E-BUSINESS RAISES TAX MANAGEMENT QUESTIONS

Industry uncertain of how to apply existing guidelines, says Summit Dubai speaker

Corporate tax assessment on e-business transactions is the latest challenge facing many governments and companies, according to Bob Peake, the regional head of international tax services at Arthur Andersen, who is set to take the stage at the October Summit Dubai business symposium.

"In the traditional tax system, corporate or company tax is applied via a structured method of calculation based on real activities, by real people, in real locations – such as production locations and location of sale," acknowledges Peake.

While, e-commerce activities do not take such a structured path with various geographical locations often involved in the chain.

Peake suggests that the virtual reality phenomena of e-business activity is that a company’s physical presence can be scattered across geographic boundaries and across various tax jurisdictions, thus posing the question : ‘who collects what?’.

The Organisation for Economic Cooperation and Development (OECD), view is noted as stating that the basic principles of physical presence will not alter in the e-business environment and so current tax laws still apply.

But according to Peake, this view of tax neutrality is ‘shortsighted and lacks the vision required of all business sectors today’. "It is early days," says Peake. "But the Arthur Andersen approach is to apply reality and vision and this is what we are doing now for tax planning to e-business – the New Economy will not stand the static laws in place."

Peake emphasised that it is the focus on physical presence embraced by the current tax laws that causes most debate. The domain address of an e-business has little or no connection with the firm’s geographical location. Country suffixes such as .ae or .uk are optional as opposed to obligatory. And, even in cases where there may be some link between the country and Internet address, there is not necessarily a physical presence in that location.

"The very fact that e-business affords the opportunity of being mobile while engaging intelligent software and employing a remote skill base becomes a serious challenge when making tax assessments," says Peake.

Currently, most national systems tax corporations in one of two ways : by residence, that is the country with the closest relationship with the tax payer, or by source, that is the country which bears the closest link to the source income.

The latter can be determined by assessing place of business, or taking into account a commercial agent or even by taxing certain types of income, such as royalties. All methods become a challenge when talking e-business, according to Peake.

Peake also advised that the possibility of taxing an Internet Service Provider (ISP) or specific Websites has been mooted. "It is knowledge that debates concerning the definition of an ISP, for example, have been applied to the tax environment. If an ISP was determined to mean a ‘fixed place of business’ or even to be deemed a ‘ commercial agent’ then tax implications could arise."

Another potential tax stream is to tax payments made to e-businesses. There are some schools of thought who consider that customers may be easier to locate than the source of the e-business itself. But this too has its complications, least not requiring the payer to withhold the tax on payment and to declare accordingly.

Peake heralds that the "think globally, act locally" cliché is never more apt than when talking tax in the e-world. He will extend this view at the upcoming Summit Dubai symposium on organisational effectiveness in the e-age scheduled for October 22-23 2000.

"At Summit Dubai, I will be ready to discuss and debate the exposures and opportunities that the e-business environment poses on corporate tax payers," he concluded.

More than 200 members representing the core of the region’s corporate world are set to attend Summit Dubai which will be held at Emirates Towers Hotel.

Summit Dubai speakers, alongside Arthur Andersen include Summit sponsor, Microsoft, American Express, Andersen Consulting, Bywater, Cisco Systems, Fusion Consulting, Hay Group, Motorola and Oracle.