V.b. The International Dimension of Internet Regulation: Taxes and Domain Names

The intersection of a global, multipurpose medium, the Internet, with systems designed for the physical, territorial world poses further policy questions. Compared to other social institutions, the Internet has developed in a spontaneous and decentralised manner and does not have a central point of authority and control. In the event of contested claims and possible litigation, the fundamental problem of jurisdiction remains unresolved. Its technical development has been guided by protocols established through participatory decisionmaking processes by bodies such as the Internet Engineering Task Force (IETF) and its subcommittees, and the Internet Assigned Numbers Authority (IANA). There has not been a central rule-making entity that has exercised comprehensive legislative authority over the Internet and there is unlikely to be one. The multi-jurisdictional and multi-functional nature of the Internet means that, inevitably, many different interests in many different parts of the world will be concerned with any endeavour to formulate specific policies.

Even in the European Union, the suggestion contained in the Commission’s draft directive that e-commerce should be governed by the law of the country where the service provider is established has been questioned by consumer groups that want the local law where the website is accessed to be given priority45.

One crucial area is the tax treatment of online transactions. At present the volume of e-commerce transactions remains relatively small and the fiscal implications modest. If projections of e-commerce revenue growth are to be believed, however, the questions of how government and which government is to tax such revenue could have an important bearing on the state of public finances. There are at least two basic issues: whether e-commerce transactions can and should be taxed and, if so, at what rate; and into what tax jurisdiction international e-commerce transactions fall (addressed above). Within the OECD area, views diverge on the first issue. In the United States, the dominant view is that government should not levy taxes on e-purchases46, while in the European Union the tendency is towards imposing VAT on electronic services bought on the Internet (e.g. software, music, information) at the same rate as their tangible equivalents.

Governments of poor countries may wish to take a liberal approach to taxing e-commerce on two grounds. One is the fact that some important items available on the Web (notably software) are essentially investment goods whose taxation would be counterproductive; the other is that any tax would raise the incentive to piracy. Moreover, goods bought on the Web are in general not likely to substitute for domestic purchases and thereby erode the tax base. Extending this reasoning to the context of WTO commitments would imply choosing to apply, within any given industry, the least distortionary set of rules. Mann (2000a) cites the example of insurance products, which could be sold over the Internet even if the physical presence of a foreign insurance firm was not scheduled for liberalisation under GATS. Rather than view this liberal bias with alarm, developing countries could see it as a means of both fostering the development of electronic commerce and encouraging deeper liberalisation and deregulation throughout the economy.

A further issue relates to Internet Domain Names (IDNs), the human-friendly form of Internet addresses. While designed to serve the function of enabling users to locate computers in an easy manner, IDNs have acquired a further significance as business identifiers and, as such, have come into conflict with the pre-existing system of business identifiers that are protected by intellectual property rights. The World Intellectual Property Organisation (WIPO) convened an international process to develop recommendations concerning the intellectual property issues associated with Internet domain names, including dispute resolution47. The recommendations resulting from the WIPO Internet Domain Name Process have been made available in spring 1999 to the new organisation formed to manage the Internet Domain Name System., the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN offers protection of “.com” names through its Uniform Domain-Name Dispute-Resolution Policy, which provides for the resolution of disputes by agreement, court action, or arbitration. Trademark owners can file complaints with courts or submit complaints to an ICANN-approved dispute-resolution provider48.

Special care needs to be exercised to ensure that any policy developed for one interest or function does not impact unduly on, or interfere unduly with, other interests or functions.

Given the enormous economic opportunities at stake for companies across the world, developing countries should be involved as equal partners in the development of the growing body of Internet governance.

OECD DEVELOPMENT CENTRE Working Paper No. 164 E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES by Andrea Goldstein and David O’Connor To learn more about this author, visit OECD Development Centre's Website.

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