An analysis of the proposed changes to treaty rules with respect to direct taxation of business profits in the context of e-commerce

Abstract

This dissertation analyses one of the latest developments which is threatening the field of taxation, namely e-commerce. Due to the diverse characteristics of e-commerce transactions, the interpretation of the permanent establishment definition raised some questions. It incorporates a necessity for a fixed physical location as well as the requirement that the location must be more than temporary thereby challenging the taxation on e-commerce transactions. As an attempt to protect the erosion of the tax bases of source countries, in November 2003, the Organisation for Economic Co-Operation and Development (OECD) published a public discussion draft which describes various proposals to change the current OECD treaty rules or commentaries, as the case may be, in order to face this challenging phenomenon. This dissertation examines the present principles of Articles 5 and 7 of the OECD model in the context of e-commerce to bring about the difficulty of direct taxation of e-commerce transactions in source countries for which most of the time results in non-taxation. It then continues to describe some of the said proposals produced by the OECD continuing with an analysis of such suggestions and finally draws certain general conclusions for the justification of such proposals, courses of action for their implementation followed by the applicability to Malta.