Internet Law
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Internet Patents Worldwide
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Internet Advertising Law
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Digital Media: Copyrights and Piracy
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Domain Name Law & Disputes
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Can You Patent This?
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E-Commerce Taxation: The U.S. Approach
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Why E-Businesses Move Offshore
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Gambling: Online and Offshore
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Online Gambling: Profits & Concerns
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Offshore E-commerce Taxation
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Internet Search - Public Domain v. Intellectual Property Rights
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Emerging Trends: Search Engine Regulations
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How Tax Authorities Audit E-Businesses
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E-Books Series is a concentration of the most relevant information on e-commerce and Internet laws and regulations around the world.
Conveniently divided in sections consisting of articles on specific topics, supplemented with links to the sources of law and regulations, e-Books provide an excellent and quick resource of knowledge on Internet and e-commerce issues and applicable principles of law. Electronically accessed supplemental materials are provided to enhance a dynamic informative process.
E-Book Series is a part of E-Commerce University ECUniversity.com
pioneering scholastic programs that also include Internet law courses for law and business schools, Internet Law Diploma Programs, and Corporate education for businesses.
E-Books are conveniently accessible online or through a downloadable version. A pocket size version of eBooks is also available.
IBLS e-Book Series reserves all intellectual property rights. Any re-distribution of this material without appropriate license will be prohibited.
E-Books are distributed and copyrighted by E-commerce University.
For license inquiries write to e-books@ibls.com
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 | | | | Offshore E-Commerce Taxation | | | | | |
| | | Introduction | | | Chapter 1: Offshore Taxation | | | Chapter 2: Offshore and Fraud | | | Chapter 3: Review of Some Offshore E-commerce Centers | | | Supplemental Documents | | | | | |
Abstract:
Is there an international consensus as to taxation of e-commerce? What domestic tax polices have been adapted to the new phenomenon of offshore e-commerce and its taxation? Is tax neutrality still an applicable principle for taxation of offshore businesses? These and other attention-grabbing questions are addressed by this e-book.
This e-book also explains important offshore e-commerce principles like VAT, sale taxes, permanent establishment and the most common offshore tax strategies. There is a particular section, dedicated to enlighten readers on what constitutes fraudulent offshore tax schemes and how to avoid them. As a finally complementary point, this e-book provides examples of some current Offshore E-commerce Centers and their characteristics, commonly, shared by other offshore e-commerce centers.
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| | | | CHAPTER 1: Offshore Taxation |
| | |  | OFFSHORE TAXATION OF E-COMMERCE
International Offshore Financial Centres (“IOFC”), generally do not have double tax treaties. This is because they usually have very low or no corporation tax. Some companies have occasionally attempted to escape tax by earning profits in subsidiary companies in IOFCs and not passing that profit on to the parent company. However, most high-tax countries have anti-avoidance (controlled foreign company) laws which would attribute such income to the parent company. Keeping this mind, a number of questions arises with respect to offshore taxation of e-commerce. For example the tax issues that affect U.S. persons who want to do business outside the U.S. One thing that is obvious, is that the U.S. government would not be making it easy for U.S. tax payers to avoid paying income taxes by merely renting or leasing a space on a computer in an offshore island tax haven such as Bermuda and then operating that remote computer over the Internet from an office or home in the US. There are going to be number of issues that perhaps will make these transactions difficult for the US tax payers to attempt avoiding US taxes on his/her global e-commerce business.
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BACK TO TOP | | CONCEPT OF TAX HAVEN IN A GLOBAL TAX COMPETITION
Whilst there never has been an exact definition of the concept of a tax haven, there has been some agreement on the recognition that certain countries are tax havens. Some countries finance their public service with a minimum or even no internal income taxes. They offer their jurisdiction for use by non-residents for purpose of avoiding tax in their own country of residence, countries that raise substantial revenues from their income tax. Such a tax system has features that would constitute harmful tax competition. This summary addresses the issue of tax havens and their harmful tax competition practices.
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BACK TO TOP | | UNITED STATES CHARACTERIZATION OF E-COMMERCE TRANSACTIONS FOR TAX PURPOSES
Characterization of e-commerce transactions for tax purposes is an essential issue to be addressed by governments, whose public and private sector participate in e-commerce dealings. Governments have a legitimate interest in determining how e-commerce transaction will be taxed, and creating an environment suitable for the growth of e-commerce; whereas the private sector in each country must know the standards for the characterization of e-commerce transactions for tax purposes because e-commerce has the potential of creating new markets for their businesses. The United States approach to the characterization of e-commerce is provided in this article.
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BACK TO TOP | | SALES TAX/VAT AND OFFSHORE E-COMMERCE
The borderless nature of e-commerce makes it difficult to define where income is earned, when a product is purchased, or value is added. As a result, it is difficult to determine at what point profits are being made and what country is allowed to tax them. The operation of consumption taxes, such as sales tax in the US and Canada, and Value Added Tax (“VAT”) in the European Union, depends heavily on the ability of the taxing authority to find traces or records of transactions. This is especially difficult when the transactions at stake involve the purchase of a digital product from a seller located in an offshore tax haven.
