brief look at a few offshore ecommerce issues bangalore chartered accountants december 8, 2003...

BRIEF LOOK AT A FEW BRIEF LOOK AT A FEW OFFSHORE OFFSHORE

ECOMMERCE ISSUESECOMMERCE ISSUES

Bangalore Chartered AccountantsBangalore Chartered AccountantsDecember 8, 2003December 8, 2003

Professor William H. Byrnes, IVProfessor William H. Byrnes, IV

Prof. William Byrnes +1 786 271 Prof. William Byrnes +1 786 271 52025202

Popular Offshore DestinationsPopular Offshore Destinations

IndiaIndia – skilled labor costs, export incentives – skilled labor costs, export incentives

IrelandIreland – gov’t directed, low tax, stable, – gov’t directed, low tax, stable, work quality, DTAs, EU VAT, Eurowork quality, DTAs, EU VAT, Euro

SwitzerlandSwitzerland – govt. directed, low ETR, – govt. directed, low ETR, work quality, stable, DTAswork quality, stable, DTAs

SingaporeSingapore – tax incentives, work quality, – tax incentives, work quality, gov’t directed, some DTAsgov’t directed, some DTAs

Hong KongHong Kong – low tax, law, proximity, K – low tax, law, proximity, K mktsmkts


More Recent Offshore More Recent Offshore (>1998)(>1998)

MauritiusMauritius – low ETR, DTAs, labor cost – low ETR, DTAs, labor cost CyprusCyprus – low tax, DTAs, EU (2004) – low tax, DTAs, EU (2004) MaltaMalta – low ETR, DTAs, EU (2004) – low ETR, DTAs, EU (2004) Isle of ManIsle of Man – low tax, likely no tax, EU VAT – low tax, likely no tax, EU VAT BermudaBermuda – no tax – no tax GibraltarGibraltar – Spanish life, English work, no – Spanish life, English work, no

taxtax MalaysiaMalaysia – gov’t directed, labor costs, tax – gov’t directed, labor costs, tax

incentivesincentives

ISSUESISSUES

Technical infrastructure & Technical infrastructure & capacitycapacity Operational infrastructureOperational infrastructure Relative operational costsRelative operational costs Regulatory infrastructureRegulatory infrastructure Legal issues & ComplianceLegal issues & Compliance Tax issuesTax issues


Regulatory & Legal IssuesRegulatory & Legal Issues

Regulatory bodiesRegulatory bodiesE-commerce enabling E-commerce enabling

legislation (e.g. e-contracts)legislation (e.g. e-contracts)Stable & Robust legal system Stable & Robust legal system Recognition of judgmentsRecognition of judgments


Operational Capability & Operational Capability & CostsCosts

Technical laborTechnical labor– server banks in Singapore / India / Costa server banks in Singapore / India / Costa

RicaRica Telecommunications & CostsTelecommunications & Costs

– Bermuda v. JamaicaBermuda v. Jamaica General offshore business issuesGeneral offshore business issues

– Audit & Compliance?Audit & Compliance?– Environment?Environment?– Stability?Stability?


Hong Kong E-commHong Kong E-comm Government Initiatives Government Initiatives

Electronic service delivery Electronic service delivery program (ESD)program (ESD)Delivery of government services onlineDelivery of government services online

Digital 21Digital 21 Comprehensive strategy to enhance and Comprehensive strategy to enhance and

promote Hong Kong’s information promote Hong Kong’s information infrastructure and servicesinfrastructure and services


Hong Kong’s E-Transaction Hong Kong’s E-Transaction Ordin. (2000)Ordin. (2000)

Authorizes the use of electronic and Authorizes the use of electronic and digital signaturesdigital signatures

Confers legal validity to electronic Confers legal validity to electronic recordsrecords

Delineates the requirements for the Delineates the requirements for the formation of electronic contractsformation of electronic contracts

Establishes regulations for the licensing Establishes regulations for the licensing of certification authoritiesof certification authorities


HK’s E-Transaction Ord. (2000)HK’s E-Transaction Ord. (2000)

Main exception.Main exception.

