Of critical importance to a treasurer of a multi-national corporation (MNC) is the ability to manage cash flows across a multitude of currencies, countries, and time zones. Using a number of techniques such as netting, pooling and sweeping, a treasurer is able to consolidate, deal with shortfalls and excesses, and take advantage of differing regulatory and tax environments throughout Asia. But recent economic turmoil has forced many Asian governments in Asia to review their tax and regulatory systems, and the goal posts have shifted once again. Looking ahead, the potential e-transformation of treasury has also thrown up a new set of considerations for the MNC treasurer. As a result, though not the sexiest thing to spring to mind, tax and regulatory issues must be considered by treasurers conducting activities cross-border in an electronic world. At the recent Eurofinance conference in Singapore, Paula Eastwood, tax partner at PricewaterhouseCoopers in Singapore summarized some of the current key tax issues in electronic commerce for treasurers in Asia.
Tax issues in an e-commerce environment
From a tax perspective, the challenges, and opportunities provided by e-business are enormous. It has the potential to challenge the effectiveness of existing jurisdictional rules and administrative measures relating to the imposition and collection of tax. This is because traditional tax rules were developed to deal with the trading of physical goods or the provision of services by identifiable persons. It must be noted that at this stage, most of the issues are unresolved, although OECD has provided some guidelines on tax and the internet.
Jurisdictional issues
One of the methods a government can capture tax income is by claiming jurisdiction over the source of income. However, internet businesses, by their very nature, are global and independent from traditional physical links to a specific geographical location. Therefore, issues that may arise are:
+áwhether a trader who sells goods via a website is carrying on trading activities in that jurisdiction,á
+áambiguity as to place of contract where a buyer places an order to purchase over the website.
There are several views on the issue of where the trading takes place. One view is that the customer "comes" to the website to puchase goods and therefore the trading activities take place in the jurisdiction where the website/server is located. Another view is that the trading activity takes place at theácustomer's computer and the jurisdiction is where the customer's computer is located. The problem is made more complex where the website's functions are split, orders may be taken on the website, but payment may be offline and in another location.
As to the place of contract, it is important to determine where the online catalog of goods and services amounts to an offer to sell, in which case the contract is made where the website resides. In the more complex business to business (B2B) marketplace, the online catalog of goods and services are showcased is merely a start to negociations, the contract of sale is generally made when the acts necessary to create a binding obligation are completed, which may mean inspection has to take place, customs to be cleared, letters of credit to be processed and so on.
Residence
Another method for capturing income is by determining the residence of the taxpayer entity. But again due to the global nature of e-commerce, questions that arise are:
+áWhere is the place of central management and control?
+áWhich tax treaty is to apply?
Permanent establishment
In most cases, a country's right to tax business profits derived by non-residents is governed by bilateral tax treaties. In allocating taxing rights, most treaties place emphasis on the concept of permanent establishment (PE). The question then is: is a website a permanent establishment, effectively a fixed place of business? If so, how much income should be attributed to a website?
A factor establishing a PE is the presence of a place of business. One view is that a website cannot involve any tangible property and therefore cannot constitute a place of business.áAnother view is that a place of businessácan be established by the location where business functions areácarried out, irrespective of whether that "place" has a physical presence or not.
Whereáincome is derived through the website, difficulties may arise with allocating income between different enterprises that might have collaborated on a particular portal. This may be exacerbated with MNCs, where income is derived from highly integrated functions.