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BACK TO TOP | | CORPORATION TAX AND OFFSHORE E-COMMERCE
Corporation tax, also called income tax, is levied on the profits of an incorporated business. Offshore e-commerce poses some serious challenges to Governments worldwide regarding taxation of profits. This summary addresses the issue of corporation tax and its treatment in offshore e-commerce transactions.
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BACK TO TOP | | A MAIN REASON FOR MOVING OFFSHORE: AVOIDING TAX
Among the different reasons why e-businesses might want to move offshore, some of which have been outlined in the summary entitled: “Top Reasons for Moving an E-Business Offshore,” tax avoidance is often on top of e-businesses’ priority list. Most tax havens feature very low rates of income tax, or no income tax at all, which understandably seems very attractive to companies incorporated in high-tax countries.
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BACK TO TOP | | OFFSHORE TAX STRATEGIES
As indicated in the summary entitled “A Main Reason for Moving Offshore: Avoiding Taxes,” the main idea behind international tax schemes is simple; it consists in taking advantage of the difference in tax rates between high-tax Western countries and International Offshore Financial Centers (“IOFC”), by locating streams of companies profit offshore.
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BACK TO TOP | | TAXATION OF OFFSHORE E-COMMERCE
The growth of offshore e-commerce raises many new issues for governments, tax authorities, and legislators; and the question of taxation is by far the most challenging of these. E-business entrepreneurs need to keep abreast of the recent developments concerning the taxation of offshore e-commerce.
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BACK TO TOP | | OFFSHORE E-COMMERCE AND TRANSACTION TAXES
Offshore e-commerce represents a challenge for the application of transaction taxes (i.e.: sales tax and Value Added Tax.); particularly, when dealing with digital products. Notably, all Western nations are struggling to find out how transaction taxes can be levied on the sale of digital products over the Internet. Some guidelines have been implemented by the European Union and its member states. U.S. Federal and State tax authorities have also provided some guidelines as to taxation of digital products sold over the Internet.
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BACK TO TOP | | PERMANENT ESTABLISHMENT AND OFFSHORE TAXATION
From an e-commerce tax standpoint, the notion of permanent establishment is a key factor for most of the European countries. If an e-business is deemed permanently established in a particular jurisdiction, then it will be taxed in that jurisdiction according to EU Directives. There has been a lot of controversy about whether the presence of websites and servers in a jurisdiction constitute a taxable presence in this jurisdiction. According to the Organization for Economic Cooperation and Development (OECD,) the presence of a website alone is not sufficient to constitute permanent jurisdiction. This summary illustrates the readers on the OECD approach to the issue of permanent establishment for e-commerce tax purposes.
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BACK TO TOP | | TAX AVOIDANCE MADE EASY IN TAX HEAVENS THROUGH E-COMMERCE
There is an old saying—“With the birth of every hero, a new evil is born.” In the context of E-commerce, a new evil is the advent of the tax haven, which is proving to be an evil force in the form of tax avoidance.
This corrupt technique hampers the revenue systems of modern states and undermines its ability to provide the facilities and services to its citizens. Techniques of fund depletion are deployed as sophisticated tools and various financial schemes, taking advantage of liberal privacy laws in various tax havens. This summary presents the most common tax avoidance strategies and how businesses are repatriating offshore e-commerce funds.
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| | | | CHAPTER 2: Offshore and Fraud |
| | | | OFFSHORE TAX AVOIDANCE AND OFFSHORE TAX EVASION
One might consider that moving offshore is basically a question of transferring highly profitable business activities to more favorable tax jurisdictions. Although the basic idea is very straightforward, the reality behind it is much more subtle. While avoiding taxation is legal, evading it is not. E-businesses need to have a very clear understanding of what is permissible, of what falls within a grey – hence risky – area, and of what constitutes plain and simple fraud.
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BACK TO TOP | | FRAUDULENT OFFSHORE TAX SCHEMES
Making the difference between what is legal (tax avoidance) and illegal (tax evasion) is not always easy when offshore strategies are involved. E-businesses entrepreneurs should be aware of the existence of various fraudulent tax schemes, structured by both onshore and offshore companies.
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BACK TO TOP | | INFLUENCE OF FRAUD ON OFFSHORE TAX HAVENS
Many of the established International Offshore Financial Centers (“IOFCs”) have experienced considerable growth over the past 15 years, but a few have suffered major set-backs arising from scandals relating to fraud or drug offences. Such events reinforced the pressure from international bodies and national taxation authorities for better regulation of international services in order to prevent illicit activities in IOFCs.
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BACK TO TOP | | HOW TO AVOID FRAUDULENT OFFSHORE TAX SCHEMES
Fraudulent offshore tax schemes are quite common, and, for some of them, widely advertised. That makes them all more dangerous. For instance, many taxpayers have been persuaded to invest into schemes involving the set up of a credit-card account in a tax haven country with money that is not reported on tax returns. Whereas such schemes are clearly abusive, other “borderline” schemes might be less obvious to detect.
