Abstract

* What is electronic commerce

* Challenges of e-commerce tax

* The Permanent Establishment

* Proposal by the OECD on the permanent establishment

* Overall Reactions to the proposal from the OECD

* Position of the United States

* Case Mexico

* Conclusions

* Notes

Abstract:

Mexico, like others, has some time considering how they will face the tax aspect of electronic commerce. Such is the degree of importance of the issue, suggested that the WTO since 1998 a moratorium on the elimination of trade taxes electronico.Por transnational other OECD issued a model for adequacy of fiscal rules, which has been rejected, partly or wholly, by major economies such as the American or British. This is primarily due to the way it determines the connectivity of an electronics company with a country. Focusing on a reformulation of the concept of permanent establishment which does not leave many satisfied by their apparent gaps.

Introduction

With the advent of the telecommunications revolution in many aspects of traditional life are being questioned. The way they see the world change and how you interact. One of the most important of these changes are the economic impacts of this revolution. Today, technology is the impetus for any significant market, Bill Gates has more than ten years as the world’s richest man, thanks to who is chairman of Microsoft Corp. The largest brand value today is Google, the richest man in Mexico, Carlos Slim, made his fortune thanks to his ability to find and move into new technology markets.

Given this, and under the possibility of developing a life in the virtual world creates a new form of trade. Electronic commerce and concentrated million users with an exponential growth of both every year. E-commerce drives the economy and challenges much of our legal thought. At present, civil, commercial, criminal, procedural and other, face to make adjustments to their fields all the implications of this new form of merchandise. The fiscal side is no exception and is outlined with the pair greatest difficulties adjusting to the new digital age.

By focusing on international tax law the issue is further complicated. Several questions come to light as it is possible to tax the use of Internet and other networks, Digital products such as books, songs or programs must have Ajuntas tax burdens, How it is determined that some virtual company is in my jurisdiction tax , how is forcing Internet sites to provide information or bills if they have offices in Mexico, there is a virtual permanent establishment

Our country, like others, has some time studying the way that face the tax aspect of electronic commerce. Such is the degree of importance of the issue, suggested that the WTO since 1998 a moratorium on the elimination of transnational e-commerce taxes.

On the other OECD issued a model for adequacy of fiscal rules, which has been rejected, partly or wholly, by major economies such as the American or British.

This is primarily due to the way it determines the connectivity of an electronics company with a country. Focusing on a reformulation of the concept of permanent establishment which does not leave many satisfied by their apparent gaps.

This research will analyze the importance of a permanent establishment in international electronic commerce and raise the reasons for the controversies surrounding the concept. This to outline the position of Mexico on the issue. The determination of the current tax basics will be vital to the future of the Mexican economy and therefore government in all aspects of the country.

What is electronic commerce

Before proceeding, it is thought appropriate to raise a concept that helps to understand the implications and effects thereof. Electronic commerce means to the exchange of goods or services by means of an electronic platform. This approach is not limited to electronic commerce conducted via the World Wide Web or Internet, this is important because there is a tendency to believe that only the Web pages is raised by electronic commerce. All transactions carried out by means hows SMS, Intranet and other networks fall under the definition referred.

While there are many forms of electronic commerce is the most widely used Web-based, this can happen through an open network like the Internet or an enclosed space such as intranets. Apart from the platform is performed, there are other classifications based on how they are delivered the goods. If the goods are delivered electronically speaking of a direct trade (online), however if the goods are distributed by physical and tangible assets would be called indirect (offline).Fiscal challenges of electronic commerce

The networked world raises several points of contention for the fiscal legal aspect. The way in which governments can keep track of profits and losses in a virtual enterprise is a complex job. Add to that the task of determining which country has the right to impose taxation on cross border trade, we understand the difficulty of the problem. Since globalization has raised the volatility of capital as a problem, the indiscriminate use of the Internet poses a potential volatility of large-scale enterprises. This if it is determined that the relationship with a country is the use of its termination in the WWW or the use of a server located in the same. The definition of permanent establishment is vital for the development of standards in electronic commerce, it is the basis for ongoing monitoring to an alien who has been operating daily trading in a particular territory.

Search criteria exist for specialists, some believe that e-commerce do not really represents a significant change because only required settings for a control like that of other sectors. Those who say this are based on transmission indirect electronic commerce includes the transfer of goods which are taxed like those sold in traditional media. In the same way the services or intangible goods are not new to any legal framework. Other experts argue that traditional concepts of tax control are useless for electronic commerce. The above basis is found at low or no personal activity required in a transaction online. Anyone can sell to a country without even knowing it, having your server in a different country living and the ability to have others in different nations. In addition to this all the network traffic is encrypted, countries could not determine if a data transfer network is a purchase, talk in a chat or a shared image. That is why radical solutions are proposed as imposing a general tax on Internet use (bit tax) or total exemption of electronic commerce.

