Regional Sales Tax on E Commerce- Time for a global moratorium?

[Whitey]

It's not easy to run a business, large or small, with a potential tax liability accumulating which could turn and provide a nasty bite. And paying tax won't necessarily help, if you paid it to the wrong authority. E-Commerce business' deserve to operate with certainty provided by global tax authorities.

I think that the administration of sales tax on internet sales of "services" is a multi jurisdictional nightmare and wondered if it's time for a moratorium to be considered by the OECD.

Why?

After approximately 12 years of the internet being an effective sales tool, I've not found a senior accountancy firm that has a clear picture on how multi juridictional sales tax should be handled when issues of "business definition" and "business process"are correctly and deeply analysed. On top of this there is complete inconsistancy amongst participants in the supply chain and some of those firms have received conflicting advices, [ according to one supply chain line that i have observed ] .

Why?

Because the definition of business is often not clear. It is frequently open to multiple interpretations with adjudication [ based on current evidence ] often susceptible to appeal or reversal. This means that service contracts between parties A and B [ their affiliates ] are potentially invalid, because a "truth" has not been established. Versions of "truth" are often contemplated, but are frequently withdrawn even at the judgement level.

For example, if you earn commission on sales, are you a reseller , a distributor , an advertiser or do you effectively licence content on behalf of the principle and receive remuneration via the payment gateway and software provide by your affiliate partner. And if you work this out , where was the service "consumed". And when you've worked this out, where do the sales tax obligations fall. The process may fall into one of several jurisdictions.

The tourism industry in particular is a nightmare with many well documented cases around the World. Some situations involving the supply of good are easier, but services seems tricky. At times, the sale of deliverable goods [ like Books and DVD's ] would seem a bit easier.

What are your thoughts? What's your strategy to deal with this and how should the authorities be assisting online business' to a better environment of understanding and co operation.

[edited by: Whitey at 11:18 pm (utc) on Dec. 14, 2007]

[Whitey]

Just thought I'd throw this in to stimulate some thought .

[ibls.com...] :

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.

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?

E-Commerce and Sales Tax [ibls.com]