UK to opt-out of OECD plans for taxing e-commerce

The main elements of the consensus announced by the 29-member OECD were:

• a web site cannot, in itself, constitute a permanent establishment;
• a web site-hosting arrangement typically does not result in a permanent establishment for the enterprise that carries on business through that web site;
• an ISP will not, except in very unusual circumstances, constitute a dependent agent of another enterprise so as to constitute a permanent establishment of that enterprise; and
• while a place where computer equipment, such as a server, is located may in certain circumstances constitute a permanent establishment, this requires that the functions performed at that place be significant as well as an essential or core part of the business activity of the enterprise.

The Inland Revenue describes the proposals as too restrictive for businesses and says corporate taxes should be paid only where companies are registered and not where they house their servers.

A spokesman from the Inland Revenue today told OUT-LAW.COM that the Inland Revenue agrees with the first three points above, but cannot agree to the final point:

“The UK has taken the view that in no circumstances do servers of themselves or together with web sites constitute permanent establishments of e-tailers.”

He added, “We didn’t agree with it at the time it was suggested. We still don’t agree with it.”

OUT-LAW.COM spoke to Jacques Sassville, the head of the Tax Unit Treaty Division at the OECD who observed that Spain and Portugal had joined the UK in taking exception to certain provisions of the OECD’s proposals.

Mr Sassville said: “This was an Inland Revenue administrative decision. But it will be up to the UK courts to decide how to interpret the tax rules.”