Before you can determine what will be taxed goods or services is necessary to determine who will pay these taxes, or at least who collect them and forward them to the coffers of every nation. For this it is necessary to determine who are the subject of a tax in a country. This question is relatively simple when dealing with a local portal with local servers and managing it with a commercial company. Major e-commerce portals in Mexico have these characteristics. Direct sales Web sites such as Terra.com, Gandhi.com, Tarabu.com and others, have an obvious obligation to pay taxes in our country, and indeed they do. In the case of auction sites for individuals and business Mercadolibre.com normally taxed but users could evade their obligations, which seems plausible when considering that 76% of sales are new products which would involve a payment of at excluding VAT and that the site aims to users as the only responsible in this field. But if local vendors are not taxed and the controls are limited as we could face foreign vendors

Under a general perspective whether an individual or company sells a product to another country tax burdens would focus on the point of sale that is limited to the country of residence of the seller. When the same company began to make steady sales and plan to have offices abroad to grow its growth the country abroad by international rules, the host country should have the right to tax the taxpayer. Over the years, scholars have raised the possibility of standardizing the grounds to preserve this right, the product of these studies has led to the formulation of the term “permanent establishment”.

Permanent Establishment

The concept of permanent establishment was not a static idea since its creation, refinement and current conceptualization is the product of years of negotiations, adjustments and disputes. Although from a legal point of view of current approaches may be awarded to scholars, the primary official application is located in the background to the UN agency.

In search of history I must go back to the contribution made to the concept of “permanent establishment” by the League of Nations in Article V of the model protocol to the Convention of 1943 in Mexico and London, 1946 ”

Currently the permanent establishment is the standard for determining some relationship with a country specific activities. Nations tax the permanent establishment in a particularized, the Mexican state in its tax regulations uses this term. The Law on Income Tax gives us the official definition of permanent establishment now

For purposes of this Act, permanent establishment is considered a business anywhere in the development, partly or wholly, business or personal services are rendered. Means a permanent establishment, among others, branches, agencies, offices, factories, workshops, installations, mines, quarries or any place of exploration, extraction or exploitation of natural resources.

According to this definition means a permanent establishment, this is important because often gives a quasi-person treatment. Here is the basic feature is the word all, which according to the Royal Academy is defined as: “Space may be busy or occupied by any body.” Then the definition of permanent establishment refers to a physical feature, which question the use of virtual space as the current concept.

National legislation relating to the permanent establishment is highly dependent on proposals from the OECD, an organization that owns Mexico. In fact, the OECD’s proposal to tax e-commerce is the most accepted and at the same time the most criticized.

OECD proposal on the permanent establishment

Any tax system that seeks to tax electronic commerce should take the following considerations:

1. The system must be equitable: taxpayers in similar situations should contribute equally.

2. The system should be simple: administrative costs of the authorities and taxpayers should be minimal.

3. The rules must provide security for taxpayers so that the consequences of any action are known in advance.

4. Any system adopted must be effective, must produce the right amount of tax, at the right time and minimizing tax evasion.

5. Economic distortions should be avoided: corporate decisions must be made by business and no taxes.

6. The system must be sufficiently flexible and dynamic to ensure that the tax rules are consistent with commercial and technological developments.

7. Any local tax reform must be according to the international context and ensure a fair distribution of taxes on the Internet among countries and particularly between developing countries.

The OECD after analysis by the panel determined that under the current concept of permanent establishment may determine that a server serves as the setting characteristics. While the OECD says that the concept of permanent establishment should be open and just make some guidelines.

A server when performing an essential part of business is equated with a permanent establishment. Are considered essential functions of a business taking orders or processing credit cards. Likewise, states that the request for information or advertising, per se, are not essential to the business activities and therefore the servers that perform the processing of this information does not constitute a permanent establishment.

A detailed note of the OECD model is that it only understand themselves as servants to the company and not used by an Internet service provider.

Server signaling a permanent establishment has its origin in that it occupies a place, ie no physical manifestation. That is why it is not considered a Web site a permanent establishment, since it occupies a place in space.

