global frameworks

This page looks at global and national frameworks for the taxation of e-commerce.

It covers -

• national versus international
• UNCITRAL
• technologies
• the US e-tax moratorium

Other perspectives are offered in our Governance and Economy guides.

     national vs international

Jonathan Ricci's 1999 Richmond Journal of Law & Technology paper on the IRS versus International Cyberspace Transactions and Kathleen Lundy's 2001 paper on The Taxation of E-Commerce: The Inapplicability of Physical Presence Necessitates an Economic Presence Standard are useful introductions to legal and technological challenges.

The US Treasury Department's November 1996 paper on Selected Tax Policy Implications of Global Electronic Commerce remains of value.

The Electronic Transactions Act 1999 (ETA) is perhaps the major achievement of the federal government's 'strategic framework for the information economy' under the coordination of the National Office for the Information Economy (NOIE). The Attorney-General's Department has an e-Commerce Homepage, primarily concerned with the Electronic Transactions Act.

The Act reflects the Electronic Commerce Expert Group's 1998 Electronic Commerce: Building The Legal Framework report, which embraced electronic signatures, recordkeeping, contracts, the UNCITRAL model code for ecommerce, and other matters.

In Europe the European Commission late last year published a proposal for a Directive to "establish a coherent legal framework for electronic commerce across the EU".

     UNCITRAL

Information about the United Nations Commission on International Trade Law (UNCITRAL) is available on that body's website.  We've highlighted jurisdictional concerns in our Governance guide and alternative dispute resolution (ADR) developments in a supplementary profile.

For a perspective on the negotiating process, the players and likely outcomes we recommend Global Business Regulation (Cambridge: Cambridge Uni Press 2000) by John Braithwaite & Peter Drahos.

The Regulation of International Trade (London: Routledge 1999) by Michael Trebilcock & Robert Howse is also of value in understanding global regulatory regimes.

The 2001 ministerial meeting at Doha of the World Trade Organization (WTO) endorse the US decision to let sleeping dogs lie, with the current ban on e-commerce customs duties to remain until the next WTO summit in 2003.

The WTO has been moving towards the development of global e-commerce trade regulations and there's an expectation that tariff questions relating to e-commerce aspects of goods and services will be addressed through a new series of international trade negotiations.

WTO ministers apparently believe that talks will be substantially complete by 2005.

     technologies

One of the more interesting papers - on Advancing Global Electronic Commerce: Technology Solutions to Public Policy Challenges - was published last year by the Computer Systems Policy Project (CSPP), a group of CEOs from 12 computer companies such as IBM, Apple and Dell that advocate positions on certain public policy matters. 

It offers suggestions on how technology can be used to address the challenges of taxation of e-commerce. These suggestions include use of geolocation and other technology to track tax rates by jurisdiction, authentication techniques, electronic audit logs, and use of encryption and authentication tools to prevent buyers and sellers from denying that they engaged in a transaction.

Arthur Cockfield's 2001 paper Transforming the Internet into a Taxable Forum: A Case Study in E-Commerce Taxation argues that although "the virtual world will subvert attempts by regulators to tax international e-commerce profits using traditional tax principles that govern 'real space' it will be possible to use new technology to effectively tax e-commerce and constrain illegal tax evasion and harmful tax competition.

     US moratorium

The Internet tax moratorium signed it into law by President Clinton in 1998 was renewed once and expires in November 2003. It prohibits US states and localities (such as New York, where there's a city sales tax in addition to the state sales tax) from placing any new taxes on "internet and telecommunications access". The moratorium also prohibits taxing electronic commerce in a "discriminatory" way, ie online purchases can't carry any additional taxes or different tax amounts than those made in person.

US online retailing is not tax free: retailers must charge state sales tax if the store has a physical location in the same state as the buyer. Online stores may charge sales taxes if they are located in a different state to the buyer; many do not. That tax goes to the state in which the etailer is based. The consumer also is supposed to pay a "use tax" to the state in which the consumer is resident in instances where the online retailer does not charge a sales tax; the Streamlined Sales Tax Project (SSTP) notes that it is very difficult for state agencies to collect the use tax and has responded with proposals for simplification of the state tax codes across the US.