• The internet presents new challenges in taxation. The imposition of a turnover tax on e-commerce is hampered by the difficulties involved in identifying the consumer. It is nearly impossible to apply the destination principle, which is standard practice internationally. In the taxation of profits, international companies might obtain new scope for optimising their tax burden. Both aspects may lead to erosion of the tax base. At present, however, the volume of e-commerce is still too small to

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... rigger serious fiscal problems. • The crucial factor for corporate taxation is whether internet servers are deemed to constitute permanent establishments. If so, companies could locate their servers in low-tax countries and, under the permanent establishment principle, pay tax on the profits allocated there. Legal experts are at odds over whether a server is a permanent establishment. • Only purely online turnover, in which ordering, delivery and possibly payment are done over the internet, presents a tax problem. This turnover accounts for only a small fraction of total e-commerce. Offline turnover, in which merely ordering is done online but delivery is handled by conventional, physical means, presents no taxation difficulties. • The obstacle to the implementation of the destination principle for online turnover (which states that the applicable tax rate is that of the country of end-consumption) is that suppliers are often unable to identify in which country customers place their orders. Thus, the providers lack the information needed to know which tax rate applies. The origin principle (which states that the applicable tax rate is that of the country from which the delivery is made) results in competitive distortions internationally, because product prices will hinge on different turnover tax rates. Since the USA, for example, currently imposes no turnover tax on online sales, consumers worldwide have an incentive to download digital products from websites of American suppliers or others who do not charge tax. The upshot is that online transactions thus remain tax-free. • The recently passed EU directive requires suppliers from non-EU countries to register in an EU member state of their choosing and to charge the rate of turnover tax applicable in that country when conducting transactions with EU consumers. This eliminates the current competitive distortions merely de jure, not de facto, since it is virtually impossible to compel suppliers from third countries to register. The worldwide web requires worldwide answers in taxation. Given the growing scope of e-commerce it is now necessary to develop effective concepts. Jörn Quitzau, +49 69 910-31890 (joern.quitzau@db.com)