Overall reactions to the proposal from the OECD

Several countries have criticized the OECD’s proposal, believing that could severely damage their economies. If it is determined that the permanent establishment of a website is your server opens the possibility that high-tax countries lose the ability to tax e-commerce businesses. This would give the companies that would place their servers in countries with low tax burden, the page would be equally accessible to the user no difference.

The problem is compounded when a company’s core business servers in different countries, each transaction must be located in their respective server, this often occurs because of differences in schedules that encourage companies to strategically install servers to services 24 hours .

Countries like the United Kingdom have been reluctant to implement the proposal of the OECD. The British say the proposal does not encourage the creation of local businesses. It is considered that the server does not meet the characteristics of a permanent establishment or Web page or the sum of both.

Given these apparent omissions of the OECD initiative to the organization has raised a fierce defense of their arguments. The reader might find in academic journals such defense or even casuistry of the model in real business life.

On the other hand, some experts have argued that the concept of permanent establishment may be preserved as long as they accept your virtual mode. The determination of a virtual permanent establishment has caused more differences than consensus, because although the apparent adaptation of a physical to a virtual concept to virtual environment seeks consistency, there is no agreement on what would be considered virtual permanent establishment. This is logical if it is envisaged that a website can be observed equally in all corners of the world even though the author does not have the interests of global advocacy.

Some scholars believe that electronic commerce can not be taxed without being certain injustices, so they propose a different perspective to the topic. Some believe that non-stop e-commerce and to emphasize the idea of globalization, the Internet should simply be tax free. In contrast other countries consider that require the use of Internet taxation and thus easily be collected, ignoring the problems mentioned above. The answer to these claims tend to be rejected, because this approach as a tax-free Internet Internet as a tax only for its use rests on injustice. Taking as an example a grocery shop physically distinct from a portal of food supplies, the products are the same but the tax would not. If the Internet is free to not pay the amount of VAT and are taxed the same way if only the use of the Internet would be no difference in payment for the same activity. That is why the United States has placed great emphasis on the neutrality of e-commerce against the physical.

U.S. Position

If there is a very advanced country in tax and regulatory matters is the U.S. technology Although some provisions have been criticized by the majority, there is some consensus that many of the international fiscal institutions had or have a simile in the U.S. Our neighbors to the north pose the same mistakes, the OECD releases for the UK. This considering that the server is not the correct answer as a permanent establishment. While there is no single proposal for its part, should analyze certain matters treated in the different levels of government.

It is considered that the advertising or sale (per se) through an electronic platform to a person in this country is not a reason to tax the transaction. It also mentions that a server, not even a smartphone can be taken as a dependent agent of the same company. Also inconsistent with the European model of VAT as tax receipts are not legitimate causes and complicated trade.

Some voices in the United States present a reformulation of taxation, it is considered that if the VAT is intended to tax consumption should be taxed then the place where it is consumed by ignoring the traditional necessary relationship posed by the permanent establishment, residence or nationality.

Before proceeding with the different points of views are considered necessary to describe the current state taxation of electronic commerce in the U.S. Currently and since 1998 there is no Internet use tax assessment, that by the moratorium as requested by the WTO and in local terms by the Internet Freedom Act and the Global Internet Act in November of this year, which ends this moratorium has been extended on several occasions. Before this we have proposed a permanent ban on Internet use and electronic commerce, this proposal was rejected by the Senate preventing telephone companies voip protocols could be adopted to avoid tax indefinitely. Dakota At the state level attempt to impose charges which were challenged branded illegal, moreover Massachusetts was announced as a tax-free Internet around the clock to him.

The moratorium only focuses on the prohibition of new taxes, why not tax goods in the physical market would be exempt from these in your application version. The questions about the degree of contact necessary to levy a business activity in electronic commerce are based on several resolutions that frame the way of what can and can not happen with e-commerce taxation.

For PattersoneInset Vs System Compuserve Inc. v. Instruction Set Inc. has determined that an electronic contract, the parties have personal jurisdiction even if they are not U.S. residents by the principle of minimal contact. This resolution could make a basis for determining a permanent establishment in that interaction and agreement on a contract linking to this country to the parties.

On the other hand, the resolutions Bensusan Restaurant Corp. v. Ring, and Piedras Negras Broadcasting Commissions vs advertising argue that even though there is activity in the U.S. These links are not always necessary if the parties are not in the same territory, either federal entity or country level.

One case although not the U.S. itself has certain legal agreements as the legal basis for taxation outside the traditional concepts. The ruling German Pipe Line equate a pipeline as a permanent establishment. This in determining the tube even without the personal presence was a sufficient connection to Germany taxed in the country. This case can be taken to support a general tax that any commercial transactions using this infrastructure in the U.S. Some experts have labeled wrong contrarparte above argument on the grounds that the installation is different tube and its contents to the network and encrypted e-commerce packages.

