic Commerce (EC UK: Electronic Commerce (EC Directive) Regulations 2002Directive) Regulations 2002

Refers to an "information society service.“Refers to an "information society service.“ defined as "any service normally provided for defined as "any service normally provided for

remuneration at a distance, by means of remuneration at a distance, by means of electronic equipment for the processing electronic equipment for the processing (including digital compression) and storage of (including digital compression) and storage of data, at the individual request of a recipient of data, at the individual request of a recipient of the service."the service."

Covers:Covers: every commercial websiteevery commercial website those offering online information or commercial those offering online information or commercial

communications (e.g. adverts) or providing tools communications (e.g. adverts) or providing tools for search, access and retrieval of datafor search, access and retrieval of data

E-Commerce and tax laws If I buy on-line I don’t have any interest in where If I buy on-line I don’t have any interest in where

the goods are coming from…the goods are coming from… but what about local/import/ VAT taxesbut what about local/import/ VAT taxes

A responsible vendor should resolve taxation A responsible vendor should resolve taxation issues through the websiteissues through the website shopping cart should automatically deal with such shopping cart should automatically deal with such

issues when creating the online invoiceissues when creating the online invoice Buyer should be advised at the time of placing Buyer should be advised at the time of placing

the order what, if any, extra charges involved… the order what, if any, extra charges involved… NOT held to ransom e.g. by the delivery driver NOT held to ransom e.g. by the delivery driver when the goods arrive…when the goods arrive… customer now protected by EU legislationcustomer now protected by EU legislation

E-Commerce and tax lawsE-Commerce and tax laws

The EU has always supported free tradeThe EU has always supported free trade argument that Internet purchases should therefore argument that Internet purchases should therefore

be tax free…be tax free… this cuts across existing legislationthis cuts across existing legislation

» Local TAXes?Local TAXes?» VAT?VAT?» Import duty?Import duty?

As a minimum, the vendor should itemise As a minimum, the vendor should itemise Import duties and VAT on the invoiceImport duties and VAT on the invoice buyers therefore aware of charges incurredbuyers therefore aware of charges incurred

Tax - a level playing field? Tax - a level playing field?

Tax loophole in EU/USA trade Tax loophole in EU/USA trade allowalloweded US companies in the early days to US companies in the early days to

sell online goods to EU customers tax-freesell online goods to EU customers tax-freeEU customers could therefore buy goods EU customers could therefore buy goods

from the US and not pay VAT…from the US and not pay VAT…Import duty could only be collected if parcel Import duty could only be collected if parcel

clearly markedclearly marked with contents with contents» though could be opened by Customs & Excisethough could be opened by Customs & Excise

Tax - a level playing field?Tax - a level playing field?

LLoophole closedoophole closed by EU legislature by EU legislature US firms which want to sell to Europe US firms which want to sell to Europe

now now have to register in an EU member have to register in an EU member state and pay VAT at the local ratestate and pay VAT at the local rateannoyed US companies and lawmakers annoyed US companies and lawmakers

alikealikeeespecially as different VAT rates operate in specially as different VAT rates operate in

different EU countriesdifferent EU countries

Existing EU tax policyExisting EU tax policy

All have a local VAT rate…All have a local VAT rate… BIG variations between states:BIG variations between states:

e.g. UK - 17.5%e.g. UK - 17.5%Denmark - 25%Denmark - 25%

Single registration and harmonisation of Single registration and harmonisation of VAT rate proposedVAT rate proposedfor e-commerce only?for e-commerce only?they’ll be lucky…they’ll be lucky…

Tax - a level playing field?Tax - a level playing field?

European E-business Tax GroupEuropean E-business Tax Group set up in 1999set up in 1999

Companies involved: Cisco, Compaq, EDS, Companies involved: Cisco, Compaq, EDS, IBM and MicrosoftIBM and Microsoft

Purpose:Purpose: to develop proposals on taxing e-commerce to develop proposals on taxing e-commerce

transactions between US, EU, and the transactions between US, EU, and the International CommunityInternational Community

by 2008… still hasn’t happened!by 2008… still hasn’t happened!

