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1International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
ELECTRONIC COMMERCE
AND TRANSFER PRICING
.
2International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
The transfer pricing and
e-commerce
> Definition
> The Ottawa OECD Ministerial Conference
in 1998
> The committee on fiscal affairs
2
3International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
� Principal questions:
> Where should income be taxed?
> How should the income from e-commerce
transaction be characterised?
> What is the profit that should be attributed to a PE
involved in e-commerce?
> Are the international tax principles still valid with
regard to new technologies?
3
International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Service provider
Stocks
Acquisition of stock
?
CustomersCompanies
4
5International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Companies
Stocks
Customers
5
Where should income be taxed?
6International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
���� The Main Principles
1/ Source principle
2/ Residence principle> Article 4(3) of the OECD Model Tax Convention
Where by reason of the provisions of paragraph 1 a person other than
an individual is a resident of both Contracting States, then it shall be
deemed to be a resident only of the State in which its place of effective
management is situated
> Resulting factors
� Replacement of the effective management test
� Refinement of the effective management test
� Combination of 1 & 2
� Combination of 2 & 3
6
7International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
MANAGEMENT
Director
Conference Call Video Conference Internet
7
The place of effective management
8International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
The OECD: five options
1. Replacement of the place of the concept of
e-commerce with another tie breaker rule
2. Refinement of this concept
3. Alternative application of tests
4. Combination between 2 &3
5. Denying treaty benefits to dual resident
companies
8
9International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Source of Taxation
> Application of the permanent
establishment definition in the context of
e-commerce
> Character of incomeArticle 5 of the OECD model Tax treaty
For the purposes of this Convention, the term “permanent
establishment” means a fixed place of business through which
the business of an enterprise is wholly or partly carried on
9
10International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Application in the context of e-commerce
1/ Distinction between server and web site
2/ Computer equipment must be a fixed to be a PE
Stocks
E-COMMERCE
CustomersCompanies
10
11International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Stocks
Web site
Services
CustomersCompanies
11
Intangible
Tangible = PE
12International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Web Site
Customers
PE
Companies
12
Two possible scenarios:
> there is an applicable tax Treaty
> there is no applicable tax Treaty
13International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
PE or not PE?
> Electronic order processing of tangible products
> Web site hosting
> Data warehousing
> Advertising
> Online shopping portals
> Sales referral programmes
13
14International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Web Site
Download
CustomersCompanies
14
Character of Income
> Business profits and royalties
> Supply of know-how and
provision of services
15International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Customers
KNOW - HOW
Companies
15
Character of income
> Business profits and royaltiesArticle 12 of the OECD Model:
The term royalties as used in the Article means payment
of any kind received as a consideration for the use of, or
the right to use, any copyright of literary, artistic or
scientific work including cinematograph films, any
patents, trade mark, design or model, plan secret
formula or process, or for information concerning
industrial, commercial or scientific experience
> Supply of know-how
and provision of services
16International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Attribution of profit to a PE involved in
e-commerce transactions
> 1st step: perform a functional and factual analysis in order to
hypothesize that the PE is a distinct and separate enterprise:� Credit risks
� market risks
� Technology risks
e.g. decision-making about acquisitions, inventory, pricing, negotiating with
suppliers, control, etc
The ISP and the Contract Service Provider (CSP)
> 2d step: determining the profits of the presumed distinct and
separate enterprise based upon a comparability analysis� Recognition of dealings
� Applying transfer pricing methods to attribute profit
� Interpretation of Article 7 §3
� Interpretation of Article 7 §4
16
17International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
ConclusionSpace
Owner
Tax paradiseNorth pole
17
Company
18International Taxation ConferenceBombay - 1 to 3 December, 2005
Sophia AntipolisParis
Anthony & CieThe Family Office
> Coordination of French property acquisition <
> Reporting for High-Technology companies in France to Home country <
> Cross frontier Tax Planning <
> Administrative support <
> Wealth Management and Finance <
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