Revenue takes lead on web taxation

International division director at the Revenue, Gabs Makhlouf, thrust the UK tothe forefront of the international debate on tax rules that should govern websites and servers.

Consensus has yet to be struck within the international community on the taxstatus of dotcoms.

The Organisation for Economic Co-operation and Development is reviewing itsmodel tax treaty threshold, known as ‘permanent establishment’, below which acountry will not tax non-residents who carry out business in their country.The OECD is looking at whether internet companies should be taxed where their HQis based and if there could be situations when they are taxed elsewhere.

‘Early decision are needed on the status of websites and servers under theexisting rules of permanent establishment’, said Makhlouf.

‘Businesses need to know where they stand in order to make investment decisionsand calculate their tax liabilities.’

He stressed the need for the outcome to be ‘practical’ and one that works in the’real world as well as in the heads of lawyers.’He added: ‘Businesses need to know where they stand in order to make investmentdecisions and calculate their tax liabilities.’

The Revenue argues that neither a website, or server are a ‘permanentestablishment’.

‘And we take the view that a service is sufficient of itself to constitute apermanent establishment of a business that is conducting e-commerce through aweb site on the server’, he added. ‘We take that view regardless of whether theserver is owned, rented or otherwise at the disposal of the business.’

Jeffrey Owens, head of fiscal affairs at the OECD, gave a tepid reaction to thespeech. ‘I would see the UK statement as a way of trying to influence the direction the consensus should go’, he said.

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