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A Bird’s Eye View

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eCommerce and the Effects of Technology on Taxation

Part of the book series: Law, Governance and Technology Series ((LGTS,volume 22))

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Abstract

Globalization and the dominion of the Internet have confounded traditional international tax systems. Unprecedented tax issues flowing from eCommerce, powered by continuously mutating technology represent the central agenda for the next generation taxing regime. The continuing attempt to impose ‘basic economic laws’ on an environment which defies such laws is a futile exercise.

Critical points at issue are: ‘source’; ‘residence’ and the virtual world; harmonization; internationally equitable and effective imposition of tax in respect of eCommerce; privacy; introduction between VAT and non-VAT jurisdictions and administrative issues. A further problematical point at issue in respect of eCommerce is the question of tax avoidance or tax evasion. The concept of ‘presence; in the virtual world is a cogent point at issue as is the concept that being ‘here’ and ‘there’ within the context of the virtual world is synchronically possible.

Such challenges demand that taxing solutions should have the flexibility to adept to the impact of currently unimaginable technological amelioration.

It is submitted that VAT’s superior efficiency and potency in the virtual world of cyberspace can be demonstrated in a comparative analysis with income tax principles and the application thereof to practical examples.

It took the Telephone 38 years to reach 50 million users; Television 13 years to reach 50 million users; Internet 4 years to reach 50 million users.(Nellen, AnnetteOverview to E-Commerce Taxation – Guide to Understanding the Current Discussions and Debates (July 2003) 8. Available at www.cob.sjsu.edu/facstaff/NELLEN_A/ECOMM.pdf [Accessed 24/12/2008])

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Notes

  1. 1.

    Bird, Richard Taxing Electronic Commerce: A Revolution in the Making (September 2003). C.D. Howe Institute Commentary, p4–5. Available at http://www.cdhowe.org/pdf/commentary_187.pdf [Accessed 16/09/2010].

  2. 2.

    supra.

  3. 3.

    As demonstrated in the doctoral theses cited in this paper, for example, Dr Pinto and Dr Rendahl’s theses on E-Commerce and Source-Based Income Taxation (2003), Netherlands and Cross-Border Consumption Taxation of Digital Supplies (2009), Netherlands respectively.

  4. 4.

    Mainelli, Michael, Professor, Gresham College. Available at http://www.gresham.ac.uk/printtranscript.asp?EventId=514 [Accessed 17 June 2008].

  5. 5.

    Olivier, Lynette & Honiball, Michael International Tax, A South African Perspective 2008, Fourth Edition (2008) 1.

  6. 6.

    “The “law” was adopted after Intel co-founder Gordon Moore wrote in a 1965 article that the number of transistors on a chip would double every 24 months.” BBC News, Moore’s Law on chips marks 40th (18 April 2005). Available at http://news.bbc.co.uk/2/hi/technology/4446285.stm [Accessed 21 July 2009].

  7. 7.

    Plato 427BC-348BC. Available at http://www.quotesandpoem.com/quotes/listquotes/subject/taxes [Accessed 22 January 2007].

  8. 8.

    The Organization for European Economic Co-Operation, otherwise referred to as the OECD.

  9. 9.

    OECD Committee on Fiscal Affairs, Classification on the Application of the Permanent Establishment, Changes in E-Commerce: Changes to the Commentary on the Model Tax Convention on Article 5 (2000) OECD Publications.

  10. 10.

    Contracting and Trade Laws, Green Paper on Electronic Commerce for South Africa, Co-ordinated and complied by the Department of Communications Republic of South Africa (November 2000).

  11. 11.

    Hazlitt, William (1778–1830). “English essayist and critic. From about 1812 he wrote many articles on diverse subjects for several periodicals, including the Edinburgh Review and the Morning Chronicle; his essays were collected in Table Talk (1821–2) and The Plain Speaker (1826)”. [ The Oxford English Reference Dictionary , Sec. Ed. (1996), p647].

  12. 12.

    Shanahan, John M. (Ed). The Most Brilliant Thoughts of All Times; Hazlitt, William (1778–1830); Harper Collins, Inc.; New York, USA (1999). p275.

  13. 13.

    Nolle, Thomas. Available at www.quotegarden.com.internet.html [Accessed 8 May 2008].

  14. 14.

    Churchill, Sir Winston (Leonard Spencer) (1874–1965). “British conservative statesman, Prime Minister 1940–5… [R]eplaced Neville Chamberlain as Prime Minister in May 1940. Serving as war leaser of a coalition government until 1945, Churchill demonstrated rare qualities of leadership and outstanding gifts as an orator”. [op cit Oxford English Reference Dictionary , 1996, p262].

  15. 15.

