Further information on selected issues

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Tax obstacles in Europe

CFE published a study on Tax obstacles concerning the transfer of non-incorporated businesses from one generation to another with reports form 14 European countries.

Full Report
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Summary
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National Reports

Electronic Commerce

How to tax the commercial activities of the virtual world of electronic commerce has challenged the taxation authorities of the globe. For the last 5 years, governments have been wrestling with the issues involved. There has been fundamental rethinking of concepts that have been enshrined in tax law for decades covering both direct and indirect taxation.In this section we provide Tax Advisers with an understanding of how the thinking on this subject has developed up to this point and provide links to the sites where the debate is still continuing.Early thinking

• In July 1997 the United States government set out their position advocating ‘no new taxes should be imposed on internet commerce’. For further details on the US Government’s position, please refer to A framework for Global Electronic Commerce
• In 1996 the Department of Industry in Canada were advocating a ‘bit’ tax, details of which are contained in New Taxes for a New Economy.
  The Japanese government’s thoughts in 1997 are reflected in a document titled Towards the Age of the Digital Economy
• In 1997 the European Commission was starting to explore the issues and published this Communication - A European Initiative in Electronic Commerce.
• In the last 3 years the pace of debate has increased and many Revenue Authorities under the umbrella of the OECD have pushed for harmonisation of approach.

The OECD initiative

• A report by the Committee on Fiscal Affairs, as presented to Ministers at the OECD Ministerial Conference, titled ‘A Borderless World: Realising the Potential of Electronic Commerce’ on 8 October 1998. In this paper, Electronic Commerce: Taxation Framework Conditions , the tax problems were outlined, alternative scenarios were explored and the broad taxation principles which should apply to electronic commerce were set out.
• Following the publication of the Taxation Framework Conditions the OECD established Technical Advisory Groups to explore a range of topics. The exhaustive taxation discussions were placed under three headings of International Direct Tax, Consumption Tax and Tax Administration. The TAG reviews and recommendations inviting public comment were concluded and published in 2001.
• Various reports on the attribution of profits to a permanent establishment in the electronic commerce context.

Development on EU-level

• The proposal on value added tax for regulation is contained in value added tax proposal for regulation.The value added tax arrangements applicable to certain services supplied by electronic means can be found in VAT applicable to telecommunications which is an approved proposal for a Council Directive.

Developments in individual countries

• Canada: Electronic Commerce and Canada’s Tax Administration contains the views of the Canadian government.
• Japan: A broad Japanese policy that is not specifically tax related, is detailed in e-Japan priority policy program.
• New Zealand: The New Zealand Government published in November 2001 their e-commerce strategy
• United States: An 84 page report published in April 2000 from the Commission set up by the US Congress to analyse the state of electronic commerce from a US perspective - Advisory Commission on Electronic Commerce .

Other useful information

• World Trade Organisation provides a link to the electronic commerce pages of this global trade body.
• The General Directive on Electronic Commerce by the EU that was due to be complied with by 17 January 2002 but which only a minority of countries had introduced into their domestic law by that date.
• Don’t Panic! Do E Commerce is a beginner’s guide to European law affecting E-commerce and published by the European Commission’s Electronic Commerce Team (Information Society Directorate General).
• Globalisation and the work of fiscal termite is an article from the International Monetary Fund quarterly newsletter in March 2001.

Double Taxation

For most types of income, especially business profits and investment income, double taxation is avoided in treaties based on the OECD Model Tax Convention by allocating taxing rights between the resident and source countries and by requiring the former to eliminate double taxation where there are competing taxing rights. Most bilateral tax treaties follow both the principles and the detailed provisions of the OECD Model. There are close to 350 treaties between OECD Member countries and over 1500 world-wide which are based on the Model, and it has had considerable influence on the bilateral treaties between non-member countries (OECD).
Almost inevitably the United States has a slightly different approach in order to meet its own domestic needs and it therefore has produced its own Model Income Tax Convention.
The growth of investment flows between developed and developing countries depends upon the international investment climate and the prevention or elimination of double taxation constitutes a significant influence on that climate. Accordingly the United Nations has also promoted a Model Double Taxation Convention between Developed and Developing Countries.
So set out above the Tax Adviser has the Model background to Treaties but as always the devil is in the detail of taxation and reference must be had to the actual bi-lateral treaties in order to discover the variations from the Models that have been adopted after treaty negotiations.