Certain generic items such as wills, Certain generic items such as wills, trust, statutory declarations, affidavits, trust, statutory declarations, affidavits,

power of attorney, court orders, warrant, bills power of attorney, court orders, warrant, bills of exchange, documents or instruments of exchange, documents or instruments

concerning land or property transactions, concerning land or property transactions, etc. Are exempt from the operation of the etc. Are exempt from the operation of the

relevant provisions in the proposed relevant provisions in the proposed legislation.legislation.


HKMA Internet Banking HKMA Internet Banking ProposalProposal

Local online bank - 50 per cent owned by a Local online bank - 50 per cent owned by a well-established bank or other supervised well-established bank or other supervised financial institutionfinancial institution

appropriate experienceappropriate experience

Foreign online bank – US$16B group Foreign online bank – US$16B group minimum &minimum &

Established foreign e-bank regs Established foreign e-bank regs

Local online bank - 50 per cent owned by a Local online bank - 50 per cent owned by a well-established bank or other supervised well-established bank or other supervised financial institutionfinancial institution

appropriate experienceappropriate experience

Foreign online bank – US$16B group Foreign online bank – US$16B group minimum &minimum &

Established foreign e-bank regs Established foreign e-bank regs


BermudaBermuda

E-business facilities.E-business facilities.

• Systems Resource GroupSystems Resource Group• Emagine Ltda.Emagine Ltda.

• Secure Hosting LimitedSecure Hosting Limited


BermudaBermuda

Telecommunication infrastructureTelecommunication infrastructure

*Government privatized the *Government privatized the telecommunication servicetelecommunication service

*Public utility commission (PUC) is *Public utility commission (PUC) is the regulatory agencythe regulatory agency


BermudaBermuda


• Internet license fees reduced Internet license fees reduced from $10,000 to $2,600from $10,000 to $2,600

• Paging licenses fees reduced Paging licenses fees reduced from $5,000 to $1,300from $5,000 to $1,300


BermudaBermuda


• Internet service cost reduced Internet service cost reduced from US$100 a month to $US20 from US$100 a month to $US20

a montha month• Business packages reduced from Business packages reduced from

US$150 a month to US$35 a US$150 a month to US$35 a monthmonth


BermudaBermuda

E-COMMERCE LEGAL FRAMEWORKE-COMMERCE LEGAL FRAMEWORK

• The Electronic The Electronic Communication and Communication and

Transaction BillTransaction Bill• The Misuse of Computer BillThe Misuse of Computer Bill

• Data Protection BillData Protection Bill


BermudaBermuda

The electronic communication The electronic communication and transaction billand transaction bill

**Recognizes electronic messages, Recognizes electronic messages, signatures, writings and contracts.signatures, writings and contracts.

**Exemptions: disposition of property, Exemptions: disposition of property, testamentary dispositions, testamentary dispositions,

negotiable instruments, enduring negotiable instruments, enduring powers of attorney and court powers of attorney and court

documents.documents.


BermudaBermuda

Misuse of computer billMisuse of computer bill

Creates a series of offences Creates a series of offences arising out of the unlawful arising out of the unlawful

interference with computers interference with computers and computer systemsand computer systems based based

on the on the EU Council and the EU Council and the OECDOECD


BermudaBermuda

Data protection billData protection bill

Implements privacy principles Implements privacy principles established by the OECD under established by the OECD under its guidelines that protect the its guidelines that protect the privacy and transferred flows privacy and transferred flows

of personal data.of personal data.


BermudaBermuda

BankingBanking

Foreign banks are not permitted to Foreign banks are not permitted to operate in Bermuda. The BMA operate in Bermuda. The BMA

supervises the three Bermudian supervises the three Bermudian banks, which operate a joint clearing banks, which operate a joint clearing system. The three Bermudian banks system. The three Bermudian banks

have subsidiaries in the major have subsidiaries in the major financial centers.financial centers.


