TAXING E-COMMERCE : POLICY AND ADMINISTRATIVE ISSUES

Abstract

Electronic commerce is emerging as one of the world's most dynamic and fastest growing activities. As business-to-consumer and business-to-business proportions of the Internet economy grow at phenomenal rates, governments across the globe are trying to grapple with the potential speed and complexities that the Internet and e-commerce can bring to the issue of E-commerce taxation.

Consequently, this academic exercise seeks to examine the myriad of implications of e-commerce on traditional source- and residence- based tax laws, practices, and guidelines adopted.

The author has approached the task by first conducting a review of the relevant local, regional, and international literature. Secondly, to gain insight into how these issues may affect Singapore's tax laws and practice, the author conducted a series of in-depth interviews and corresponded with senior industry executives, regulators and expert observers based in Singapore. The experts were from the academia, from the government, and from the private sector, including international accounting firms.

Admittedly, the author takes on an optimistic view of the business of e-commerce and foresees its phenomenal growth. Consequently, this academic exercise identifies the many technical difficulties of e-commerce taxation, specifically the two basic concepts of permanent establishment and character of income, which have vast implications on the conduct of double taxation agreements. The implications of financial innovations over the Internet, in particular "electronic money", and transfer pricing effects on taxation are only briefly mentioned in this academic exercise.

The author highlights the various stance of governments in other countries regarding the significant issues of e-commerce taxation. This serves as an overview of alternative options which domestic tax authorities may wish to consider. Furthermore, various proposed solutions known today for taxing e-commerce are evaluated in a general as well as specific context.

In addition, this exercise enumerates the various steps Singapore has undertaken to boost the domestic market for e-commerce as these developments in the inter­disciplinary aspects of law and banking are crucial for the feasibility of further taxation of e-commerce in Singapore. Consequently, the author analyses the position of Singapore's tax authorities in response to suggestions and recommendations on e-commerce taxation issues, especially since Singapore currently seeks to be part of this bustling and exciting "virtual village". It appears that the Singapore tax authorities are approaching E-commerce taxation in a calm and rational manner by participating in the discussion evolving on practices in the OECD countries, and keeping the options open to adjust such taxation to Singapore's growth strategies.

Lastly, the author acknowledges room for further investigation in the future regarding the issues of "electronic money", transfer pricing, double taxation, and the mobility of web sites. These are areas that will require more creativity and imagination on the part of tax administrators as more and more activities are conducted over the Internet.