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BIAC Letter to European Commission on
DG XXI Working Paper "Indirect Taxes and E-Commerce"
October 29, 1999
Mr. Michel Aujean
Tax Policy Director
Directorate General DGXXI
Taxation and Customs Union
European Commission
Rue de la Loi 200
1049 Brussels
Belgium
Dear Mr. Aujean:
BIAC has studied, with great interest, the Working Paper issued on 8 June 1999 by the DGXXI Working Party No.1, entitled “Indirect Taxes and E-Commerce”. As you may know, the Business and Industry Advisory Committee to the OECD (“BIAC”) is the officially recognized organization that provides business input to the various OECD committees and working groups for their consideration when deliberating on subjects affecting the operation of international business enterprises. The OECD’s Committee on Fiscal Affairs has had a long standing and productive relationship with BIAC’s Taxation Committee. The well known and well received OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations represent a product of the cooperative efforts between OECD and BIAC.
As you know, for over two years, OECD has served as a focal point for a comprehensive study of the use of electronic medium in the international business world, which, of course, includes a detailed study of the taxation implications of the explosively growing use of the internet to conduct various types of business transactions. Indirect taxation is obviously one of the key areas, perhaps THE key area, to be explored. BIAC has been intimately involved in the OECD’s work on electronic commerce from the very beginning of the OECD’s effort.
We understand and support the underlying tenets of the Commission’s investigation into taxation and the electronic medium, i.e. that the protection of tax revenue and creation of an environment conducive to the unhindered development of the use of the electronic medium in international commerce is essential.
We were pleased to note that the Commission is committed to including the business community in its deliberations to develop appropriate answers. In this connection, the DGXXI conducted a round table for certain business representatives in January of this year. The message communicated by business at this meeting was simple and straight forward, i.e., “that they need a clear, simple and predictable tax environment which provides a level playing field for all operations”. In other words, tax rules and regulations should not favor small enterprises over large enterprises or resident enterprises over non-resident enterprises.
We are quite aware that the Commission has been, and will in future be, the recipient of comments from many interested parties. Many of these submissions will be of a technical nature, particularly so those relating to indirect taxation. It is not BIAC’s purpose in this submission to provide you with such technical comments, but, rather,to stress the importance of co-ordinating the efforts made in this area at the EU and OECD levels.
Your working paper makes reference to the Ottawa conference, which was an OECD sponsored Ministerial conference held in Ottawa, Canada, in October 1998, to address the use of the electronic medium in general. Taxation was accorded special attention because of its “bottom line” importance to business and governments by scheduling a separate half day round table meeting between representatives of business and government to discuss and consider tax issues only. As a direct result of the Ottawa tax meeting, the concept of a joint venture between government and business was born, which led ultimately to the formation of five Technical Advisory Groups (TAG). Each such TAG, composed of representatives from tax administrations and the business community, is charged with the responsibility to study, discuss, debate, deliberate upon and attempt to develop solutions to the issues within their assigned coverage areas. Of particular importance to the EU investigation, one of these TAGs has been assigned to the indirect taxation area. It should be noted that BIAC was, for the most part, responsible for identifying and delivering the business representatives to serve as members of these five TAGs, and many of those serving on the Consumption Tax TAG are from countries within the EU. We realise that there have been some problems in the treatment of the VAT- difficulties in the TAG-work, but we believe that the group will be able to come up with a solution that can satisfy all parties.
One problem is, however, that the Commission's Working Paper proposes to treat all "on-line" deliveries (digitized products) as supplies of services, will according to existing VAT-rules often have the effect that digitized products as services will bear a higher rate of VAT than the same product have if it had been delivered in the pre-electronic traditional method. This problem has to be solved otherwise the underlying neutrality principle will be violated.
As stated in the above, BIAC attaches great importance to a co-ordinated approach as the best guarantee for achieving globally applicable and comprehensive solutions to the tax issues created by electronic commerce. Therefore, BIAC hopes that the Commission will carry on its work on this subject in close contact and co-operation with the OECD TAGs, so that duplication of work can be avoided and a mutually beneficial cross-fertilisation can be secured.
We would be pleased to discuss this matter with you, if you so desire.
Very truly yours,
Richard M. Hammer
Chairman
Taxation Committee
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