Walter Hellerstein Francis Shackelford Professor of Taxation University of Georgia Law School

1. World Trade OrganizationRevenue Implications of E-Commerce for DevelopmentGeneva, Switzerland22 April 2002Electronic Commerce and the Challenge forTax Administration Walter Hellerstein Francis Shackelford Professor of Taxation University of Georgia Law School

2. Key Attributes of E-Commerce with Tax Implications • Ability to Establish Public and Private Global Communications Systems • “Disintermediation” • Development of Encrypted Information • Increased Integration of Business Functions • Greater Flexibility in Business Organization • Fragmentation of Economic Activity

3. Technical Features of Internetwith Tax Implications • Lack of Central Control • Lack of Central Registration • Difficulty of Tracing Transactions • Weak Correspondence Between Domain Name (Internet Address) and Reality

4. Dangers E-Commerce Poses for Territorial Tax Regimes • Magnitude of Increase in Cross-Border Transactions • Digitization of Information • difficulty of identifying source, origin, and destination of transactions • Tax Administration Issues • audit trails • verification of parties to transactions

5. Opportunities E-Commerce Creates for Tax Administration • Streamlining of Tax Administration • replacing paper with electronic data interchange (EDI) • electronic filing of tax returns • automation of tax collection process • OECD Working Party 9 Subgroup on E-Commerce • Streamlined Sales Tax Project (US)

6. Overview of Concerns • Direct Taxes • Jurisdictional Issues • PE definition as applied to electronic commerce • Characterization/Sourcing Issues • Transfer Pricing Issues

7. Direct Tax Issues • Jurisdiction to Tax • Residence-based taxation • Source-based taxation • income effectively connected with “trade or business within the United States” • permanent establishment • OECD Working Party’s proposed changes to treaty commentary

8. Direct Taxes • Characterization and Sourcing Issues • Treaty Issues • OECD Treaty Characterization TAG • Ordering and downloading of digital products • Website hosting • Software maintenance and other customer support • Data warehouse and retrieval

9. Direct Taxes • Transfer Pricing Issues • use of intranets • fewer paper trails • identification of transactions with related parties • difficulty of valuing contributions of related parties

10. Overview of Concerns • Indirect Taxes (VAT, Retail Sales Tax) • Where consumption of electronic supplies occurs • Administrative collection concerns with cross-border digital transactions • Collection by remote sellers (US)

11. KEY ISSUES UNDER VAT/RST B2B TANGIBLE B2C TANGIBLE B2B DIGITAL B2C DIGITAL

12. Indirect Versus Direct Tax Issues • Jacques Sasseville (OECD): • Consumption tax issues are urgent, but not fundamental • Income tax issues are fundamental, but not urgent

13. Conclusion • Extraordinary Problems and Opportunities • Possibilities versus probabilities • Stay Tuned