e-commerce: law, business and tax planning

Transcription

1 e-commerce: law, business and tax planning Julian JB Hickey Barrister with contributions by Robin Mathew QC and Christopher Rose ] JORDANS 2000

2 Contents PREFACE TABLE OF CASES TABLE OF STATUTES TABLE OF STATUTORY INSTRUMENTS TABLE OF FOREIGN STATUTES TABLE OF EC LEGISLATION TABLE OF OTHER MATERIAL TABLE OF ABBREVIATIONS v xvii xxiii xxix xxxi xxxiii xxxv xxxvii PART I INTRODUCTION 1 CHAPTER 1 INFORMATION TECHNOLOGY AND E-COMMERCE 1.1 INFORMATION TECHNOLOGY Introduction Towards a definition of IT Components of IT Interaction of hardware and Software Analog and digital Computer networks Fixed networks Flexible networks THE INTERNET Introduction Internet structure Telecommunication infrastructure Internet backbone structures Routers Satellite network Dial-up access Internet search engines Browsers INTERNET PARTICIPANTS Introduction Internet service providers ('ISPs') e-commerce Fiscal issues

3 e-commerce: law, business and tax planning PART II BUSINESS VEHICLES AND INTERNET ACTIVITY 19 CHAPTER2 BUSINESS VEHICLES INTRODUCTION COMPANY INCORPORATION PUBLIC AND PRIVATE COMPANIES MANAGEMENT CORPORATE PERSONALITY AND MEMBERSHIP LIABILITY FOR CORPORATE OBLIGATIONS SHAREHOLDER RIGHTS MINIMUM SHARE CAPITAL REQUIREMENTS AND RAISING CORPORATE EQUITY FINANCE TRANSFERABILITY OF COMPANY SHARES REGISTER OF MEMBERS SHAREHOLDER CONTROL FORMATION REQUIREMENTS FOR A PUBLIC COMPANY FISCALINCENTIVES ENTERPRISE INVESTMENT SCHEME COMPANY PARTNERSHIP GENERAL AND LIMITED PARTNERS PARTNERSHIP PROPERTY PARTNERSHIP FORMATION Limited partnership PARTNERSHIP CAPITAL JOINT VENTURES EUROPEAN ECONOMIC INTEREST GROUPING ('EEIG') 38 CHAPTER3 COMMERCIAL INTERMEDIARIES INTRODUCTION LEGAL CONTROL OF COMMERCIAL INTERMEDIARIES BENEFITS OF APPOINTING A COMMERCIAL INTERMEDIARY THE FAMILY OF COMMERCIAL INTERMEDIARIES AGENCY Agency classifications Commission Agency, distribution and franchise arrangements IDENTIFYING AND CLASSIFYING COMMERCIAL INTERMEDIARIES LEGAL DOCUMENTATION 51

4 Contents 3.8 ADVANTAGES OF AGENCY CATEGORIES FOR TRANSFER PRICING PURPOSES TAXATION OF UK REPRESENTATIVES OF NON-RESIDENTS TRADING IN THE UK Definition of a UK representative Agents prevented from being UK representatives Obligations of a UK representative 55 PART III CHAPTER 4 CHAPTER 5 UK TAXATION: GENERAL TAX CHARGES WHAT IS TAX AND HOW IS IT CHARGED? DIRECT TAXATION Corporation tax Income tax Capital gains tax International double taxation agreements Taxation of worldwide income and chargeable gains INDIRECT TAXATION Value added tax CORPORATION TAX INTRODUCTION MEASUREMENT OF PROFITS Accountancy rules Tax rules 5.3 ACCOUNTANCY: THE BASIS OF COMPUTING PROFITS 5.4 SOURCE TAXATION Resident and non-resident corporations 'Branch or agency'ofa non-resident 5.5 COMPUTATION OF THE TAX CHARGE Introduction Chargeable income Chargeable gains Expenditure within the UK tax System 5.6 SCHEDULE D, CASE I: PROFITS OF A TRADE What is a trade? 5.7 EXPENDITURE DEDUCTIONS Revenue expenditure Capital expenditure Patent rights: capital allowance Patent rights: revenue expenditure Royalty expenditure Know-how: caoital allowance

