Subject: Re OECD technical advisory group on e-commerce and professional data assessmen

From: [email-masked]
Date: Tue, 16 Mar 1999 17:38:29 EST

In response to  Neil and David's e-mails on this subject

Such tax laws on sales as described by David are already in place in many
countries for conventional commerce. This is, in fact exactly what VAT does
(at least in the EU), merchants are responsible for tax collection and
remission to the tax authorities. As I wrote in an e-mail to the group last
year, my understanding of the current position on taxation of e-commerce, is
not that it is necessarily tax free but that governments have pledged not to
introduce any new forms of taxation. In many cases, where e-commerce appears
to be tax-free, the more likely situation is that applicable taxes are simply
not being collected. 

As far as relocation by businesses to low tax /no tax areas are concerned, it
would appear that the OECD is alert to the possibility of tax competition
between jurisdictions and envisages dealing with this issue in a variety of
ways that aim to protect countries' existing tax bases from erosion.  Further
consideration is to be given to the OECD Model Tax Convention  and whether the
existing rules giving rise to a liability to taxation by a non resident
enterprise are applicable to e-commerce; whether new rules are necessary to
minimise tax avoidance (and to discourage relocation)

At the OECD Ottawa Conference in 1998, the conference endorsed 5 principles
relating to the future of taxation of e-commerce, namely:

1. neutrality, 
i.e that taxation of e-commerce should be compatible and equitable with
taxation of conventional commerce; that business decisions should be motivated
by economic rather than tax considerations 

2. efficiency
compliance costs should be kept to a minimum

3. certainty and simplicity
- so that tax payers will know in advance what their liability will be,
including where and how the tax is to be accounted

4. effectiveness and fairness
 - the potential for evasion and avoidance should be minimised, but
counteracting measures should be proportional to the risks involved

5. flexibility
- tax systems should be flexible and dynamic to ensure that they keep pace
with technological and commercial developments.

There were a number of other issues discussed at the conference. This e-mail
does not attempt to summarise them all, but the following may be relevant to
IOTP.

- there is an intention to try to draw non-OECD countries into discussions on
e-commerce taxation in order to promote global harmony of tax laws and
systems.

- it is proposed that intangible products' should not be treated as 'goods'
for taxation purposes. I believe there is still some on-going discussion on
how certain types of intangible products should be classed, i.e. as services
or as royalties etc , which would affect the method/ type of taxation -
however, this is another story too complicated to go into here. 

- it is also proposed that consumption taxes on e-commerce 'products' should
be imposed in the jurisdiction in which they are consumed. Although this is
compatible with some existing principles e.g VAT on services within EU, it
does raise many questions as to how a merchant establishes the location of the
customer, particularly in the supply of an intangible product/service
delivered electronically.  However, at present, this is likely to be beyond
the scope and purpose of IOTP ??? - or not???  It also poses some
complexities, I imagine, in incorporating into IOTP the facility to include
different tax rates, although I have no doubt that this is an unavoidable
issue for the future, not just for accounting purposes but as business
customers may require tax (VAT) receipts. 

- there are also further discussions to take place in relation to what factors
determine where consumption rakes place and how taxes should be administered
particularly when the supplier is located outside the relevant tax
jurisdiction.

- there is also to be further clarification as to what constitutes 'permanent
establishment' (i.e. the test for liablility to taxation in a jurisdiction of
the profits of a non resident enterprise or business), in particular in what
circumstances servers and web sites constitute 'permanent establishment'. It
is likely that the concept of permanent establishment is not particularly
appropriate as a test in relation to certain types of e-commerce enterprises,
and that further consideration of alternative rules for the tax liability of
their profits is needed.

- tax authorities should improve their service to taxpayers both in providing
easily accessible information and in the administration and collection
services. Procedures should be simplified and available technology used 

- there should be particular attention paid to SME's, (which are likely to
have little or no experience of the pitfalls of international commerce and
taxation.)

- avoidance of double taxation or no taxation (and indeed of tax competition
between jurisdictions)

- governments should collaborate to detect and deal with tax fraud and
evasion.

- the OECD encourages consultation with the business and technology sectors
and to have regard, where possible to solutions developed by them.

On the technological side, this may result (my guess) in the OECD and
governments looking for solutions to provide:

- means of identifying (including location) the parties to an e-commerce
transaction. As far as businesses are concerned, this may be dealt with in
part by requirements as to registration of the business with tax authorities
or through Internet Protocol number allocation records; and the provision on
relevant information (such as registered address and VAT number etc.. ) on the
web site. There is an overlap here with other aspects of e-commerce associated
with consumer protection laws, e.g. the European Commission is considering a
draft directive which covers this.  Identification of the consumer and his
location poses more difficulties, particularly if the onus is to be placed on
the merchant to record this information.

- alternative forms of audit trails specific to e-commerce 
 Basically the primary duty to account to the relevant tax authority lies with
the tax payer. However, authorities traditionally use secondary sources of
information (sometimes from third parties) to verify the tax payers accounts,
such as bank statements, delivery records, purchase/ sales records which
create an audit trail and can be cross-checked etc.. In e- commerce
transactions, particularly those relatiing to intangibles the trail or indeed
any record at all may be eliminated (disintermediation) Naturally, tax
authorities are anxious to detect or establish new forms of audit trails,
relevant to e-commerce.  In doing so the 5 basic principles (set out above)
should apply. It is also my assumption that other conventional principles will
apply, such as privacy/data protection and banking confidentiality.

