Defining ‘Source’ Within an eCommerce Context

Abstract

Traditional criteria relevant to ‘presence’, ‘fixed’ and ‘agent’ cannot be effectively applied in an eCommerce environment. The Australian Tax Offices’ ‘Tax and the Internet’ report in 1997, which allowed for greater flexibility in the application of ‘source’ principles to eCommerce is a compelling example of attempts to adapt direct taxation principles to technology. Since its inception the alternative approach has become increasingly superannuated as an effective taxing tool for determining ‘permanent establishment’ in an eCommerce environment. The point at issue is whether an ISP in outer space constitutes ‘permanent establishment’. A satellite cannot constitute ‘permanent establishment’ because its location cannot be considered “part of the territory of a contracting State under the applicable rules of international laws…”, (OECD. Commentary 5.5. of Article 5. The 2010 Update to the Model Tax Convention (22 July 2010). P15. Available at http://www.oecd.org/dataoecd/23/43/45689328.pdf [Accessed 12 September 2010]) therefore, neither can an ISP in space. The primary point at issue is that the application of traditional concepts and rules defining ‘permanent establishment’ for the purpose of determining ‘source’ in eCommerce, which is continuously evolving, is becoming increasingly obsolescent and ineffectual.