Balancing National Interests in the Taxation of Electronic Commerce Business Profits

Abstract

This Article begins by exploring the issues surrounding the taxation of international electronic commerce (e-commerce) business profits. The United States Treasury Department and other national tax authorities are struggling to find mechanisms to collect the anticipated significant revenues derived from taxing e-commerce profits. Legal reform is likely required because the existing regime was set up to handle transfers of physical goods across borders. This Article discusses possible reform efforts to confront the challenges posed by cyberspace transactions that defy traditional conceptions of cross-border trade. The Treasury Department and most other national tax authorities insist on using traditional international tax principles. Since it is clear that any reform will require significant international cooperation, this Article proposes a framework for the taxation of e-commerce pofits that incorporates these traditional principles, but which also ensure that revenues are shared between the country where the e-commerce good or service is produced as well as the country where the good or service is consumed. The proposals hence represent a balanced compromise between the interests of countries that are either net exporters or net importers of e-commerce goods and services.

JEL Classification: K34