BermudaBermuda

Payment processing facilitiesPayment processing facilities

*Two local banks have entered *Two local banks have entered partnership to set up international partnership to set up international

payment processing solutionspayment processing solutions

*Local hosting services utilizing *Local hosting services utilizing software and systems provide software and systems provide

internet payment services as wellinternet payment services as well


Isle Of ManIsle Of Man

E-commerce legal frameworkE-commerce legal framework

E-transactions regulations of 2000E-transactions regulations of 2000 Computer security act of 1992Computer security act of 1992

Data protection act of 1986Data protection act of 1986 Online gambling regulation actOnline gambling regulation act

Fair trading amendment billFair trading amendment bill



The e-transaction act , 2000 excludesThe e-transaction act , 2000 excludes

MarriagesMarriages A testamentary dispositionA testamentary disposition

Power of attorneyPower of attorney A conveyance or creation of an interest in A conveyance or creation of an interest in

land land A mortgageA mortgage

Transfer or mortgage of ship interestTransfer or mortgage of ship interest



(Online) Fair trading bill(Online) Fair trading bill

consumer protection act: unfair contract consumer protection act: unfair contract terms in consumer contracts, and rules terms in consumer contracts, and rules

regarding distance sales, including regarding distance sales, including information to be given to consumer, right information to be given to consumer, right

to cancel, return of goods, and to cancel, return of goods, and performance of contracts.performance of contracts.



Internet service providers.Internet service providers.

Domicilium Ltda.Domicilium Ltda. Mannet.Mannet.

Manx telecom.Manx telecom. XKO (IOM) limited.XKO (IOM) limited.


CYPRUSCYPRUS


Cyprus Telecom Authority (CYTA) Cyprus Telecom Authority (CYTA) virtually all-digital local networkvirtually all-digital local network satellite telecom networksatellite telecom network fiber optic submarine cable systemfiber optic submarine cable system


CYPRUSCYPRUS


CYTA provides variety of advanced CYTA provides variety of advanced telecommunications services, covering the telecommunications services, covering the

whole spectrum of customer needs for whole spectrum of customer needs for both voice and data communications, both both voice and data communications, both

fixed and mobile.fixed and mobile.


CYPRUSCYPRUS

Telecommunication infrastructure.Telecommunication infrastructure.

A new telecommunication A new telecommunication regulator has been appointed by regulator has been appointed by liberalization legislation but has liberalization legislation but has

not been affective yet.not been affective yet.


CYPRUSCYPRUS

Telecommunication InfrastructureTelecommunication Infrastructure

Functions of new regulator:Functions of new regulator:

*granting new telecom and postal *granting new telecom and postal licenseslicenses

**authorizing telecommunications authorizing telecommunications networks & servicesnetworks & services


CYPRUSCYPRUS

ISP and hosting services.ISP and hosting services.

*Sofocleous and co.*Sofocleous and co.

* Armata.* Armata.

*CTC Infocom.*CTC Infocom.

* Cyprus on line, Cyprus * Cyprus on line, Cyprus *telecommunications authority *telecommunications authority *Spidernet.*Spidernet.


CYPRUSCYPRUS

Online banking.Online banking.

Laiki eBankLaiki eBank, launched by Laiki bank in September , launched by Laiki bank in September 2000, was the first electronic bank in Cyprus to 2000, was the first electronic bank in Cyprus to allow banking and stock market transactions via allow banking and stock market transactions via the internet. Laiki eBank customers are able to the internet. Laiki eBank customers are able to

trade securities on the CSE, track developments trade securities on the CSE, track developments on the CSE and have a live update of their on the CSE and have a live update of their

portfolio.portfolio.


CYPRUSCYPRUS

Online banking.Online banking.

Spidernet has developed Spidertrade Spidernet has developed Spidertrade (http://www.spidertrade.Com.Cy), an interactive (http://www.spidertrade.Com.Cy), an interactive

online service providing the latest financial online service providing the latest financial news, real-time quotes from the Cyprus stock news, real-time quotes from the Cyprus stock

exchange (CSE) and on-line trading services. At exchange (CSE) and on-line trading services. At the same time SpiderNet offers free to its the same time SpiderNet offers free to its

subscribers the SpiderWAP service.subscribers the SpiderWAP service.