    This paper is not concerned with an in-depth discussion of the various issues regarding the application of source within an eCommerce environment, and the measures which have to be taken in order to effectively apply a ‘source-based’ taxing system within the virtual world. Dr Dale Pinto discusses these issues in great detail within his doctoral thesis, E-Commerce and Source-Based Income Taxation, and he asserts the need for ‘source-based’ taxation to be “reconceptualised” rather than abandoned in its entirety.

    Dr Dale Pinto submitted his thesis, E-Commerce and Source-Based Income Taxation, in total fulfilment of the requirements of the degree of Doctor of Philosophy in March 2002 through the Faculty of Law at the University of Melbourne. Dr Pinto, an Associate Professor and Head of the Taxation Department at Curtin University in Perth, Western Australia, has published extensively and presented papers at several conferences in relation to Taxation.

  16. 16.

    Cloud gaming was launched by OnLive in the UK on 22 September 2011. OnLive “is the pioneer of on-demand, instant-play video game services, delivering real-time interactive experiences and rich media through the Internet. With groundbreaking video compression technology, OnLive harnesses cloud computing to provide the power and intelligence needed to instantly deliver the latest, premium game titles to any HDTV via the OnLive Game System or nearly any PC and Mac via a small browser download”A.

    Wired describes OnLive’s cloud gaming as a “service [which] is all about on-demand gaming, and through a nifty combination of ridiculously powerful servers, a BT-powered infrastructure that’s laced over Britain and some on-the-fly video codecs, you can stream full-on PC games over the web”.B The BBC News Technology reported the launch as “[t]he system, which went live in the United States last year, allows users to play games without owning a traditional console. Instead, the applications are all run on remote servers with the video streamed across the internet”C.

    The Huffington Post further states that “[t]he OnLive cloud system will revolutionise the way games are bought, played and viewed, doing away with games discs, large demo files and allowing non-gamers to view live games being played. OnLive will also challenge the gaming system where gamers must choose a console or buy a high capacity PC to play games… ‘OnLive will be transformative in how people think of video games.’…”D.

  17. 17.

    The Web Techforum describes ‘cloud computing’ as “equivalent to using an electricity grid. Instead of maintaining a full IT infrastructure, companies using this model ‘plug into’ a cloud solution, which is provided by a third party via the Internet, as and when they need to.”

    Joubert, Billy (10 June 2010) The Tax Implications of Cloud Computing Web Techforum. Available at http://www.itweb.co.za/index.php?option=com_content&view=article&id=33906\%3Athe-tax-implications-of-cloud-computing&catid=355&Itemid=86 [Accessed 26/09/2011].

  18. 18.

    Cloud computing, as addressed from a United States perspective, has been described as shifting from the downloading of

    products to internet-based access to applications and data ‘in the cloud’, [which] has the potential to once again take a large segment of digital transactions outside of the states’ taxing reach. At the very least, cloud computing promises to raise a series of new questions, the most basic of which is how states will presumably impose sales tax on digital transactions…

    …cloud computing raises numerous and unresolved state sales-tax issues. These issues are likely to be resolved piecemeal on a state-by-state basis. However, as they are being resolved, cloud computing will present vendors and consumers with potential sales-tax planning opportunities. In many cases, cloud computing will make it possible for consumers to obtain many of the benefits that were once associated with taxable purchases of software and digital products, through the purchase of a non-taxable service. In addition, because of the uncertainties regarding the sourcing of cloud computing transactions, vendors and consumers may have opportunities to achieve more advantageous sourcing for transactions by moving them to the cloud. For instance, there may be opportunities to move data processing services from origin-sourcing states that tax such services to the cloud…

    While expressed from a USA perspective it, nevertheless, aptly describes the situation jurisdictions across the globe are facing.

    ReedSmith Transcending the Cloud, A Legal Guide to the Risks and Rewards of Cloud Computing, Pennies From Heaven – U.S. State Tax Implications Within Cloud Computing. Reedsmith.com. Available at http://www.reedsmith.com/_db/_documents/State_Tax_Cloud_Computing_Paper.pdf [Accessed 26/09/2011].

  19. 19.

    Per the OECD Ottawa Framework, “[t]here is little tax revenue at stake currently in end-to-end (B2C) [that is, Business to Customer] online downloading”.

    OECD Taxation and Electronic Commerce, Implementing the Ottawa Taxation Framework Conditions (“OECD Taxation & eCommerce”) (2001) p74.

  20. 20.

    Zhao, Shanyang “Being there” and the Role Presence Technology. Available at http://www.neurovr.org/emerging/book4/4_09SYZHAO.pdf [Accessed 10 July 2010].

  21. 21.

    Schenk, Alan & Oldman, Olivier Value Added Tax, A Comparative Approach (2007), USA p196.

  22. 22.

    op cit Schenk and Oldman, p196.

