E-Commerce and Source-Based Income Taxation

Abstract

Doctoral Series: Vol. 6 ECommerce and SourceBased Income Taxation Introduction 1. Definition of Electronic Commerce and Overview of How it Operates 1.2. Arguments, Approach and Organisation of the Thesis 1.3. Literature Review The Theoretical Foundations and Rationale for SourceBased Taxation 2.1. Introduction 2.2. The Theoretical Basis for SourceBased Taxation and its Application to Electronic Commerce 2.2.1.Benefit Theory 2.2.2 Neutrality 2.2.3.Equity 2.2.4. Entitlement 2.2.5. Pragmatic Considerations, the Prospect of Double Taxation and Impediments to International Trade 2.3. Conclusions The Definition of Source and Identification of Characteristics of Electronic Commerce Which Suggest a Need to Reconceptualise the Way Source is Defined 3.1. Introduction 3.2. Definition of Source 3.3. Historical Basis for How Source is Defined 3.4. How Source is Defined in Current International Law 3.5. Characteristics of Electronic Commerce That Impact Upon the Way Source is Defined 3.5.1. Reduced Need for Physical Presences and Intermediaries 3.5.2. Digitisation and the Intangible Nature of Electronic Commerce 3.6. Conclusions The Need to Reconceptualise the Way Source is Defined for Active Business Profits under the Permanent Establishment Threshold 4.1. Introduction 4.2. Definition of a Permanent Establishment under the OECD MC 4.2.1.Physical Presence Permanent Establishment 4.2.2. Agency Permanent Establishment 4.2.3. Preparatory or Auxiliary Activities 4.2.4. Summary 4.3. History, Rationale and Erosion of the Permanent Establishment v Threshold 4.3.1. History of the Permanent Establishment Threshold 4.3.2. Rationale Underlying the Permanent Establishment Threshold 4.3.4. Erosion of the Permanent Establishment Threshold 4.4. Analysis of the Way Source is Defined under the Permanent Establishment Threshold in an Electronic Commerce Context 4.4.1. Customer Base 4.4.2. Delivery of Goods 4.4.3. Place of Contract 4.4.4. Local Access Numbers 4.4.5. Telecommunications Infrastructure 4.4.6. Web Site, Server, Representative Presences 4.5. Conclusions The Need to Reconceptualise the Way Source is Defined for Passive Income 5.1. Introduction 5.2. Proposition One: Electronic Commerce May Facilitate a Greater Incidence of Income Recharacterisation 5.2.1. The Process of Income Characterisation under Existing Rules 5.2.2. Rationale for the Schedular Structure of Tax Treaties 5.2.3. Impact of Electronic Commerce on the Process of Characterisation 5.2.4. Summary 5.3. Proposition Two: Most Electronic Commerce Transactions Involving Passive Income are Likely to Be Characterised as Business Profits Rather Than Royalties 5.3.1. Computer Software 5.3.2. Transfers of Other Digital Products 5.4. Conclusions Table 1 - OECD Treaty Characterisation of Electronic Commerce Payments Reconceptualising Source for Active and Passive Income - The Base Erosion Approach 6.1. Introduction 6.2. Overview of the Base Erosion Approach 6.3. Essential Features of the Base Erosion Approach 6.4. Advantages of the Base Erosion Approach 6.4.1. International Consensus 6.4.2. Avoidance of Double Taxation 6.4.3. Allocation of Revenues between Residence and Source Countries 6.4.4. Tax Administration Considerations 6.5. Disadvantages of the Base Erosion Approach 6.5.1. Efficiency/Measures to Relieve Double Taxation 6.5.2. Neutrality/Equity vi 6.5.3. Tax Administration Considerations and International Agreement Regarding the Source of Income 6.5.4. Risk of Capital Flight and the Double NonTaxation Problem 6.6. Conclusions Reconceptualising Source for Active and Passive Income - The Virtual Permanent Establishment Approach 7.1. Introduction 7.2. Permanent Establishment Fictions - Nothing New? 7.3. Implementation 7.3.1. Lowering the Threshold for Tax Nexus 7.3.2. Redefining the Scope of Excluded Ancillary Activities 7.4. Advantages of the Virtual Permanent Establishment Approach 7.4.1.

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