Major Tax Issues:Major Tax Issues: Home jurisdiction tax rates Home jurisdiction tax rates

– Tax credits for tax paid to source stateTax credits for tax paid to source state– DTA protection from source withholding / DTA protection from source withholding /

PEPE– Characterize incomeCharacterize income

Business / Service / License / Capital GainBusiness / Service / License / Capital Gain Source state Source state

– Characterize incomeCharacterize income– CT on ECI, trade within, PECT on ECI, trade within, PE– WHT on license, services, branch profits WHT on license, services, branch profits


Jurisdiction to Tax CompanyJurisdiction to Tax Company

domiciliary:domiciliary: incorporation and / or effective incorporation and / or effective management and / or real seatmanagement and / or real seat

sourcesource: items of income or capital that arise : items of income or capital that arise in the statein the state– for business or professional services for business or professional services

income: permanent establishment or income: permanent establishment or fixed base of businessfixed base of business

– for capital income: dividend, interests, for capital income: dividend, interests, royalties royalties

anti-deferral legislation (i.e. C.F.C.)anti-deferral legislation (i.e. C.F.C.)


Mauritius TaxMauritius Tax

Previously companies chose own rate of tax (0%) but as of 10.07.98 companies taxed @ 15%.

Credit of 90% of tax paid (13.5%) available so effective rate of 1.5%.

As of 01.07.01 only 80% credit allowed so effective rate is 3%.

Several DTAs (India, China, Indonesia)


MaltaMalta

EU member (2004) headline rate of 35% tax

Complex tax credit system to relieve double taxation =– Int’l Trading Company (ITC) – ERT 4%– Int’l Holding Company (IHC) – ERT 6%


Role of the OECD Model Role of the OECD Model ConventionConvention

Tax Treaties entered into bilaterally by Tax Treaties entered into bilaterally by States are mostly based upon OECD States are mostly based upon OECD Model, some UN Model.Model, some UN Model.

US ModelUS Model Also OECD Reports on E-commAlso OECD Reports on E-comm See www.oecd.orgSee www.oecd.org


Source and CharacterizationSource and Characterization

Blurring of geographical categories:Blurring of geographical categories:Where income arises?Where income arises?e.g. if a non resident company generates income through a sale e.g. if a non resident company generates income through a sale

arising out of a web page that is accessed in another country, arising out of a web page that is accessed in another country, what is the source of the sale income?what is the source of the sale income?

Blurring of income categories:Blurring of income categories:What kind of income is it?What kind of income is it?e.g. a download of digitalised product from a foreign web site:e.g. a download of digitalised product from a foreign web site:states may consider such payments as per:states may consider such payments as per:Royalty, Business Profit, Services or Intangible assetRoyalty, Business Profit, Services or Intangible asset


place of effective managementplace of effective management

Limitations in a modern, technologically advanced Limitations in a modern, technologically advanced environment:environment:

Problems presented:Problems presented:a net centric company (i.e. a company that does not have any office, where a net centric company (i.e. a company that does not have any office, where

managers and employee are located across several states and it is organised on managers and employee are located across several states and it is organised on intranet in leasing): what state has residence based tax authority over the income intranet in leasing): what state has residence based tax authority over the income that net company generates?that net company generates?

Use of modern networks, videoconferencing or other electronic Use of modern networks, videoconferencing or other electronic discussion group applications can transform a company into a discussion group applications can transform a company into a net centric company, where directors or key managers do not net centric company, where directors or key managers do not need to be fiscally located in any place to make decisions and need to be fiscally located in any place to make decisions and mobile decisions may be the rule.mobile decisions may be the rule.


Article 5: Permanent Article 5: Permanent EstablishmentEstablishment

According to article 5 OECD MC a According to article 5 OECD MC a PE means a “fixed place of PE means a “fixed place of business through which the business through which the business of an enterprise is business of an enterprise is wholly or partly carried on”wholly or partly carried on”

How does it apply in the context of How does it apply in the context of electronic commerce?electronic commerce?


Source jurisdiction in e-Source jurisdiction in e-commerce: Permanent commerce: Permanent

EstablishmentEstablishment

There are two types of P.E. that are There are two types of P.E. that are relevant in the e-commerce context:relevant in the e-commerce context:

a physical permanent a physical permanent establishmentestablishment

an agency permanent an agency permanent establishmentestablishment


Source jurisdiction in e-Source jurisdiction in e-commerce: Permanent commerce: Permanent

EstablishmentEstablishment

where the activity is carried where the activity is carried onon

The business carried on through the PE needs The business carried on through the PE needs to be ‘ core business activity’ and not meant to be ‘ core business activity’ and not meant as having preparatory or auxiliary as having preparatory or auxiliary character.character.

