E-commerce and Tax Administration

6.4 E-commerce and Tax Administration

In tax administration, e-commerce has imposed many new problems:

(1) Because of the mobility caused by e-commerce, it is difficult to track the transactions.

(2) If the computer server is considered as a permanent institution, is it supposed to be taxed? If it does, which part of the revenue should be attached to this institution?

(3) The paperless transactions in e-commerce have the result that the certificates of the transactions are easily modified, which makes the traditional way of

6 E-commerce and Tax

taxation inspection baseless, and increases the difficulty in tax collection and check.

(4) The direct transaction via Internet yields the diminishment of the power of commercial intermediate and the intermediate-based taxation.

(5) Stamp tax is a traditional tax of all countries, the base of which is the paper certificate provided by all the parties involved in the transaction. Thus the paperless transactions on the Internet make the tracking audit baseless, as well as the certificates for the stamp tax meaningless.

(6) International tax evasion administration evoked by e-commerce: E-commerce is highly fluid and hidden, which leads to various new means of tax evasion— some by taking the advantage of the hidden property of e-commerce, some by making use of its fluidity and some by its erosiveness.

All the problems listed above need careful consideration from the tax administrations. The way that they are dealt with has a lot to do with the development of e-commerce and the national tax.

The principles of taxation in our country on e-commerce: (1) Justice: E-commerce, though a digital commercial form, has not changed

the essence of trade and still should be subject to the administration of traditional taxation regulations and be imposed on in terms of the principle of justice. The justice principle means that the existing tax regulations need to be modified in order to adjust e-commerce to the existing framework of legal regulations.

(2) Neutral principle: Though taxation policies are effective in strengthening and preventing tax drain, they should not become the impediment of the development of e-commerce; neither influences the choice of trade types of enterprises. Now many countries in the world are trying to cancel the barrier of e-commerce. In the case of the initial phase of e-commerce, we should not impose new taxes on e-commerce, but use primarily the existing regulations to deal with taxation problems in it.

(3) National taxation sovereignty principle: Some countries in the world, such as the US, propose that local jurisdiction should be replaced by civil jurisdiction, the aim of which is to maintain the benefit of advanced technology and deprive the developing countries of their power to tax. Under this circumstance, we should unite all the developing countries to make better regulations and maximize their own benefits by attaching equal importance to person principle and location principle. Moreover, we should take a close study on standing institution and its essence, revise the scope of intangible assets and make definite the laws concerning the ownership transfer of intangible assets.

(4) Financial income principle: The establishment and development of e-commerce taxation regulations should always conform to the financial income principle and the national benefit so as to guarantee the national normal expenses. In the case of e-commerce, the requirements are: ķ The taxation on e-commerce and other industries can satisfy the need of the public payout in a certain period. ĸ The taxation on e-commerce should be flexible. For instance, if the flexibility

Introduction to E-commerce

is equal to or more than one, it will ensure the synchronized augment of financial income and citizen income.

(5) Convenience principle: The taxation policy should take into account the cost and technical features of the Internet.

Appropriate discount principle. It is advisable to impose relatively lower tax on e-commerce in our country to speed up its development and explore a new tax source, which is in agreement with many countries. For instance, the former US president Clinton publicly approved that the state governments should not impose taxes on online commodities before the year 2000. To shorten the process that e-commerce become more mature, the US government even proposed that the online transactions such as computer software and service online are tax-free.