Electronic Commerce: International Policy Implications for Revenue Authorities and Governments

Abstract

Electronic commerce has rapidly altered the way in which business and private transactions are conducted. This environment creates new challenges for developing appropriate tax policy and modifying tax administration processes. For instance, electronic commerce challenges the functionality of accepted tax principles such as source, residence and permanent establishment. This article argues that electronic commerce (and its associated tax policy issues) is a developing area that can only be effectively negotiated through international cooperation. The work being undertaken by the OECD is pivotal, and to this end, the article reviews the OECD's efforts, along with the domestic work being undertaken in five member nations (Australia, Canada, New Zealand, the United Kingdom and the United States). The author concludes that the OECD's and member countries' efforts are both timely and consistent in terms of their objectives and recommendations for future action. A scenario is provided to illustrate some of the difficulties that arise through what appear to be straightforward and simple transactions, but with available technology, may, in reality, be extremely complex. The author contends, consistent with the rapidly growing literature, that while it is not currently anticipated that major new rules will need to be developed, modifications to existing domestic tax principles and international tax treaties will be inevitable, hopefully with a consistent approach applying generally accepted principles developed with prior international consensus.

JEL Classification: K33, K34