Re: OTP, OECD and tax collection

[John Messing <jmessing@law-on-line.com>]

This is one of those issues which is not as straightforward as it may first
appear. Apart from merchants whose businesses are physically located within
the borders of an EEC state, the power of the state to tax may depend upon
notions of extraterritorial application of the tax laws. Thus, if an
American corporation sells goods to a German citizen and has no office or
outlet in Germany, then in a non-virtual transaction, there is little legal
basis for Germany to claim the right to tax the transaction. The German
citizen had to have been physically located in another jurisdiction to have
completed the purchase. But in a virtual transaction where the Internet
server and the seller are located physically outside of Germany, the
situation may be less clear. If Germany claims the right to tax any
transaction involving a buyer whose computer or delivery address is located
within its borders, a question will arise about the basis in international
law of the power to tax. To the extent that consent to tax is one such
basis, then inclusion of software at the Internet server used by the seller
which permits German taxation through OTP could arguably be implied consent
to tax -- a result perhaps never intended by OTP or the buyer. It is quite
conceivable that Germany would hire an American attorney to collect such
taxes as postulated by this example through the American courts, which an
American corporation could not ignore. Apart from the issue of taxation,
there are other questions about extraterritorial applicable of laws, such as
digital signature legislation, which involve similar considerations. In
order to avoid such questions, OTP refused to consider them in earlier
drafts. Taking a position or refusing to take a position on such issues in
light of the German request probably will result practically in a
substantive decision one way or the other, like it or not, which means that
such questions can no longer continue to be ignored as either a theoretical
or practical matter.

-----Original Message-----
From: Steve Schear <schear@lvcm.com>
To: ietf-trade@lists.eListX.com <ietf-trade@lists.eListX.com>
Date: Saturday, October 03, 1998 10:23 PM
Subject: RE: OTP, OECD and tax collection


>David Burdett <David.Burdett@mondex.com> wrote:
>>Tax evasion is as old as the centuries. I doubt that OTP if its used for
>>tax collection by the governments will change peoples inclination to pay
>>(or not pay) one bit. The point is, if governments want to collect taxes
>>then they will find a way to do it and most merchants who have a
>>reputation to protect will follow it.
>
>This is really a rear-view outlook.  If we were in the 16th century, its
>like saying that because the Church has all this authority we're not going
>to use the press to print anything secular.
>
>While it may be true that in the short run merchants with reputation may go
>along with this foolishness, as long as their risks are low consumers will
>shop wherever the price is lowest. 10% or more tax is enough separate most
>consumers from their guilt and place the loyal merchants at a considerable
>disadvantage. The complaint merchants will pressure the governments to get
>tough (regulation always favors the regulated). If governments are not able
>to pressure the non-complaint merchants, as I believe they will not (as
>they were unable to stem the Eurodollar trading), this is the beginning of
>the end game for such taxes on the Net and perhaps in a broader sense as
>more commerce moves to the Net and places local merchants at an increasing
>disadvantage.
>
>--Steve
>
>
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