Less Controversial SolutionLess Controversial Solution

A look up database/single site maintained by A look up database/single site maintained by the tax and excise authoritiesthe tax and excise authorities E-Commerce providers link up to itE-Commerce providers link up to it conversion factors allow the total value of the duty conversion factors allow the total value of the duty

for that country to be easily calculatedfor that country to be easily calculated duty then added to invoice making the purchaser duty then added to invoice making the purchaser

aware of EXACTLY what charges will be levied aware of EXACTLY what charges will be levied before making the purchasebefore making the purchase

required International co-operation between required International co-operation between competitors, but it eventually happenedcompetitors, but it eventually happened

Building a compliant E-SiteBuilding a compliant E-Site

UK law - UK law - anyone anyone selling onlineselling online must must meet meet certain certain minimum minimum requirementsrequirements::aa name and full address name and full addressa full description of the goodsa full description of the goods for sale for salePricePrice (including VAT and delivery)(including VAT and delivery)payment and delivery arrangementspayment and delivery arrangementsinformation about returning goodsinformation about returning goodsperiod of the offerperiod of the offer

Building a compliant E-SiteBuilding a compliant E-Site

Customers Rights:Customers Rights: customers can return the goods within seven customers can return the goods within seven

working days of receiptworking days of receipt written confirmation written confirmation of on-line purchasing rights of on-line purchasing rights

must be receivemust be receivedd by the customer (email is ok) by the customer (email is ok) BEFORE they agree to buy the goodsBEFORE they agree to buy the goods

Advertising and marketing on web sitesAdvertising and marketing on web sites:: The Internet Advertising Bureau The Internet Advertising Bureau

» a member of The Committee of Advertising Practicea member of The Committee of Advertising Practice» Voluntary cVoluntary codes of practice created by this bodyodes of practice created by this body

Building a compliant E-SiteBuilding a compliant E-Site

An e-commerce site should also provide An e-commerce site should also provide details of:details of:any conditions for the right of withdrawalany conditions for the right of withdrawalafter-sales service/guaranteeafter-sales service/guaranteecancellation conditions if the contract cancellation conditions if the contract

period is:period is:» unspecifiedunspecified

OROR» longer than one year longer than one year

UsUsee of Trade Marks of Trade Marks on Websiteson Websites

Businesses should get written consent first Businesses should get written consent first …… generally OK to use a logo as long as it does not generally OK to use a logo as long as it does not

suggest some sort of commercial relationship suggest some sort of commercial relationship but if use can be regarded as misleading or but if use can be regarded as misleading or possible possible

denigratdenigration ofion of brand, the website owner could brand, the website owner could legitimately be suedlegitimately be sued

What is legal and not legal is a difficult issue for What is legal and not legal is a difficult issue for marketing people…marketing people… www.marketinglaw.co.uk www.marketinglaw.co.uk

Regulation of Investigatory Regulation of Investigatory Powers (RIP) ActPowers (RIP) Act

UK was trailblazing in this area, back in UK was trailblazing in this area, back in 2000 but part 3 received lots of criticism!2000 but part 3 received lots of criticism!start of the “surveillance society”?start of the “surveillance society”?

Lawyers argued that aspects controlling Lawyers argued that aspects controlling the encryption of data could breach the the encryption of data could breach the European Human Rights Convention European Human Rights Convention (EHRC)…(EHRC)…

RIP, individuals, and RIP, individuals, and E-commerceE-commerce

The legislation does provide protection for The legislation does provide protection for individuals against having their emails read individuals against having their emails read by peopleby people other than by government officials…other than by government officials…

HUGE stir at the time! Mostly historical links HUGE stir at the time! Mostly historical links about negative aspects of RIPabout negative aspects of RIP www.www.fiprfipr.org/sfs2000/.org/sfs2000/ http://www.http://www.cscs.man.ac..man.ac.ukuk/~/~chlchl/scenarios.html/scenarios.html http://www.http://www.fiprfipr.org/rip/RIPGAKGB..org/rip/RIPGAKGB.pdfpdf

Big Fuss about RIP part 3Big Fuss about RIP part 3included IT professionalsincluded IT professionals

AAll senders of encrypted data need to make ll senders of encrypted data need to make their private keys available to law enforcers!their private keys available to law enforcers!

