Global E-Commerce Regulation - Taxation

TAXATION

Taxation is a crucial issue for e-commerce regulators both within the United States and across the globe. In particular, customers and companies engaging in international e-commerce transactions have to negotiate a web of tax laws in countries where they do business—including national tax laws with special provisions for foreign transactions or for ecommerce—as well as their domestic tax regulations. Beyond that, most countries have been sorting out specific tax measures for Internet purchases, creating separate categories of regulations. These issues highlight again the tension between nation-based legal structures and the borderless Internet.

The countries of the European Union, for instance, taxed Internet transactions via value-added taxes, which act as consumption taxes and can reach as high as 20 percent, while the United States maintained a moratorium on e-commerce taxes through the Internet Tax Freedom Act. In 2000, this disparity sparked fierce debate between the two regions after the European Commission proposed requiring companies that sell certain electronic services, including software, in the European Union to collect value-added taxes from those EU customers. U.S. companies balked at the notion of collecting taxes for European governments, according to Upside, and various EU leaders came up with alternative proposals, each of which ruffled some feathers on both sides of the Atlantic.

The European members of the G7 group of advanced industrial nations, furthermore, were far more enthusiastic than the United States to establish a system requiring e-businesses to register with national tax authorities in the countries where they wish to sell digital products for downloading, such as music files and software. Aside from the greater aversion among U.S. policy makers to establishing regulatory schemes for the Internet, U.S. resistance to such proposals had a practical element as well, since it was U.S. merchants that clearly dominated the market for digital transactions, and thus would be most affected by such regulations. For its part, in the late 1990s, the World Trade Organization placed its own moratorium on e-commerce taxation.