1.INTRODUCTION 1
2.THE TRADITIONAL INTERNATIONAL TAX RULES 11
2.1. DIRECT （INCOME） TAXATION： JURISDICTION TO TAX AND THE EXERCISE THEREOF 11
2.1.1.Jurisdictional nexus 11
2.1.2.Domiciliary jurisdiction 12
2.1.2.1.Citizenship 12
2.1.2.2.Domicile and residence 12
2.1.2.3.Incorporation 13
2.1.2.4.Effective management 14
2.1.3.Sourcejurisdiction 14
2.1.3.1.In general 14
2.1.3.2.Source rule for business income 15
2.1.3.3.Source rule for capital income 16
2.1.4.Double taxation and causes thereof 17
2.1.4.1.Overlapping jurisdictional bases 17
2.1.4.2.Divergence in tax characterization of the facts 18
2.1.4.3.Divergence in personal attribution of the income 19
2.1.5.Relief of double taxation provided through tax treaties 19
2.1.5.1.Classification and assignment of income 19
2.1.5.2.Resolution of overlapping claims of domiciliary jurisdiction 20
2.1.5.3.Uniform classification of facts 20
2.2. VAT AND SALES TAX 21
2.2.1.General nature of Community VAT 24
2.2.2.VAT harmonization legislation 25
2.2.3.Systems of cross border trade taxation 26
2.2.3.1.Original system （Sixth Directive） 26
2.2.3.2.Transitional （1993） system 27
2.2.3.3.Towards a definitive system （1999？） 27
2.2.4. Individual VAT rules and concepts 33
2.2.4.1.Scope of VAT-able transactions 33
2.2.4.2.Place of taxable transactions 34
2.2.4.2.1.Supply of goods 34
2.2.4.2.2.Supply of services （Article 9） 35
2.2.5.Rates and exemptions 39
2.2.5.1.Rates 39
2.2.5.2.Exemptions 40
2.2.6. Deduction and refund 41
2.2.7.VAT accounting and administration 41
2.2.7.1.Person liable to pay the tax 41
2.2.7.2.Identification and designation of tax representative 42
2.2.7.3.Reverse charge 42
2.2.7.4.Administrative obligations 42
2.2.8. Overview of VAT applications to international transactions 43
3.TECHNOLOGICAL CHANGES AND ELECTRONIC COMMERCE 45
3.1. BACKGROUND 45
3.2. DESCRIPTION OF THE INTERNET， INFORMATION SUPERHIGHWAY AND WORLD WIDE WEB 46
3.3. DIGITIZATION 47
3.4. DEVELOPMENT OF THE PHYSICAL NETWORK INFRASTRUCTURE 52
3.5. LOGICAL NETWORK INFRASTRUCTURE 58
3.6. INTERNET OPERATION 61
3.6.1. Protocols 62
3.6.1.1.High layer protocols 63
3.6.1.2.Low layer protocols 64
3.6.2. Routers and switches 65
3.6.3.Client/server architecture 66
3.6.4. Internet applications 67
3.6.4.1.In general 67
3.6.4.2.World wide web 68
3.6.4.3.Other internettools 71
3.6.5. Emerging internet tools 72
3.7. ELECTRONIC COMMERCE 72
3.7.1.Implementation 73
3.7.1.1.Customer-to-business electronic commerce 73
3.7.1.1.1.Shopping 73
3.7.1.1.1.1.Pre-purchase information 74
3.7.1.1.1.2.Purchase 75
3.7.1.1.1.3.Post-purchase activities 76
3.7.1.1.2.Entertainment 76
3.7.1.1.3.Travel 77
3.7.1.1.4.Health care 77
3.7.1.1.5.Personal finance and home banking 78
3.7.1.2.Business-to-business electronic commerce 78
3.7.1.2.1.Sample EDI applications 81
3.7.1.2.1.1.International trade 81
3.7.1.2.1.2.Financial EDI 81
3.7.1.2.1.3.Health care and insurance EDI 82
3.7.1.2.1.4.Manufacturing/retail EDI 83
3.7.1.2.2.EDI implementation 84
3.7.1.2.2.1.EDI software 84
3.7.1.2.2.2.Value-Added Networks （VAN’s） 85
3.7.1.3. Intra-business electronic commerce 85
3.7.1.3.1.Telecommuting 87
3.7.1.3.2.Video conferencing 87
3.7.1.3.3.Virtual corporation 88
3.7.2.Intranets 89
3.7.3.Software agents 89
3.7.3.1.Characteristics and properties 89
3.7.3.2.Technology 91
3.7.4.Payment systems 92
3.7.5.Security issues 96
4.APPLYING CURRENT INTERNATIONAL TAX RULES TO ELECTRONIC COMMERCE 103
4.1. GENERAL PRINCIPLES 104
4.1.1.Blurring of geographical categories 104
4.1.2.Blurring of income categories 105
4.2. INCOME TAX 105
4.2.1.Application of traditional source rules to electronic commerce 106
4.2.1.1.Electronic commerce hypothetical 107
4.2.1.2.Business profits 109
4.2.1.2.1.Problems presented 109
4.2.1.2.1.1.Where is income generated 109
4.2.1.2.1.2.What costs are attributable to includible income 113
4.2.1.2.1.3.Enforcement concerns 113
4.2.1.2.2.National law 115
4.2.1.2.3.Treaty law 133
4.2.1.2.3.1.Permanent establishment 133
4.2.1.2.3.1.1.Fixed place of business 133
4.2.1.2.3.1.2.Agency 145
4.2.1.2.3.1.2.1.Personal agents 148
4.2.1.2.3.1.2.2.Software agents 149
4.2.1.2.3.2.“Attributable to 150
4.2.1.3.Independent services 152
4.2.1.3.1.Problems presented 154
4.2.1.3.1.1.What are services 154
4.2.1.3.1.2.Where are services rendered 157
4.2.1.3.2.National law 159
4.2.1.3.3.Treaty law 164
4.2.1.4.Dependent services 166
4.2.1.4.1.Problems presented 166