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BACK TO TOP | | FRAUDULENT OFFSHORE TAX SCHEMES: HOW THEY GET CAUGHT
Promoters of fraudulent offshore tax schemes often claim that what they're doing is "asset protection," stating that it is legitimate and that it is up to the clients to file proper tax returns. However, these schemes might not be legitimate, in which case investors end up filing false tax returns and committing perjury. Although investigating these schemes is a difficult and lengthy process, some of the promoters and investors of offshore tax scams do get caught.
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| | | | CHAPTER 3: Review of Some Offshore E-commerce Centers |
| | | | THE ISLE OF MAN: MAIN CHARACTERISTICS OF AN OFFSHORE E-COMMERCE CENTER
Situated in the heart of the British Isles, the Isle of Man is a self-governing dependent territory of the British Crown. Although it is not a part of the United Kingdom, it’s a member of the British Commonwealth. The Isle of Man has its own laws, including a very specific tax regime, making it an attractive offshore business center.
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BACK TO TOP | | ANDORRA: MAIN CHARACTERISTICS OF AN OFFSHORE E-COMMERCE CENTER
Andorra, located between France and Spain in the Pyrenees, is an independent parliamentary democracy, which enjoys a very attractive tax regime. Andorra’s characteristics might also make it an eligible offshore e-commerce center.
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BACK TO TOP | | GIBRALTAR: CHARACTERISTICS OF AN OFFSHORE E-COMMERCE CENTER
Located on a rock at the southern tip of Spain and overlooking the strait to Africa, Gibraltar is a self-governing British Overseas territory that is a Member of the European Union. Gibraltar has committed to become an attractive offshore business center, and some of its characteristics, such as taxation of international companies, make it attractive to e-commerce businesses.
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BACK TO TOP | | ARUBA: AN ELIGIBLE OFFSHORE E-COMMERCE CENTER?
Aruba is a small Island off the coast of Venezuela, which is part of the Kingdom of the Netherlands, and which is an associated territory of the European Union. Aruba is famous for offshore financial services and might also be attractive for e-commerce businesses, although no legal framework or specific incentives have been put into place so far.
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BACK TO TOP | | OFFSHORE E-COMMERCE IN BERMUDA
Bermuda is one of the offshore jurisdictions that offer the most advanced e-commerce environment to businesses seeking an offshore base for their operations. The Government has developed e-commerce legislation and supported the development of e-commerce facilities. Besides, Bermuda’s tax legislation can help e-businesses optimize their tax structure.
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BACK TO TOP | | OFFSHORE E-COMMERCE IN HONG KONG
Hong Kong’s geographical situation as a trade hub for Asia and its favorable tax regime makes it an attractive area for offshore businesses. In addition, Hong Kong’s Government has been fostering the development of e-commerce for years through the implementation of a specific legislative framework and the support of several ambitious programs.
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BACK TO TOP | | IS BELIZE AN ONLINE TAX HAVEN FOR E-COMMERCE COMPANIES?
Belize is a well-known offshore jurisdiction with special legislation for the establishment of Offshore Trusts and International Business Corporations (“IBC”). The existence of an exempt tax regime makes it an attractive jurisdiction for certain activities, including offshore e-commerce. However, the classification of Belize as a tax haven by the Organization for Economic Cooperation and Development (“OECD”) might raise concerns as to the future of this favorable regime.
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BACK TO TOP | | IS DUBAI READY TO BECOME AN OFFSHORE E-COMMERCE CENTER?
The Emirate of Dubai, which extends along the Arabian Gulf Coast, is strategically located between Africa and the Middle East and between the Far East and Europe. The Government’s efforts to promote the development of Information and Communications Technologies have turned Dubai into an attractive jurisdiction for e-businesses.
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| | | | Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-commerce?
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BACK TO TOP | | Common Taxation of Parent Companies and their Subsidiaries
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BACK TO TOP | | OECD Aims to Improve International Tax Disputes Mechanisms
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BACK TO TOP | | Offshore financial centres are sharing more information
according to the OECD Global Forum on Taxation (GTF). OECD countries are devoting efforts to get international co-operation to reduce tax evasion and increase transparency in taxation matters around the world. One of the OECD’s goals is to increase information sharing among countries, especially those so-called offshore financial centres.
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BACK TO TOP | | Data Protection Law in Philippines’ Business Process Outsourcing Industry
Offshore Business Process Outsourcing (“BPO”) is a growing industry in Eastern Europe and Asia countries. Typical BPO include customer and support call centers, payroll, and medical transcripts centers. Philippines ranked second, to India, in business process outsourcing for the year 2005, by producing $1 billion revenue through BPO contracts (compared to $800 million in 2004). Philippines BPO is particularly interesting for United States (“US”) business due to its strong English-speaking ability, capable workforce availability, IT infrastructure, and cultural skills to interact with US citizens and other Western cultures (including Spanish-speakers). Yet, is Philippines ready for data protection in the offshore outsourcing industry?
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