E-Commerce and Tax Planning: Canadian Experiences

48 Pages Posted: 5 Nov 2004

See all articles by Carla Carnaghan

Carla Carnaghan

University of Lethbridge - Faculty of Management

Pauline Downer

Memorial University of Newfoundland

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Abstract

In this qualitative research, we explore the deployment of electronic commerce by Canadian firms in the global marketplace, with an emphasis on the implications of e-commerce for tax planning. The business press and various governmental task forces discuss concerns created by e-commerce for traditional source-based tax systems; however, these discussions have presented little evidence on firms' reliance on e-commerce for tax planning. Similarly, academic research seldom examines whether tax planning affects firms' decisions to deploy e-commerce.

It is thus largely unknown whether firms are actively considering tax issues in evaluating e-commerce, how the factors that have been identified as influencing e-commerce implementation decisions are balanced against tax planning considerations, and what barriers might exist in practice to using e-commerce for tax planning. We choose a qualitative interview-based approach to begin to explore these issues.

Our findings suggest that tax planning is not considered by most of our respondent companies in their decisions to deploy e-commerce. The companies we interviewed tended to implement e-commerce over several years, starting with back-office technologies like ERP systems. As such, the ability to perform online sales transactions, which is a key component of using e-commerce for tax planning, often was not in place yet. These results are likely partly a function of size and age of company; larger, more established companies are likely to be in a better position to have the necessary infrastructure and to consider tax planning issues in deploying e-commerce. One implication of our results is that if concerns over tax revenue losses are realistic, tax policy makers may have some time to refine tax legislation to address the challenges raised by e-commerce, particularly for smaller and medium size companies.

Keywords: Electronic commerce, income tax planning, Canada, small business

JEL Classification: H25, O33

Suggested Citation

Carnaghan, Carla and Downer, Pauline and Klassen, Kenneth and Pittman, Jeffrey A., E-Commerce and Tax Planning: Canadian Experiences. Canadian Accounting Perspectives, Vol. 3, No. 2, Fall 2004. Available at SSRN: https://ssrn.com/abstract=581023

Carla Carnaghan (Contact Author)

University of Lethbridge - Faculty of Management ( email )

4401 University Drive
Lethbridge, Alberta TIK 3M4
Canada
403 329-2351 (Phone)

Pauline Downer

Memorial University of Newfoundland ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-8525 (Phone)
709-737-7680 (Fax)

HOME PAGE: http://www.busi.mun.ca/pdowner/

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

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