Internal Tax Revenue Services worldwide are struggling to apply age old taxation rules to the behemoth that is becoming Ecommerce.
Under the current principles of International Tax Law for an Offshore Company to be taxed onshore the company needs to have a “permanent establishment” ie a tangible physical presence onshore. Lobby groups notably led by the OECD are pushing for this to be changed so that countries can tax Offshore Incorporated Businesses – even if these businesses have no buildings or people in a country – provided they have a website or gather data there.
Moreover in what is becoming something of a conundrum for taxmen worldwide Revenue Authorities are finding themselves faced not only with the challenge of tax collection but also with having to play a major role in realizing the potential of what is already probably the greatest economic force of the 21st century!
Of late Business Groups have begun to hit back at moves to pile heavier corporate taxes onto digital companies, arguing that governments risk interfering with “one of the great economic success stories of the past 20 years”.
We’ve seen that the Offshore Tax Planning strategies of Amazon, Google etc as revealed have given rise to waves of media hysteria. Hence it was reassuring to read recently that no less than the OECD’s own Business and Industry and Advisory Committee have warned the OECD that, whilst it’s all well and good to bring the aggressive Offshore Tax Avoidance strategies of digital companies under the microscope, it’s important to avoid introducing tax burdens that would inhibit the growth of a technology that has played a central role in “improving the lot of people around the world through increased cross border trade and investment”. Bravo!
The taxation of Ecommerce profits ultimately depends on the ability of revenue authorities to check reported income and spending against bank and credit card statements. Presently its estimated that as much of 90% of all financial transactions with respect to consumption take place using cash, checks or credit cards which (via banks/credit card companies) leave an audit trail.
Throughout history the great entrepreneurial pioneers have always found ways to extract the greatest return from their efforts. Hence it’s fascinating to see that just as the push has begun to find a way to tax Offshore Incorporated ECommerce businesses a whole new world of electronic cash is beginning to emerge led most noticeably by the rise of Bit Coins.
It stands to reason that the development of this electronic cash will almost certainly further facilitate both electronic commerce and Offshore Tax Avoidance since payment no longer leaves a paper trail but is rather anonymous and untraceable.
Is this surprising?
Not really… as has been stated many times, Capital always flights to where Capital gets the best deal. Which in many cases is Offshore!
Watch this space for developments….
