Tax policy will be instrumental in determining whether the vast potential of Global Electronic Commerce is realized, or alternatively, frustrated. Policy in the U.S. and abroad must be coordinated and free from taxes that penalize businesses and consumers who choose to conduct transactions electronically rather than through traditional channels of commerce. This concept, called "tax neutrality," is rooted in a single underlying fact: no tax system should discriminate based on how you conduct commerce.

At the same time, CSPP recognizes Global Electronic Commerce presents some unique tax policy challenges which must be addressed. For example, current tax policy is based on concepts of physical assets, geographic locations, and face-to-face encounters. Because Global Electronic Commerce enables services and products to be exchanged across geopolitical boundaries, often instantaneously and repeatedly within a single transaction, these fundamental tax policy concepts are much less relevant. Global Electronic Commerce, therefore, raises anew the following tax policy questions:

• When does a vendor become subject to the jurisdiction of various national or sub-national international tax authorities?



• How should electronic transactions, particularly those involving intangible goods, be characterized for tax purposes?



• Where is the source of income for electronic transactions?



• Which party or parties to an electronic transaction should bear the burden of tax collection and compliance?



CSPP believes tax policy, whether international or domestic, can be neutrally adapted and applied to resolve these questions. However, substantive discussions between the business community and policy makers have only recently begun and only in and among developed nations. With over 30,000 taxing jurisdictions in the U.S. alone, and many times this number overseas, hasty, uncoordinated actions could have serious implications.

CSPP believes it is critical to develop a broad domestic and international consensus on neutral tax methodologies. Failure to do so could result in an electronic marketplace stifled by a random patchwork of thousands of differing laws and interpretations.

In both the United States and Europe, numerous proposals that would impose new forms of taxation or treat electronic commerce differently than traditional modes of commerce have already been suggested. In some instances, these policies reflect a natural urge of taxing authorities to tap what they perceive as a new source of revenue. In fact, several entities have already acted to impose new tax structures. Premature decisions and unilateral actions, by federal or sub-national entities, could greatly complicate the development of international understandings and agreements. Uncoordinated attempts to "force fit" existing sales tax and VAT constructs, for example, could impose discriminatory and multiple taxes on e-commerce transactions; taxes in excess of those paid in conjunction with identical, non-electronic transactions. Further, without coordination between tax authorities, entrepreneurs could short-change tax authorities by "moving" their place of business to one with a more favorable tax environment simply by changing the location of an Internet server.

Clearly, the long term growth of Global Electronic Commerce, with its attendant promise of improvement in economic activity and living standards depends on government and industry working together to define and implement non-discriminatory tax policies that work in a digital world.

CSPP Policy Agenda

1. CSPP is developing a set of detailed tax principles to help guide domestic and international governments to establish sound, neutral tax policy that is also based on common standards and uniform definitions. The goal is to create a favorable tax environment now so Global Electronic Commerce can thrive and deliver maximum benefits in the future.



2. CSPP actively supports enactment of the Internet Tax Freedom Act (S. 442 and H.R. 1054). This legislation ensures a needed moratorium on domestic taxes that target or discriminate against electronic commerce. It also requires the Clinton Administration to establish a consultative group, that includes U.S. industry, to develop policy recommendations on the taxation of electronic commerce. The Act also reinforces President Clinton’s initiative seeking international agreements on taxation that recognize both the potential of the electronic marketplace and its uniqueness.



3. CSPP is working to identify and support comparable moratoria in the international arena. Tax authorities need not make immediate decisions in order to prevent tax base erosion. Nor should they be misled by the idea of electronic commerce as a new revenue source. The amount of tax revenue currently at stake in this arena is relatively limited. Assessing special taxes on electronic transactions could produce just the opposite effect, stifling expansion and job growth, and thus the tax dollars they generate.