Are There Any Tax Havens in Electronic Commerce?
E-commerce sales do not require a fixed place of business in foreign countries since consumers can order goods by accessing the seller’s website over the Internet. As such, e-commerce permits a foreign company to engage in extensive transactions with U.S. customers without entering the United States. Although such a company is clearly engaged in a trade or business, questions will arise as to whether he is engaged in a trade or business in the United States. One of the main elements of any e-commerce business is the Web server and where it is located – even if it is operated from another country.
The scope of this paper is limited to whether a Web server located in the United States “owned” by a foreign tax haven company will cause income tax liability in the United States when there are no applicable treaties. Does the existence of a computer server in a foreign jurisdiction constitute taxable presence? Part One discusses the current Internal Revenue Code provisions applicable to the taxation of foreign companies and related cases. Part Two discusses possible guidance for taxation of these foreign companies engaging in e-commerce through the use of a server located in the United States and international tax planning options. Part Two also discusses the approaches of other tax authorities on whether a server constitutes a taxable presence.