ELECTRONIC COMMERCE AND TRANSFER PRICINGfitindia.org/downloads/Robert Anthony_2005.pdf · ELECTRONIC COMMERCE AND TRANSFER PRICING. International Taxation Conference 2 Bombay -1 to

1International Taxation ConferenceBombay - 1 to 3 December, 2005

Sophia AntipolisParis

ELECTRONIC COMMERCE

AND TRANSFER PRICING

.



The transfer pricing and

e-commerce

> Definition

> The Ottawa OECD Ministerial Conference

in 1998

> The committee on fiscal affairs

2



� 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


Service provider

Stocks

Acquisition of stock

?

CustomersCompanies

4



Companies

Stocks

Customers

5

Where should income be taxed?



�� 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



MANAGEMENT

Director

Conference Call Video Conference Internet

7

The place of effective management



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



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



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



Stocks

Web site

Services

CustomersCompanies

11

Intangible

Tangible = PE



Web Site

Customers

PE

Companies

12

Two possible scenarios:

> there is an applicable tax Treaty

> there is no applicable tax Treaty



PE or not PE?

> Electronic order processing of tangible products

> Web site hosting

> Data warehousing

> Advertising

> Online shopping portals

> Sales referral programmes

13



Web Site

Download

CustomersCompanies

14

Character of Income

> Business profits and royalties

> Supply of know-how and

provision of services



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



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



ConclusionSpace

Owner

Tax paradiseNorth pole

17

Company



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 <

Villantipolis 11

473, route des Dolines

06560 Valbonne

Sophia Antipolis

France

Tel.: + 33 (0)4 93 65 32 23

Fax: + 33 (0)4 93 65 42 45

[email protected]

5, rue Cambon

75001 Paris

France

Tel.: +33 (0)1 53 43 01 01

Fax: +33 (0)1 40 07 03 30

[email protected]

www.antco.com

www.frenchpropertyloans.com

ELECTRONIC COMMERCE AND TRANSFER PRICINGfitindia.org/downloads/Robert Anthony_2005.pdf · ELECTRONIC COMMERCE AND TRANSFER PRICING. International Taxation Conference 2 Bombay -1 to

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