Challenges In E-Taxation

Conducting business in cyberspace can bring about issues for the tax administration to determine which jurisdiction is entitled to tax over goods or services conducted over the Internet. This is an international problem hence I will look at different authors from different jurisdictions to expand on which issues are most common. The reason why I will be looking at taxation issues in cyberspace is that oftentimes discussions regarding tax and cyber law or cyberspaces have been separated.^[1] Most authors find this to be harmful to the development of e-commerce as we can see now that we are moving into the Fourth Industrial Revolution and more businesses are going online. That brings about the question of how companies are taxed if they are. This is what this article will focus on.

Taxation Issues

There are many challenges identified in these spaces. Some of them are:

●      Identification issues: Tax administrators, amongst other things, need to identify whether a transaction has occurred, where it has taken place and the parties involved.^[2] The issue regarding the identification of parties is that it may prove to be difficult to trace the true owner of a website because the tools used are weak. However, the CCA in India has established a third-party CA, in terms of the IT Act, 2000 that aims to certify the details of the owner of the site.^[3]

●      Jurisdiction: An individual may create an Internet address in a different jurisdiction to benefit from that jurisdiction.^[4] Traditional industrial tax rules rely on physical or economic locations, however, e-commerce makes it difficult to determine where an online transaction took place.^[5]

●      Dematerialisation of trade: Products sold over the Internet are becoming intangible as they are more about services rather than goods, such as Uber/Taxify and prevents an assessment to be conducted based on comparing inputs and outputs.

The Integrative Adoption Model

To solve some of the issues listed here, various authors have called upon an Integrative Adoption Model. This model comprises four layers as follows. Firstly, case law should set precedent for income classification and residency rules.^[6] Secondly, the model “should introduce new source rules based on the location of the parties to the transaction.”^[7] Thirdly, technology should be used to enforce new tax laws that accommodate cyberspace. Technology can be used to manufacture borders within cyberspace for tax purposes. The advertising market requires this type of technology hence it can also be used for this.  And lastly, it should gain consensus through international treaties established through the United Nations.^[8] The main aim behind the model is to apply the current international tax law to international e-commerce.

Conclusion

This paper aimed to bring awareness to other fields of law into cyberspace. As much as we focus on e-crimes and such it is also important to look into regulating taxation over e-businesses. As the model explains, case law is needed to set precedent across borders and treaties needed.

 

                                                                                                            By: Matsoeute Shamtala

                                                                                                            (Legal Intern, WCSF)

 

For more such updates, please visit our website: https://www.worldcybersecurities.com/

FOOTNOTES

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^[1] Rifat Azam, E-Commerce Taxation and Cyberspace Law: The Integrative Adaptation Model, VJLT 1, 2007.

^[2] Dale Pinto, Ten Tax Issues Relating to Conducting Business in Cyberspace, JIBC, (1970).

^[3] The Information Technology Act, 2000, § 18, No. 21 Act of Parliament, 2000 (India).

^[4] Dale Pinto, supra 2.

^[5] Dale Pinto, supra 2.

^[6] Rifat Azam supra, 28.

^[7] Rifat Azam supra, 28.

^[8] Rifat Azam supra, 28.