Technology – Questions & Answers.

Each week Accountancy Age asks an expert in the technology field to discuss industry issues. This week, John Kilby, tax partner at Deloitte & Touche, touches on VAT on internet goods

Q: Why is the government having little success taxing e-commerce profits?

A: The implication of the question is that the tax systems are not adequate to deal with e-commerce, and that significant profits are escaping taxation. Our experience is that this is not happening as:
– It is not possible to attribute profits to a low tax jurisdiction simply by locating a server there, and it is often difficult in practice to locate intellectual property or non-physical functions offshore in order to generate tax savings.
– CFC rules often limit the ability of companies to attribute profits to low tax jurisdictions.
– For sales of tangible goods, it is necessary to locate warehouses, distribution centres etc onshore.
– Many internet businesses are not yet earning profits.

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