4.2.1.4.2.National law 169
4.2.1.4.3.Treaty law 170
4.2.1.5.Capital income 173
4.2.1.5.1.Dividends and interest 174
4.2.1.5.2.Royalties 174
4.2.1.5.2.1.National law 175
4.2.1.5.2.2.Treaty law 192
4.2.2.Application of traditional residence rules in the context of electronic commerce 198
4.2.2.1.Problems presented 198
4.2.2.2.National law 199
4.2.2.3. Treaty law 201
4.2.3.Transfer pricing 202
4.2.4.Controlled foreign corporations 213
4.2.4.1.Problems presented 222
4.2.4.2.National law 224
4.2.4.3. Treaty law 228
4.3. VAT AND SALESTAXES 228
4.3.1.The general challenges of electronic commerce and telecommunications services to VAT 228
4.3.1.1.Systems of indirect taxation 228
4.3.1.2.Direct and indirect electronic commerce and telecommunications services 229
4.3.1.3. Official VAT Working Groups 230
4.3.2.Hypothetical case 233
4.3.3. Telecommunications services 235
4.3.3.1.Need of specific regulation 235
4.3.3.2.Public and private telecommunications operators 235
4.3.3.3. Place of supply 237
4.3.3.4.Definition of telecommunications services 241
4.3.3.5.The Community VAT experience with telecommunications services 242
4.3.4. Electronic Commerce 245
4.3.4.1.Range of internet activities and VAT distinctions 245
4.3.4.2.Characterization of a service 246
4.3.4.2.1.Supply of goods or of services？ 246
4.3.4.2.2.Categorization of composite supplies （goods and services） 250
4.3.4.2.3.Categorization of services according to type of service 252
4.3.4.3.Determination of taxable charge of a single composite supply 254
4.3.4.4.Problems of defining the place of supply of services 255
4.3.4.4.1.Place of business and of fixed establishment 255
4.3.4.4.2. Effective use and enjoyment of the services 265
4.3.4.5.Overview of VAT applications to electronic commerce and telecommunication services 268
4.3.4.6.Regulatory administrative framework and inter-administrative cooperation 271
4.3.4.7.Evaluating the application of EC VAT rules to electronic commerce 274
4.3.5.Other general consumption tax systems 278
4.3.5.1.Other VAT systems 278
4.3.5.1.1.Switzerland 278
4.3.5.1.2.Israel 280
4.3.5.1.3. Colombia 280
4.3.5.2.Non-VAT type consumption tax systems 281
4.3.5.2.1. Canadian GST 281
4.3.5.2.2.US state sales and use tax 282
5.CONCLUSIONS AND POLICY APPROACHES 297
5.1.INCOM E TAX 302
5.1.1.Source-based versus residence-based taxation — a new balancing of taxing authority 302
5.1.1.1. Taxation based on source 302
5.1.1.1.1.Status quo 302
5.1.1.1.2.Enhanced residence-based taxation 303
5.1.1.1.3.Enhanced source state taxation 306
5.1.1.1.4.Adapting the permanent establishment concept 309
5.1.1.1.5.Increased reliance on source state withholding 315
5.1.1.1.6.Unitary taxation 323
5.1.1.1.7.Transactional taxes 328
5.1.1.1.8.Domestic tax considerations 330
5.1.1.2.Taxation based on residence 331
5.1.1.2.1. Status quo 332
5.1.1.2.2.Company residence based on other criteria 332
5.1.1.2.3.Form ulary approach 334
5.1.1.2.4.Full integration 334
5.1.2.Categorization of income 335
5.1.2.1.Categories of income 335
5.1.2.2.Consistent source rules 336
5.1.3.Policies dealing with abuse of jurisdictional rules and disappearing taxpayers 338
5.1.4.Administration 341
5.2. VAT AND SALES TAXES 342
5.2.1.Objectives and official positions 342
5.2.2.VAT policy approaches 345
5.2.2.1.VAT type approach to general consumption taxation 345
5.2.2.2.Conservative VAT policy approach 346
5.2.2.3.Origin-based VAT application 346
5.2.2.4.Consumption-based VAT application 347
5.2.2.5.Consolidating the safety nets 348
5.2.2.6.Mechanisms for ensuring VAT accountability and collection 350
5.2.2.7.Practical business challenges of electronic commerce 352
5.2.2.8.Consistent and neutral characterization of electronic transactions 353
5.2.2.9.International cooperation and consensus 355
5.2.2.10. VAT-moratorium 357
5.2.2.11. VAT-free zone 357
5.2.2.12. No new taxes 359
5.3.ALTERNATIVE TAX FORMULATIONS 359
5.3.1. Bit Tax 360
5.3.2. Transaction Tax 362
5.3.3. Telecommunications and PC or other Internet hardware taxes 362
5.4.INSTITUTIONS 363
PRECIS 369
PRESENT SITUATION 369
Permanent establishment concept 369
Taxation of business profits 370
VAT 371
Conflict between residence and source country taxation 372
MODIFICATIONS SUGGESTED 375
Recommended policies 375
Introduction of new taxes 378
Bit tax 378
Transaction tax 378
Consumption tax 379
Withholding tax 379
CONCLUDING REMARKS 379