Residence-based Transactions Of E-commerce

The electronic commerce (E-Commerce) is impacting the substantive principles of taxation. The impact is due to the ease of Internet-based cross-border transactions which most likely will increase significantly in the near future, and raises tax questions that many companies are not equipped to handle yet. As such the E-commerce transactions have tax experts scrambling to figure out how to tax these transactions. Current tax concepts, such as the U.S. trade or business, permanent establishment, and source of income concepts, were developed in a different technological era. However, the principle of neutrality between physical and electronic commerce requires that existing principles of taxation be adapted to electronic commerce, taking into account the borderless world of cyberspace. While there may be an advantage to use the basis of existing principles as an approach in adaptation for an international standard, however, the unique way that e-commerce takes place makes it difficult to apply these familiar rules and concepts to Internet-based transactions.

The following questions have been addressed in this article:

What is the role of tax treaties with source based taxing rights?
What is the preeminence of residence-based taxation?

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