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Inland Revenue

Tax Policy

PUBLISHED 14 February 2001

International consensus on e-commerce taxation developing

The OECD's Committee on Fiscal Affairs is seeking public comment on its work on the taxation of e-commerce, as part of its effort to develop an internationally agreed policy on the matter.

The committee yesterday released reports seeking public comment in three areas of e-commerce taxation: consumption tax issues, international direct tax issues and tax administration issues.

The next step for the committee, of which New Zealand is a member, is to publish a progress report early this year. For more information and a link to the reports, see the OECD's news release and PAD summary of developments.

PAD summary of OECD developments in e-commerce taxation

As noted on this website on 25 January 2001, the OECD has recently clarified the application of the definition of "permanent establishment" in relation to e-commerce. The clarification is to the effect that a website cannot constitute a permanent establishment and that a server owned or leased by a business will only constitute a permanent establishment if the functions performed through the server are a significant and essential or core part of the business.

In relation to consumption tax, the OECD has issued a report from its Working Party on Consumption Taxes proposing to define the place of taxation for cross-border services and intangible property by reference to the recipient's business establishment or place of residence. The report considers a self-assessment mechanism to be the most appropriate approach for business to business transactions. For business to customer transactions the report suggests as a short-term solution the registration of offshore suppliers and, in the longer term, technology-based solutions.

On tax administration the OECD is considering how the administrations can ensure effective tax collection in an electronic environment.