V.b. The International Dimension of Internet Regulation: Taxes and Domain Names
V.b. The International Dimension of Internet Regulation: Taxes and Domain Names
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
Vb The International Dimension of Internet Regulation Taxes and Domain Names - To learn more about this author, visit OECD Development Centre's Website.
Like this article? Share it with your friends
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
Vb The International Dimension of Internet Regulation Taxes and Domain Names - To learn more about this author, visit OECD Development Centre's Website.
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