Implied that everyone is a potential criminalImplied that everyone is a potential criminal ““nation of suspects not citizens”nation of suspects not citizens”

Failure to decrypt mail when requested to by Failure to decrypt mail when requested to by government agents became a criminal offence government agents became a criminal offence unless the suspect can prove that they don’t unless the suspect can prove that they don’t have the encryption keyhave the encryption key

The innocent party would then have to prove The innocent party would then have to prove that they don’t have a key to decrypt this that they don’t have a key to decrypt this message - How could they do this? message - How could they do this? see see Cyber-Rights and Cyber-Liberties UKCyber-Rights and Cyber-Liberties UK

Issues related to RIP part 3Issues related to RIP part 3 This is a reversal of the presumption of “innocent This is a reversal of the presumption of “innocent

until proved guilty”until proved guilty” contravenes the EHRC & ancient British Law Research contravenes the EHRC & ancient British Law Research

done by Foundation for Information Policy Research done by Foundation for Information Policy Research Civil Rights campaigners claim Act could lead to false Civil Rights campaigners claim Act could lead to false

prosecutions if a suspect were to receive an unsolicited prosecutions if a suspect were to receive an unsolicited messagemessage

Despite objections, laws passed… Despite objections, laws passed… Sections relevant to E-Commerce (disclosure of Sections relevant to E-Commerce (disclosure of

private encryption keys) can be found at:private encryption keys) can be found at:» http://www.homeoffice.gov.uk/oicd/ripbill.htmhttp://www.homeoffice.gov.uk/oicd/ripbill.htm» http://www.parliament.the-stationery-office.co.uk/pa/http://www.parliament.the-stationery-office.co.uk/pa/

cm199900/cmbills/064/00064-j.htm#46cm199900/cmbills/064/00064-j.htm#46

Breach of RIP; no prosecutionBreach of RIP; no prosecution No test case emerged…No test case emerged… UUNet UUNet (a ISP) fell foul of (a ISP) fell foul of the RIP law (not part 3) the RIP law (not part 3)

early in 2001, when it early in 2001, when it dealt with a spam attackdealt with a spam attack engineers clearing more than two million emails engineers clearing more than two million emails

called up all the messages and examined the called up all the messages and examined the headers to delete the spamheaders to delete the spam

no prosecution; no-one launched a complaintno prosecution; no-one launched a complaint After 9/11, part 3 quoted by the Home Secretary After 9/11, part 3 quoted by the Home Secretary

as a safeguard against terrorismas a safeguard against terrorism worry among civil liberties groups that “suspicion of worry among civil liberties groups that “suspicion of

terrorism” could be used unfairly when government were terrorism” could be used unfairly when government were seeking the private keys of emailing individuals…seeking the private keys of emailing individuals…

still no “test case” to present day…still no “test case” to present day…

The 1984 Data Protection ActThe 1984 Data Protection Act

Intended to protect the UK publicIntended to protect the UK public All organisations holding personal data All organisations holding personal data

had to registerhad to registernot doing so was (is) a criminal offencenot doing so was (is) a criminal offence

Organisations that did register had to Organisations that did register had to comply with 8 principlescomply with 8 principlesnot doing so was a civil offencenot doing so was a civil offencethe individual had to take the matter to the individual had to take the matter to

courtcourt

The 1998 Data Protection ActThe 1998 Data Protection Act

An extension of the 1984 ActAn extension of the 1984 ActAlso has eight principlesAlso has eight principles

Includes manual (paper-based) data as Includes manual (paper-based) data as well as computer-based recordswell as computer-based recordsexemptions for computer-based data until exemptions for computer-based data until

October 2001 (deadline now passed!)October 2001 (deadline now passed!)exemptions for paper-based data until exemptions for paper-based data until

2007!2007!

Data ProtectionData Protection

““Safe Safe harbourharbour” agreed between US and EU” agreed between US and EU Personal information sent to the US:Personal information sent to the US:

Firstly: needs the approval of the senderFirstly: needs the approval of the sender secondly: agreement that it will be protected in the secondly: agreement that it will be protected in the

USUS This is a voluntary codeThis is a voluntary code

so does it work? so does it work? All a bit of a messAll a bit of a mess

IF EU data is “safe”…IF EU data is “safe”… what about cwhat about countries outside the EU ountries outside the EU

communicating personal data with the US?communicating personal data with the US?

DIY Data ProtectionDIY Data Protection

Recommended course of action for Recommended course of action for Businesses:Businesses:register under the Data Protection Actregister under the Data Protection Actimplement the code of conduct on privacy implement the code of conduct on privacy

produced by the International Commerce produced by the International Commerce ExchangeExchange

include a privacy statement on include a privacy statement on the the site site » see see Trust-eTrust-e for further guidance for further guidance

Further ReadingFurther Reading

Course textCourse text Out-Law website:Out-Law website:

http://www.out-law.com/page-351 http://www.out-law.com/page-351

E-marketing…..E-marketing…..Next WeekNext Week