- secure, tamper -evident electronic means of record keeping and accounting to
tax authorities (including the filing of required documents with tax
authorities and collection/payment)

 Almost all jurisdiction already have procedures for obtaining information
relevant to tax enforcement, usually a duty to disclose is imposed on the
taxpayer and if he fails to comply, the tax due will simply be assessed by the
authority, plus penalties, These procedures are usually supplemented by powers
of search and seizure. In such circumstances, the taxpayer generally finds it
cost effective to provide the relevant disclosure. Difficulties may arise
where the information is either held abroad and therefore beyond the
jurisdiction of the tax authority, or held in an electronic form which is not
easily accessible or reliable as to its integrity.  In my view the answer to
this is part technological and part legal.   

In terms of the technological solution IOTP potentially can play a valuable
role. By that I DO NOT mean as a tax authority agent or spy; I mean by
providing an essential service to merchants who already have duties and
liabilities to their tax authority. Inevitably tax authorities will require
merchants involved in e-commerce to maintain their electronic records and
accounting procedures in a secure and tamper evident manner. One could
envisage that tax authorities might specify which protocols or standards
fulfilled its requirements in this regard. This is not new; very often in
conventional commerce there may be requirements as to how/what records should
be kept and/or how accounts should be presented. It has always been my view
that meeting these requirements is likely greatly to enhance IOTP's
attractiveness to merchants - 'peace of mind' factor.

The legal contribution in the equation, in my view, is to ensure existing laws
as to inspection /disclosure are effective or amended in relation to
electronic records and are enforceable beyond jusidictional boundaries. I am
not a great fan of mandatory key escrow proposals; I actually see no reason
that the penalties for refusal to allow proper legal access to encrypted
stored data should be materially different to those available for conventional
forms of non-disclosure.

Again, I should reiterate that this does not attempt to be a comprehensive
discussion of all the issues raised at the Ottawa Conference, nor all the ways
in which technology has a role to play. No doubt David will be able to
feedback valuable information about that after his first meeting in April.  It
is my view that developments and solutions for e-commerce are likely to
require multi-disciplinary imput, most notably from technological, business
and legal sources.

I also do not pretend that I have been able to track down proposed legal
developments in more than a few jurisdictions, but it would appear that the
USA and the European Union are committed to following the OECD guidelines and
recommendations. It has to be remembered that a resolution of taxation issues
is necessary for the removal of one of the barriers to successful e-commerce
for the future. As far as I can tell 'bit tax' is no longer being considered
as an option; the trend is to apply conventional forms of taxation, collection
and enforcement as far as possible to e-commerce. New rules may have to be
devised to deal with the electronic supply of intangibles to ensure compliance
with taxation laws; also in relation to liability to taxation to their
profits. Amendments to laws and tax treaties may also be needed to provide
greater uniformity of taxation globally, including in relation to
international co-operation in investigation and enforcement.  No doubt the
OECD will ask the technology sector to provide solutions which will be
attractive to business enterprises and make the OECD goals achievable.

Jane Hill
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From: Graham Klyne <[email-masked]>
Date: Mon, 22 Mar 1999 12:32:31 +0000

At 07:30 28/02/98 -0700, John Messing wrote:
>One of the pieces of data that a browser transmits to an inquiring server is
>the static or dynamic IP address that it is currently using. A static IP
>address is one that does not change. A dynamic IP address is provided on a
>rotational basis by an ISP and usually changes with each connection. Most
>consumers probably use ISP's and dynamic IP addresses.

I think using IP addresses to determine physical location for legal
purposes would be an architectural nightmare for the Internet.  Do we
really want encourage people to erect mirrors on the information
superhighway, in addition to the fog already being experienced? (See
<draft-carpenter-transparency-00.txt>).

#g

------------
Graham Klyne
([email-masked])

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From: Bob Glushko <[email-masked]>
Date: Sun, 21 Mar 1999 13:32:45 -0800

At 08:44 PM 3/21/99 +0000, Dave Birch wrote:
>Milton M. Anderson said
>
>>How hard is it to install a hacker tool that will
>>spoof the PIII serial number?
>
>Please! I wasn't serious, just illustrating how ridiculous this whole 
>thread is becoming.
>

Not ridiculous at all.

I've heard that people are already building such P3 serial number spoofers.
 I think the spoofer should send back the telephone number of the
Electronic Frontier Foundation or some other organization concerned with
privacy rights (suitably masked so that any application requesting the
number can't reject it out of hand). 

Even if Intel is forced to let you disable the serial number, there is
nothing to stop Microsoft or any other publisher of software or content to
require that you enable it as a condition of installation.  I can imagine
that Windows 2000 installation will say  "sorry, we can't install unless
you let us know exactly who you are.....so we can track copies of
everything you do"

I suspect that this was the plan all along. Intel has now been taken off
the hook as the bad guy cause it obviously can't dictate to Microsoft. It
will have to portray itself as the dupe instead.

bob glushko

-- 
Robert J. Glushko, Ph.D., [email-masked], [email-masked]
Director, Advanced Technology, Commerce One Inc. 
2440 W. El Camino Real, Suite 710, Mt. View CA 94040 USA  **  (650) 623-2802
MOS->DYX and proud of it
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