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.

The following questions have been addressed in this article:

What exactly is the problem?
How do sales tax/VAT regimes work?
How do these rules apply to e-commerce?
What are the latest developments?


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