The activity need not necessarily be The activity need not necessarily be performed by a human being.performed by a human being.


Application of physical P.E. Application of physical P.E. concept to a serverconcept to a server

Consider a R Corp. established in State R having its Consider a R Corp. established in State R having its own server in country S.own server in country S.

The server The server may may constitute a P.E. for R Corp in S, constitute a P.E. for R Corp in S, especially if its own employee operates and especially if its own employee operates and maintain the server for its own account, even if they maintain the server for its own account, even if they operate remotely and are not physically present on operate remotely and are not physically present on S territory.S territory.

However if the server functioned solely for the However if the server functioned solely for the purpose of display, storage or delivery of goods or purpose of display, storage or delivery of goods or services, services, it may notit may not qualify as PE since its activities qualify as PE since its activities would only be of having auxiliary character.would only be of having auxiliary character.


Permanent EstablishmentPermanent Establishment

AT OECD level consensus AT OECD level consensus A web site cannot, in itself, constitute a A web site cannot, in itself, constitute a

permanent establishment since there is permanent establishment since there is any ‘place of business’ there.any ‘place of business’ there.

An ISP does not constitute a dependent An ISP does not constitute a dependent agent of another enterprise and therefore agent of another enterprise and therefore does not represent a PE for that other does not represent a PE for that other enterpriseenterprise


Server as a PE?Server as a PE?The issue of whether a computer equipment at a given location The issue of whether a computer equipment at a given location

constitutes a Permanent Establishment will depend on:constitutes a Permanent Establishment will depend on: whether the functions performed through that equipment whether the functions performed through that equipment

exceed the preparatory or auxiliary threshold, analysis of exceed the preparatory or auxiliary threshold, analysis of case by case;case by case;

The server will need to be located at a certain place for a The server will need to be located at a certain place for a sufficient period of time so as to become ‘fixed’ within the sufficient period of time so as to become ‘fixed’ within the meaning of article 5 paragraph 1;meaning of article 5 paragraph 1;

Also on a case by case needs to be evaluated whether an Also on a case by case needs to be evaluated whether an enterprise has a computer equipment at its disposal and enterprise has a computer equipment at its disposal and where business functions of the enterprise are performed;where business functions of the enterprise are performed;


Server NOT PEServer NOT PEAt OECD consensus following activities as being preparatory or At OECD consensus following activities as being preparatory or

auxiliary to the activity of the enterprises and not giving rise to a auxiliary to the activity of the enterprises and not giving rise to a PE:PE:

Providing a communication link between suppliers and customersProviding a communication link between suppliers and customers Advertising of goods and servicesAdvertising of goods and services Relaying information through a mirror server for security and Relaying information through a mirror server for security and

efficiency purposes;efficiency purposes; Gathering market data for the enterprise;Gathering market data for the enterprise; Supplying information.Supplying information.

Unless of course the above activities constitute core functions of the Unless of course the above activities constitute core functions of the enterprise.enterprise.


Server = PEServer = PE If the server offers more than auxiliary activities:If the server offers more than auxiliary activities: sales help, sales help, contracting, contracting, payment processing, payment processing, delivery arrangements,delivery arrangements, database information retrieval (about the company) etc.database information retrieval (about the company) etc.R Corp. leases space on a third party’s server in country S, since it R Corp. leases space on a third party’s server in country S, since it

qualifies as being nevertheless ‘at disposal ‘ of the enterprise R qualifies as being nevertheless ‘at disposal ‘ of the enterprise R Corp in state SCorp in state S

This last situation, for example may even give rise to the fact that This last situation, for example may even give rise to the fact that R Corp may end having a P.E. in S without R Corp may end having a P.E. in S without even knowing iteven knowing it..


If Server = PEIf Server = PE

When a server is deemed to constitute a When a server is deemed to constitute a P.E. of R Corp. in state S, all the income P.E. of R Corp. in state S, all the income that is attributable to it shall be subject to that is attributable to it shall be subject to tax in State S.tax in State S.

Business Profits in particular, may be Business Profits in particular, may be subject to tax in the source state only and subject to tax in the source state only and to the extent there is a PE in that state.to the extent there is a PE in that state.