Mexico Case

Our country is far behind in electronic control, few reforms have shaken up the importance of the information superhighway. Only certain amendments to the Civil Code, Civil Procedure and the law of the PROFECO are a sort of important. On the fiscal side the Web is successfully used to pay taxes but there are no special regulations for electronic commerce.

So taxes are no different, the companies behind the websites pay income tax on his total income and taxes for their products and services. In the case of foreign companies currently have no problems with the WTO moratorium on the issue.

There is a free e-commerce in our country by a lack of regulation by political initiative. Which would be interesting to analyze the effect of Mexico off the proposal of the OECD, if you favor or find catalog servers as permanent establishments for their non-resident. Another important point is that while Mexico will take a position and transpose the same provision may be changed very quickly (as is usual in national tax rules).

Personally felt that for Mexico the WTO proposal is appropriate that for reasons so fundamental.

* By having a relatively high income tax under a VAT exempt many products and a low recovery becomes attractive for investors.

Conclusions

* E-commerce presents a versatility that challenges traditional concepts in tax matters.

* In international tax law the biggest question concerns the ability of a country to tax a particular company is not a resident country. This question involves the analysis of the concept of permanent establishment.

* The concept of permanent establishment is the Standard to highlight some ongoing relationship with a foreign country, fiscally speaking. Its structure and details have changed as time goes.

* The most important proposal on the establishment in international tax law is found in the OECD. This suggests that the servers when they perform essential activities serve as permanent establishments.

* The proposal is criticized because it raises significant revenue leakage for various countries own the facility have a Web site and its server over the world.

* Other alternatives such as internet bit tax or tax free zone has been criticized and do not find much support.

* There is casuistic connected that could complement the issues raised by the WTO and to reinforce or challenge the proposals.

* Mexico has no specific regulations on the subject so your e-commerce is governed by basic principles of analogy versus traditional commerce.

* The WTO has set a moratorium on Internet taxes has been partially or completely accepted in many countries. This contributes to a freezing of the problems of the topic.

* Mexico taking advantage of certain tax breaks, infrastructure and geography could be as beneficial to the proposal of the WTO.

* Any way to take any country in the field should address the basic principles of neutrality, fairness and justice in a ocal and international level.

* Mexico has a technological infrastructure with optical fiber networks can be enhanced and exploited as a commercial advantage.

Notes

Kelly, Kevin. New Rules for the New Economy. Available at URL, accessed March 20, 2007.

Forbes. The World’s Billionaires. Available at URL http://www.forbes.com/lists/2007/. Accessed March 25, 2007.

Ibidem

WTO Doha Round. Electronic Commerce. Available at URL http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm # electronic. Accessed March 20, 2007.

Selected Tax Policy Implications of Global Electronic biting. Department of the Treasury. EE. UU. 1996.

Such termination. Mx for Mexico.

Calson Analytics Taxation Guide. The Tax Byte. Available at URL http://www.caslon.com.au/taxationguide2.htm. Accessed April 10, 2007.

Schirmer, Peter. The Internet as a Virtual Tax-Free Zone: Implications for the State Budget. Available at URL http://www.kltprc.net/books/ecommerce/Chpt_06.htm. Accessed March 25, 2007.

Terra. Legal Notice. Available at URL http://www.decompras.com/avisolegal/legal_shopping.htm. Accessed April 10, 2007.

Libreria Gandhi, Home Page. Available at URL http://www.gandhi.com.mx/Gandhi/Main/. Accessed April 15, 2007.

Tarabu, Terms and Conditions. Available at URL http://www.tarabu.com/MicWeb/Contenido/ep_terminos.html. Visits by the April 17, 2007.

Free Market, Key Facts. Available at URL http://www.mercadolibre.com.mx/mexico/ml/p_loadhtmlas_menu=MPRESS&as_html_code=SML_05. Accessed April 20, 2007.

Diaz, Oscar Vicente. Electronic commerce and its impact on international tax relations. Ediciones Macchi. Buenos Aires, Argentina 2001.

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The EU currently imposes VAT forcing some sellers to comply with regulations of all member countries. Causing chaos tax which is meant to correct through a portal that serves as a scale for every transaction. View Outlaw.com VAT one-stop-shop: EU plans. Available at URL http://www.out-law.com/default.aspxpage=5026. Accessed April 15, 2007.

Built

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