Transforming the Internet into a Taxable Forum: A Case Study in E-Commerce Taxation

Posted: 25 Jun 2001


This Article discusses how Internet technologies can assist tax authorities in taxing international e-commerce transactions. The Internet, a decentralized and global forum that often involves the transmission of intangible goods and services, defies traditional forms of regulation. This is particularly true for efforts to tax e-commerce transactions. The Article begins with a case study concerning efforts to tax computer servers as permanent establishments in foreign markets. The case study shows how the virtual world will subvert attempts by regulators to tax international e-commerce profits using traditional taxing principles that govern "real space". Next, the Article explores the resistance by some governments to regulate aspects of the Internet, placing potential Internet-related international tax reform efforts within the context of the broader debate surrounding Internet regulation. The remaining part of the article shows how governments could promote the use of Internet technologies to effectively tax e-commerce and constrain illegal tax evasion and harmful tax competition. A possible approach by governments could involve the development of a secure extranet to share taxpayer information among different national tax authorities, the promotion of some form of identification technology that reveals the physical jurisdiction where taxpayers reside, and an international online clearinghouse to facilitate the tax collection process. It is recognized that tax authorities will not likely agree on any comprehensive technical solution unless, and until, it is empirically determined governments are sustaining significant revenue losses as a result of their inability to tax many e-commerce transactions.

Suggested Citation

Cockfield, Arthur, Transforming the Internet into a Taxable Forum: A Case Study in E-Commerce Taxation. Available at SSRN:

Arthur Cockfield (Contact Author)

Queen's University - Faculty of Law ( email )

Macdonald Hall
Kingston, Ontario K7L 3N6 K7L3N6

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