Characterization 1Characterization 1 Electronic order processing of Electronic order processing of

tangible productstangible productsDefinition:Definition:

The customer selects an item from an online The customer selects an item from an online catalogue of tangible goods and orders the catalogue of tangible goods and orders the item electronically.item electronically.

The products are physically delivered to the The products are physically delivered to the customer by a common carriercustomer by a common carrier

Analysis Analysis : clearly falls within art.7 Business : clearly falls within art.7 Business ProfitsProfits


Case 2Case 2

Electronic ordering and Electronic ordering and downloading of digital productsdownloading of digital products

Definition: Definition: The digital product is downloaded The digital product is downloaded onto the customer’s hard disk or other non-onto the customer’s hard disk or other non-temporary mediatemporary media

Analysis:Analysis: majority of OECD countries = Bus majority of OECD countries = Bus Profits Profits

Some countries that may qualify this Some countries that may qualify this payment as Royalty (art.12) thus WHT payment as Royalty (art.12) thus WHT because downloading = use of copyright.because downloading = use of copyright.


Case 3Case 3

Up-dates and add-onsUp-dates and add-onsDefinition:Definition:

The provider of a software or other digital The provider of a software or other digital product agrees to provide the customer product agrees to provide the customer with updates and add-ons to the product.with updates and add-ons to the product.

AnalysisAnalysis

Payments arising from this kind of Payments arising from this kind of transactions qualify in the majority of transactions qualify in the majority of cases as Business Profits (Art. 7)cases as Business Profits (Art. 7)


Case 4Case 4

Single use software or other digital Single use software or other digital productproduct

Definition:Definition:

The customer acquires the right to use the The customer acquires the right to use the digital product only one time and it may be digital product only one time and it may be either downloaded or used remotely (e-book).either downloaded or used remotely (e-book).

AnalysisAnalysis

Payments of this kind may qualify as: Royalties, Payments of this kind may qualify as: Royalties, Bus Profits or even Services (art. 14)Bus Profits or even Services (art. 14)


Case 5Case 5

Application Hosting -Application Hosting -Definition:Definition:

A user has a perpetual licence to use a software A user has a perpetual licence to use a software product by entering into a contract with a product by entering into a contract with a host entity. The user can access, execute host entity. The user can access, execute operate the software applications remotely. operate the software applications remotely. E.G. Financial management, H.R.M. etc.E.G. Financial management, H.R.M. etc.

AnalysisAnalysis

Payments arising from this kind of transactions Payments arising from this kind of transactions qualify as Bus Profits (art. 7)qualify as Bus Profits (art. 7)


Case 6Case 6

Technical informationTechnical informationDefinition:Definition:

The customer is provide with undivulged The customer is provide with undivulged technical information concerning a product technical information concerning a product or process.or process.

AnalysisAnalysis

Payments arising from this kind of Payments arising from this kind of transactions qualify as Royalties as they transactions qualify as Royalties as they are made for the supply of know howare made for the supply of know how


US characterizationUS characterizationreg 1.861(18)reg 1.861(18)

transactions ‘in’ a copyright versustransactions ‘in’ a copyright versus‘‘subject’ of a copyright (copyrighted article)subject’ of a copyright (copyrighted article)

5 rights of copyright5 rights of copyright to reproduceto reproduce to prepare derivative works that may be to prepare derivative works that may be

copyrightedcopyrighted to transfer to public for sale, or licenseto transfer to public for sale, or license to publicly performto publicly perform to publicly displayto publicly display

characterize substance, not formcharacterize substance, not form


US characterUS character

Adobe web page allows download of Adobe web page allows download of Acrobat editorAcrobat editor

Credit card fee for downloadCredit card fee for download License agreement not to reproduce License agreement not to reproduce

except one copy for backupexcept one copy for backup

= sale of goods= sale of goods



License is a test license for portion of feeLicense is a test license for portion of fee after one month, must destroy copyafter one month, must destroy copy = no ownership of article= no ownership of article

= lease= lease

E-book : fee for a one week check out E-book : fee for a one week check out then encrypts itself, must return to web then encrypts itself, must return to web page for additional fee for renewalpage for additional fee for renewal

