1. 1 Outline: Tax, E-commerce & law The development of the digital economy Prospects for electronic commerce Electronic commerce and the need for a coherent e-tax strategy Appropriate solutions: Law or technology?

2. 2 Digital Economy: Issues Economic Growth and social development Electronic commerce – Measuring and analysing e-commerce and its impacts – Access – Security and Trust – Regulatory framework – Maximising and Sharing the benefits – International co-operation

3. 3 Prospects for Electronic Commerce Electronic commerce is still in its infancy B2C is relatively small compared to B2B Only a modest proportion of internet users make e-commerce purchases Internet and e-commerce infrastructure continues to expand Broadband rollout is gathering pace New e-commerce and e-business applications and platforms (phone & distributed networks) Technology creates problem… and solves it?

4. 4 User Trust Consumer protection – Guidelines, cross-border issues, new forms of fraud, ADR, Chip & PIN Privacy protection – Guidelines, Privacy Policy Statement Generator, trans-border data flow Authentication – electronic signature, certification, PKI Security – Guidelines, viruses and hacking, cyber-crime, cyber-terrorism, dependence on availability and security of networks Cryptography – Guidelines Spam Content -Liability …

5. 5 Regulatory Environment Taxation – Taxation framework conditions, consumption taxes, international direct taxation issues, tax administration Trade policy and market access – Competition law and policy – e-marketplaces, international delivery and customs procedures E-Finance – cross-border trade in financial services, contract law, insurance

6. 6 Electronic Commerce & E-Tax Strategy The Real and the Virtual Uniting the stakeholders; authorities, technologists, PPs & Consumers Market forces: entrepreneurship, innovation and the human factor Getting fundamental compliance right Legal and/or technological solutions…..?

7. Consumption Tax Options7 Technology Collection Options Global Registration Body: (multilateral agreement?) Self-assessment/Reverse Charge: (Compliance, Certainty?) Source Taxation and Allocation: (Costs, Efficiency?) Bespoke Software, In-house: Intermediaries/Payment providers:

8. Consumption Tax Options8 Bespoke Software (In-house) Tax.Web: Expensive alternative in short term Appeal is to large companies and MNEs Future: More practical with compliance certification of off-the shelf product

9. Consumption Tax Options9 Intermediary/Payment Provider Security & legality in E-commerce is most consistent issue for ALL parties Trusted (Certificated) third parties have a crucial role Major financial institutions approved in listed jurisdictions Cost-effective for consumer and small business

10. Consumption Tax Options10 Jurisdictional Border Logic This allows the system to determine which country, state or region has jurisdiction over a transaction; Allowing the user to know where it is taxable, and what rates and rules to apply..

11. Compliance Tax Options11 XML : Software solutions XML is the lingua franca of the Internet The future of the further evolution of on- line transactions and TRANSACTION COMPLIANCE (Tax-Web) Payment Providers and Tax Authorities Common Utility

12. 12 XML: Possibilities XML sends tags with data when it is transmitted from one computer to another, allowing the receiving computer to interpret what it is getting. For example:- Malcolm's Mount Stonehaven Scotland 190023467#56

13. Consumption Tax Options13 Exemption & Relief Management Tax Web manages exemption certificates and relief status. Without a valid exemption certificate from the buyer, the seller must either collect tax, or become responsible for the tax (default position). European VAT, where sellers must collect VAT in cross-border sales, unless they have valid VAT registration information for business buyers.

14. Legal Framework: Isle of Man14 Legal Framework: Isle of Man The Isle of Man is an internally self- governing territory of the British Crown which is not part of the United Kingdom. The Island enjoys a high degree of domestic, legislative and political autonomy. This effective independence, whilst operating within the stability of the British Isles, has provided a platform for business success

15. Legal Framework: Isle of Man15 Legal Framework: Isle of Man Protocol 3 to the UK Treaty of Accession: This creates a special relationship with the European Union for the Island. The Island neither contributes to, nor receives from, the funds of the European Union. As a result, very few EU Directives are directly applicable to the Isle of Man. The Isle of Man Government is therefore at liberty to adopt EU legislation where it believes it would benefit business on the Island whilst being under no pressure to adopt EU legislation.

16. Legal Framework: Isle of Man16 Plus points for E-business 1.Telecommunications network; 2.Infrastructure support services; 3.Resident company taxation.

17. Legal Framework: Isle of Man17 Legislation The Islands e-business related legislation is therefore designed to enable entrepreneurs to maximise the opportunities presented by e-business rather than to control or over regulate e-business and risk stifling growth in trade.

18. Legal Framework: Isle of Man18 Legislation Electronic Transactions Act 2000 Data Protection Act 2002 Computer Security Act 1992 Disaster Recovery (Temporary Business Continuity Operations) Regulations 2002 VAT – e-billing

19. Legal Framework: Virtual PE19 Profit Taxes: New PE De Beers; Piedras Negras; AOL…..? Altering the NEXUS in Model Treaties; (Art 5 & 7 of OECD Model) Virtual Permanent Establishment to apply to E- commerce only Various alternatives for change

20. Legal Framework: Virtual PE20 Virtual PE: Options Create Virtual Fixed Place of Business VFPB, (electronic version of present PE) Create Virtual Agency VA,(electronic version of dependent agent PE) Create Virtual Presence VP(declared or designated on-site presence)

21. Legal Framework: Virtual PE21 Virtual PE: VFPB PE created when an enterprise maintains a web site on a server owned or operated by another business located in a given jurisdiction. Web site is the place of business and is virtual Problems with the Arms length principle for attributing profits

22. Legal Framework: Virtual PE22 Virtual PE: VA Extends the current Agent PE to recognise electronic equivalents. Electronic Agents now increasingly accepted Law The web site would be the place of business and be regarded as binding the principal in contract law This would need changes to Art 7 as well as Art 5 of the OECD Model to allow attributation of profits to the Electronic Agent

23. Legal Framework: Virtual PE23 Virtual PE: VP A new threshold for taxation at source not based on any fixed place of business Provision of service at Business Interface (where the customer interacts with the service; phone, cash-point etc) Requires setting of thresholds of sufficient activity; monetary or durational: compliance issues

24. Virtual Reality Law24 Welcome The Electronic Agent Deals with the essence of the E-commerce tax problem: use of market without actual presence and Ottawa contradiction Same treatment of all concluded bargains by whatever means (in line with Ottawa) Allows for future flexibility in the Law to keep pace with technology MACHINE INTELLIGENCE ?????