Michiko Yoshida
Researcher
The 1998 report (Electronic Commerce: Taxation Framework Condition) stipulates that consumption tax from e-commerce sales that extends across national borders should be levied on the region of consumption. For example, if a consumer living in Japan downloads and purchases 50000 yen worth of publications from the U.S. as digital data, that consumer must pay the Japanese consumption tax of 5%-in this case, 2500 yen-at the time of purchase. However, U.S. digital publication distributors and Japanese tax authorities-in other words, the tax authorities of the consumer's country of residence-have no mutual relationship in tax payment jurisdiction. Consequently, under the rule of taxing consumers at the location of consumption, it is very difficult for both parties to confirm whether or not an appropriate level of tax has been levied or paid. Additionally, it is also difficult for sellers to abide by the rules of taxation on location of consumption.
The 2001 report (Taxation and Electronic Commerce - Implementing the Ottawa Taxation Framework Conditions) proposes that out of such plans as (1) direct collection from consumers, (2) direct taxation on nonresident distributors, and (3) taxation by intermediaries acting on behalf of distributors, (2) is the best option. In the 2003 report (Report on Automating Consumption Tax Collection Mechanisms), tax-levying methods utilizing software and other technology is debated. As a result, almost all OECD member countries have the potential for online taxation and tax collection, but costs and procedural complications are as much a problem as ever.
The present 2005 report takes up the following important issues: (1) the use of technology that will allow nonresident suppliers to register, file, and collect taxes in multiple tax jurisdictions; (2) employing compatible technological standards and laying down enforcement requirements for tax authorities; (3) elimination of barriers to taxing intermediaries (under tax services); (4) making it possible to acquire tax rates and other consumption tax-related information digitally; (5) making it possible for nonresident distributors to conduct procedures such as registration and tax refunding entirely electronically.
From the perspective of the various member nations of the OECD, it is necessary for intermediaries who conduct tax levying on distributors to hold offices such as permanent establishments (PE) in consumption regions. Additionally, some suggestions request that levied taxes be collected from accounts that are guaranteed, and that contracts should be signed with tax authorities. However, in the case of e-commerce, some doubts remain as to whether there is a need to set up PE in the same fashion as normal trade.
In regards to software, the problem from the perspective of cross-border e-commerce lies in what way the government will certify which kinds of software will fulfill these parameters. There are also problems such as the cost required for certification, traders who are unable to satisfy the requirements necessary for certification, as well as software distributors who are opposed to the certification system itself.
The goals of the guidelines issued in May are to introduce software and streamline compliance; to this end, the guidelines encourage voluntary compliance by businesses, as well as call for fulfillment of the criteria of the US' Sarabanes Oxley and the EU's International Financial Reporting Standards (IFRS). Though the guidelines themselves are not designed to respond rigorously to corporate governance, this is one of the key concepts.
The possible methods of certification raised in the 2005 report are: (1) tax authorities should set standards and conduct revision registration and operational tests on a rolling basis for compliant software, as well as conduct software evaluations; (2) tax authorities should set standards, but certification and registration should not be conducted, and whether or not standards are met should be decided independently by software developers; (3) increase cooperation with accredited organizations that can carry out international software development and introduction. Specifically, in regards to (1), with the Streamlined Sales Tax Project (SSTP) that is currently in progress in the U.S. as a base, the final details of the software confirmation for the SSTP will be issued here on October 1. While watching the movements of the U.S.'s SSTP, it is necessary to keep an eye on the OECD's next moves at the same time.