5 e-commerce: law, business and tax planning Disposal of a trade including know-how Restrictive covenants TRADING LOSSES Transfer of losses against trading income of subsequent accounting periods Transfer of losses against preceding accounting periods Schedule D, Case V Schedule D, Case VI CHARGEABLE GAINS Introduction: basis of Charge on gains Assets Allowable deductions Wasting agents Relief for gains arising on the disposal of business assets Assets qualifying for roll-over relief Relief where partial reinvestment Roll-over relief and non-residents Other reliefs DEDUCTION OF TAX AT SOURCE ON PAYMENTS Schedule D, Case III Patent rights Copyright CHAPTER 6 TRANSFER PRICING 6.1 INTRODUCTION 6.2 COUNTER PRICE MANIPULATION LEGISLATION 6.3 UK TRANSFER PRICING LEGISLATION Double taxation agreements Finance Act Effect of UK transfer pricing rules Exclusions 6.4 OECD TRANSFER PRICING GUIDELINES Comparable uncontrolled price Resale price method Cost plus method Other methods Advance pricing agreements Documentation Intra-group Services Impact of e-commerce and tranfer pricing

6 Contents xi CHAPTER 7 COMPUTERSOFTWARE CHARACTERISTICS OF SOFTWARE Intellectual property Multi-media Off-the-shelf software/standardised Software Bespoke Software Internet-provided Software Software incorporated on hardware TAX POINTS AND RELIEFS Expenditure on Computer Software Software acquired under licence Equipment acquired as a package Software owned outright: 'bespoke Software' Deduction of tax at source on licence payments Chargeable gains Value added tax Definition ofgoods and Services Normalised or specific Software Zero-rated supplies of Computer Software BUSINESS VEHICLES FOR DEVELOPMENT OF SOFTWARE: TAX INCENTIVE-RELATED SCHEMES Enterprise Investment scheme Qualifying Company 133 PART IV VALUE ADDED TAX 135 CHAPTER 8 VALUE ADDED TAX INTRODUCTION PRINCIPLE OF VAT AND ITS APPLICATION TO IT AND E-COMMERCE INGREDIENTS OF THE VAT CHARGE WHAT IS SUPPLY? WHAT IS CONSIDERATION? WHAT IS THE VALUE OF THE CONSIDERATION? WHAT IS A SUPPLY OF GOODS? Software Goods forming part of the assets of a business Gifts and samples WHAT IS A SUPPLY OF SERVICES? WHO IS A TAXABLE PERSON? VATA

7 xü e-commerce: law, business and taxplanning Sixth VAT Directive WHERE IS THE PLACE OF SUPPLY OF GOODS OR SERVICES? The territorial extent of the UK for VAT purposes DETERMINING WHERE A SUPPLIER BELONGS FOR THE PURPOSES OF A SUPPLY OF SERVICES REVERSE CHARGE RELEVANT SERVICES PLACE WHERE SUPPLY IS RECEIVED TIME OF SUPPLY INPUT AND OUTPUT TAX ZERO-RATED SUPPLIES EXEMPT SUPPLIES 158 CHAPTER 9 ACQUISITION OF GOODS: INTERNAL EUROPEAN UNION TRADE INTRODUCTION ACQUISITIONS: BUSINESS ACQUISITIONS BYUKTRADER Rules NON-TAXABLE PERSONS AND ACQUISITIONS 168 CHAPTER 10 IMPORTS INTRODUCTION ADMINISTRATION OF IMPORT VAT METHOD OF CHARGE AND COLLECTION IMPORT VAT AND E-COMMERCE ELEMENTS OF IMPORT VAT CHARGE Goods imported from a place outside Member States of the EU Obligation to pay import duty Time of payment Time of importation Importer: the meaning RELIEF FROM IMPORT VAT Zero-rated imports Goods produced by the United Nations and other UN organisations Capital goods and equipment on transfer of activities from abroad Goods used for promotion of a trade Goods for testing Printed material Material in connection with intellectual property rights 176

8 Contents xiii Information carriers Goods as gifts Goods oflimited value Gifts between individuals Ring fencing schemes IMPORT VAT INCURRED ON IMPORTED GOODS FOR BUSINESS PURPOSES POSTAL IMPORTATION OF GOODS 178 CHAPTER 11 EXPORT AND REMOVAL OF GOODS FROM THE UK INTRODUCTION ZERO-RATING OF EXPORT GOODS Electronically delivered Software PROOF OF EXPORT ZERO-RATING OF GOODS REMOVED FROM THEUKTOTHEEU OTHER MATTERS 183 CHAPTER 12 VAT AND OVERSEAS TRADERS INTRODUCTION PLACE OF SUPPLY OF GOODS IMPORTED GOODS FROM OUTSIDE THE EU GOODS IMPORTED BY A UK AGENT VAT REGISTRATION: SUPPLIES BY TRADERS FROM OTHER EU MEMBER STATES DISTANCE SALES OF GOODS FROM EU MEMBER STATES TO THE UK REPRESENTATIVE OFFICE DISTANCE SALES FROM THE UK TO ANOTHER EU MEMBER STATE COMPLIANCE CHAPTER 13 CUSTOMSDUTY 13.1 INTRODUCTION 13.2 THE CHARGE TO DUTY 13.3 COMMON PROBLEMS 13.4 CLASSIFICATION OF GOODS 13.5 ELECTRONIC GOODS 13.6 TARIC 13.7 VALUATION 13.8 SPECIAL VALUATION RULES FOR DATA PROCESSING EQUIPMENT 13.9 INWARD AND OUTWARD PROCESSING RELIEF

9 CHAPTER 14 E-COMMERCE INTRODUCTION STRUCTURE OBJECTIVES CHARACTERISTICS OF INTERNET TRADING SITES TAXATION OF CORPORATE INTERNET TRADERS: SUMMARY TAX CHARGES APPLICABLE TO A CORPORATE RESIDENT TRADE WITHIN THE UNITED KINGDOM INTERNET CONTRACTS THE NATURE OF FOREIGN POSSESSIONS 'BRANCH OR AGENCY' OF A NON- RESIDENT BRANCH AGENCY DOUBLE TAXATION AGREEMENTS USE OF DTAS AND INTERACTION WITH DOMESTIC TAX LAW AGENCY AND THE OECD MODEL TAX CONVENTION EXCLUSIONS FROM DEFINITION OF PERMANENT ESTABLISHMENT COMMENTARIES RELEVANT TO INTERNET BUSINESS WITHHOLDING TAXES - COPYRIGHT AND COMPUTER SOFTWARE VALUE ADDED TAX Ingredients of the VAT Charge: a summary The place of supply of goods or Services Key concepts in the place of supply of Services Establishments Reverse Charge Place where supply received 237 xiv e-commerce: law, business and taxplanning Inward processing Outward processing ADMINISTRATION AND PRACTICE POST CLEARANCE RECOVERY AND THE POWER TO WAIVE COLLECTION OF DUTY SUSPENSION OF DUTY 203 PART V SPECIAL TOPICS 205

10 Contents xv Internet access providers Zero-rated supplies 238 CHAPTER 15 E-COMMERCE AND THE SELECTION OF TAX SUPPLIES IN THE GLOBAL MARKET PLACE - THE CASE FOR LOW DIRECT TAX JURISDICTIONS INTRODUCTION CHOICE OF JURISDICTION AND FISCAL CONSIDERATIONS E-COMMERCE AND DIVERSITY IN FISCAL REGIMES TAX CONSIDERATIONS WHEN CHOOSING BUSINESS VENUES FOR E-COMMERCE INTERNATIONAL TAX RELATED INITIATIVES The OECD 'Harmfül Tax Competition' initiative The EU initiatives on tax harmonisation LOW DIRECT TAX JURISDICTIONS AND E-COMMERCE Anguilla Bermuda Cayman Islands Turks and Caicos Islands SUMMARY CHAPTER 16 INTERNATIONAL PROPOSALS FOR TAXING E-COMMERCE 16.1 INTRODUCTION Problems 16.2 KEY RESULTS OF OTTAWA Joint declaration adopted by government and business Tax Framework Conditions Report Administration of tax law and collection of tax revenue Tax principles Consumption taxes Tax base erosion OECD Report on Harmful Tax Competition International tax arrangements Post-Ottawa agenda 16.3 RECENT ACTIVITY IN THE USA US oosition Statement

11 xvi e-commerce: law, business and tax planning Internet Tax Freedom Act 265 PART VI APPENDICES 267 APPENDIX 1 ELECTRONIC COMMERCE: UK POLICY ON TAXATION ISSUES OECD CONFERENCE IN OTTAWA, CANADA, 8-9 OCTOBER APPENDIX 2 DTAs WHICH LIMIT THE UK' S POWER OF TAXATION ON A NON-RESIDENT TO PROFITS OF A BUSINESS DERIVED FROM A PERMANENT ESTABLISHMENT 281 TABLE OF COUNTRIES WITH WHOM THE UK HAS NO DTA 285 TERRITORY OF THE EC FOR THE PURPOSES OF VAT 287 APPENDIX 3 HOUSE OF COMMONS SELECT COMMITTEE ON TRADE AND INDUSTRY 7TH REPORT 'BUILDING CONFIDENCE IN ELECTRONIC COMMERCE' 289 APPENDIX 4 TAX RATES 1999/ FURTHER READING 295 INTERNET SITES 299 INDEX 301