    Alan Schenk describes this “unique set of place of supply rules” as follows:

    A supply of goods is connected with Australia if the goods are delivered or made available in Australia to the recipient of the supply, the goods are being removed from Australia, the goods are being imported or installed or assembled in Australia… Any other supply is connected with Australia if the thing (like a service) is done in Australia or the supplier makes the supply through an enterprise conducted in Australia… Although a business or other activity apparently does not have to be conducted in Australia to be an enterprise and therefore some supplies by a non-resident enterprise can be subject to the GST… definition of an enterprise, which does not require that the business be conducted in Australia. Supplies of anything other than goods or real property that are not done in Australia are taxable only if the enterprise is carried on in Australia… For this purpose, an enterprise is carried on in Australia if it is carried on through a permanent establishment… Thus, supplies of services through a permanent establishment in Australia or services rendered in Australia appear to come within the scope of the GST, but most or all would be zero rated.

  23. 23.

    MecroPress, South Atlantic News Agency. Japan Retains Position as World’s Second Largest Economy. Available at http://en.mecropress.com/2010/02/15/japan-retains-position-as-world-second-largest-economy [Accessed 27/12/2010].

  24. 24.

    The attractive lure of the ‘Amazon tax’, which was introduced by the State of New York, has begun to spread to other states within the USA. Following the footsteps of the State of New York, the State of Connecticut has introduced the ‘Amazon tax’ – the success of which is still to be determined. Also following on the heels of the State of New York are the States of California, Tennessee and South Carolina.

    The Wall Street Journal Conn. Gets Tough with Amazon, Pushing on with Tax (October 9, 2011). Available at http://online.wsj.com/article/AP417635c7832e49a9b628ba6d9c8a4778.html\#printMode [Accessed 6 November 2011].

    Also, refer to Footnote 30 of this paper [p58].

  25. 25.

    Chang, Jacqui, Sales Tax Holiday May be Over for Amazon, Other E-Tailers (13/01/2009). Available at http://arstechnica.com/tech-policy/news/2009/01/sales-tax-holiday-may-be-over-for-amazon-other-e-tailers.ars [Accessed 22/03/2010].

  26. 26.

    op cit Rendahl, p245.

  27. 27.

    Discussed in Chap. 18 – Jurisdictional Analysis, Part V of this paper [p169].

  28. 28.

    Tumpel, Michael, Professor, A Hybrid VAT System in the European Union (Draft 04/24/2007) p31. Available at http://docs.google.com/viewer?a=v&q=cache:g5ZTN7J6sf8J:www.law.nyu.edu/idcplg?IdcService\%3DGET_FILE\%26dDocName\%3DECM_DLV_013830\%26RevisionSelectionMethod\%3DLatestReleased+The+common+framework+for+VAT+created+in+1967+for+the+EU&hl=en&pid=bl&srcid=ADGEESig8c6y5AwqvxSipGHOW8-aslQcrIqfbzM1dwHa6pTbqOQbLX60f8_nx3d-UlY3vjQQg2BR8zYGevnpGPnM9rt5H2Q4RkiAHe0Pl_tR6xZFjyqhxg0yx3ZcnIdwyatBM51Kdeyp&sig=AHIEtbSZXkC370HMugv4EdOPt6e-bY4eFA&pli=1 [Accessed 14/12/2010].

  29. 29.

    Dirkis, Michael, Still a Problem Child: Central Management and Control After RITA (2005) Available at http://www.austlii.edu.au/au/journals/RevenueLJ/2005/7.pdf [Accessed 14 July 2010].

  30. 30.

    Application of traditional ‘residence’ definition is discussed and analysed in Part III of this paper. For the purpose of convenience, the concluding paragraph of Part III of this paper [p103] is recapitulated:

    …Indeed, it may be argued that legislative reform for determining ‘residency’ in the virtual world for income tax purposes should presuppose provisions especially structured to accommodate flexibility of application. In the traditional business world, the ‘effective management’ test is principle based in that an examination of the facts and circumstances of each case is a requisite for determining jurisdiction of residency of a company. However, determining place of ‘effective management’ within the virtual world has proved to be more rule based than principle driven. Thus, it may be contended that rather than attempting to adapt traditional ‘residence’ tests to the virtual world for income tax purposes, it may be more expedient to devise provisions more apposite to the virtual world business model. [Emphasis Added]

  31. 31.

    Bird, Richard Taxing Electronic Commerce: A Revolution in the Making p2 Available at http://www.cdhowe.org/pdf/commentary_187.pdf [Accessed 16/09/2010].

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  • Green Paper on Electronic Commerce for South Africa, Coordinated and Compiled by the Department of Communications Republic of South Africa (November 2000).

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  1. University of Cape Town, Western Cape, South Africa

    Anne Michèle Bardopoulos

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Bardopoulos, A.M. (2015). A Bird’s Eye View. In: eCommerce and the Effects of Technology on Taxation. Law, Governance and Technology Series, vol 22. Springer, Cham. https://doi.org/10.1007/978-3-319-15449-7_1

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