A thorny issue in e-commerce concerns the collection of taxes. A typical tax system relies on knowing where a particular economic activity is located. But the Internet enables individual workers to operate in many different countries while sitting at the same desk. When taxes should be collected, where they should be collected, and by whom are all issues under consideration by countries around the world. In the past a company was deemed to have a taxable presence in a country if it had permanent establishment there. But whether the existence of a server or a Web site qualifies as such a presence is not clear. One proposal that has enthusiastic support from tax authorities is for servers to be designated as virtual permanent establishments and thus subject to local taxes.
To pinpoint when and where a sale takes place in cyber space is difficult, and, unless elusive tax payers can be pinpointed, any tax may be difficult to collect. In brick and mortar sales the retailer collects but the Internet site is in one country and the customer is in another, who collects? One proposal is to have shipping companies such as FedEx or credit card companies collect, but neither party is receiving this suggestion enthusiastically.
The EU Commission has announced plans for a directive to force foreign companies to levy value added tax (VAT) on services delivered via the internet, television or addition to customers in the European Union. Foreign companies with sale via the Internet over €100,000 ($ 95,410) inside the European Union (EU) would have to register in at least one EU country and levy VAT at that country’s rate somewhere between 15 percent and 25 percent. The tax is justified on the basis of leveling the playing field. EU companies have to charge their EU customers VAT whereas foreign companies supplying the same service to the same customers are duty free. US companies are protesting calling the proposal e-protectionism. Although the EU plan is only a proposal now, as the value of Internet transactions increases, the taxman will sooner or later get his share.
Jurisdiction of disputes and validity of contracts:
As countries realize that existing laws relating to commerce do not always clearly address the uniqueness of the Internet and its related activities, a body of cyber law is gradually being created. Two of the most troubling areas are determining whose laws will prevail in legal disputes between parties located in different countries and establishing the contractual validity of electronic communications. The European Union is having the most difficulty in reconciling the vast differences in the laws among its member states in order to create a uniform law. For example, a draft regulation in Brussels and other European capitals would have required vendors to comply with 25 different and sometimes bizarre sets of national rules on consumer protection – ranging from dozens of restrictions on advertising to France’s requirement that all contracts must be concluded in French regardless of whether businesses intend to sell goods for export to France.
The EU Commission has adopted an e-commerce directive that will permit online retailers to trade by the rules of their home country unless the seller had enticed or approached the consumer by way of advertising. Then, any legal action is to take place in the consumer’s country of residence. The rationale is that if a company actively seeks customers in a given country, it ought to be willing to abide by that country’s consumer protection laws. Whether the directive will be accepted by all 25 member states is still problematic.
The European Commission has begun to review the entire regulatory framework for the technological infrastructure of the information society. The commission is working on various pieces of legislation intended to place electronic commerce on an equal footing with conventional commerce. One of the first steps was to introduce an EU-wide computer network dubbed EEJ net that provides an easy way to resolve small scale disputes out of court. Problems over deliveries, defective products, or products that do not fit heir description can be dealt with by a single one stop national contact point, or clearing house, in each member state. The consumer will be able to find information and support in making a claim to the out of court dispute resolutions system in the country where the product supplier is based.
Establishing the validity of contractual law for e-commerce is making substantial progress also. Several countries are preparing or have passed legislation similar to the UK’s that allows digital signatures to be used in the creation of online contracts that are just as legally binding as any paper based original document.