= lease= lease



Firm acquires one CDROM copy, pays a one-Firm acquires one CDROM copy, pays a one-time user fee (site-license) for users only in time user fee (site-license) for users only in the firm, perpetual use, no sales to 3rd the firm, perpetual use, no sales to 3rd partyparty

Load on work stationLoad on work station Work stations access CDROM from LANWork stations access CDROM from LAN= sale of goods= sale of goodssame but a monthly fee required for same but a monthly fee required for

continued use and updates, if cancelled, continued use and updates, if cancelled, then must delete entire programthen must delete entire program

= lease of good= lease of good


US CharacterUS Character

Audit firm pays CO to develop programAudit firm pays CO to develop program Pays monthly fee during development Pays monthly fee during development

processprocess Audit firm keeps all code if cancel contractAudit firm keeps all code if cancel contract Completed program transferred to Audit firmCompleted program transferred to Audit firm= = service feeservice feeCO sends programmer to audit firm to teach CO sends programmer to audit firm to teach

audit firms code writers to save time in audit firms code writers to save time in manipulating programs, contract called manipulating programs, contract called information ‘trade secret’ information ‘trade secret’

= = provision of know how provision of know how


India - USIndia - US

credit card info accesscredit card info access US Bank has India SUB for credit US Bank has India SUB for credit

cardscards software and data server in USsoftware and data server in US software: collection, analysis, creditsoftware: collection, analysis, credit SUB accesses US through InternetSUB accesses US through Internet pays fee for accesspays fee for access service or royalty?service or royalty?

= royalty, see DTA rates= royalty, see DTA rates


IndiaIndia

airline computerized reservation systemairline computerized reservation system CO: server, data, software outside CO: server, data, software outside

IndiaIndia– customer is travel agentscustomer is travel agents– airlines pay CO per ticket bookedairlines pay CO per ticket booked

SUB in IndiaSUB in India– hardware: routershardware: routers

local software to travel agent firmlocal software to travel agent firmIs CO liable on $ paid by non-Indian Is CO liable on $ paid by non-Indian

airlines for India bookings?airlines for India bookings?= CO “deemed” virtual presence PE in = CO “deemed” virtual presence PE in

India thus bus income attributedIndia thus bus income attributed


India DTA characterIndia DTA character

India/UKIndia/UK – look to res. of payee – look to res. of payee

BUT if Tech Ser is for own use, not BUT if Tech Ser is for own use, not liableliable

so if non-res pays non-res for so if non-res pays non-res for tech serv utilized in India, not tech serv utilized in India, not

liableliable India/USIndia/US – res. of payee and – res. of payee and

where utilizationwhere utilization


US states CT & Sales/UseUS states CT & Sales/Use

Constitutional limitation = “min contacts” Constitutional limitation = “min contacts” & “substantial presence”& “substantial presence”

No State CT when min contactNo State CT when min contact limit to representative solicits for sale of limit to representative solicits for sale of

tangiblestangibles orders sent out of Stateorders sent out of State goods delivered from out of State by goods delivered from out of State by

common carriercommon carrier


State Sales / UseState Sales / Use

BUT Consumption tax (sales, use)BUT Consumption tax (sales, use)

tickets where origination of travel was in-Statetickets where origination of travel was in-State calls originating/destination in-State if paying calls originating/destination in-State if paying

addressee in Stateaddressee in State sales if “systematic sales support” in-State sales if “systematic sales support” in-State

visitsvisits market maintenance through problem solving market maintenance through problem solving

employee visitemployee visit software installation and trouble shooting software installation and trouble shooting

requiring employee visitrequiring employee visit


State Use taxState Use tax

Vendor selling through InternetVendor selling through Internet

state A – home server / websitestate A – home server / website

Customer state B logs onto server in Customer state B logs onto server in state A, pays CC through Internetstate A, pays CC through Internet

Product shipped by UPS from State A Product shipped by UPS from State A DCDC

No mnm contacts = no sales tax in BNo mnm contacts = no sales tax in B But state B’s use tax to customer But state B’s use tax to customer

brief look at a few offshore ecommerce issues bangalore chartered accountants december 8, 2003...

Documents

william byrnes

professor william

labor costcyprus low

dtashong kong low tax

tax incentivesprof

isle of man low tax

malta low etr

mauritius low etr