Impact of E-Commerce on Allocation of Tax Revenue between Developed and Developing Countries

32 Pages Posted: 1 Feb 2005

See all articles by Chang Hee Lee

Chang Hee Lee

Seoul National University - College of Law


The advent of digital technology increases productivity, and will as a whole, make the world better off. Nevertheless, advanced countries have suggested an increase of their share in inter-jurisdictional allocation of revenue, justifying their position with the rhetoric tax neutrality and residence jurisdiction. Indeed these suggestions can be hardly justified in that the economic and legal assumptions underpinning the existing norm of inter-jurisdictional revenue allocation are not valid in a digital era. Tax neutrality will rather justify a new order that would assign more revenue to the developing countries. Maintaining the existing international tax order and fixing it in a make-shift way will not lead to this new order of international taxation, however, because digital technology enables a taxpayer to circumvent attempts.

Creating an entirely new norm and imposing it on developed countries appears to be beyond the reach of developing countries, judging from the past experience of bargaining between developed and developing countries, which may have no other choice but to acquiesce to these changes. Despite this pessimism, the United Nations may consider revising the UN Model to the interest of developing countries, because the very role of the UN Model is to provide bargaining leverage for a developing country in negotiating a real world treaty. Proposed changes to the UN Model are as follows:

1. Add a paragraph to article 7 (business profits) that permits a host country to impose withholding tax to all payments to a non resident e-supplier in general, or upon the host country's election, to a payment to an e-supplier from a domestic business that can deduct the payment.

2. Change article 7(4) to permit o host country to adopt a formula apportionment if an e-supplier has a permanent establishment in the host country or if sales by a non-resident e-supplier exceeds a certain sum of money.

Keywords: E-Commerce, Tax

JEL Classification: K34

Suggested Citation

Lee, Chang Hee, Impact of E-Commerce on Allocation of Tax Revenue between Developed and Developing Countries. Journal of Korean Law, Vol. 4, No. 1, 2004. Available at SSRN:

Chang Hee Lee (Contact Author)

Seoul National University - College of Law ( email )

San 56-1 Kwanak-gu, Shilim-dong
Seoul, 151-742

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics