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- Taxation of Offshore E-commerce
- Regulation of Offshore E-commerce
- Offshore E-commerce Facilities
- Offshore Professional and Financial Services

Of all the products that can take advantage of offshore e-commerce, those that can be put into digital form are probably the most ideal.

Subject only to the technology constraints, a rather wide range of products and services are suited to digital, and thus, offshore, distribution. A partial list includes:

  • Computer software
  • Music, video, images
  • Booking services (eg for travel)
  • Publications including books, magazines, newspapers, directories
  • Betting and gambling
  • Professional services
  • Training courses


For any of these products and services, it used to be clearly feasible to supply a customer in a high-tax area without incurring any local import duties, VAT or sales taxes, when these might apply. However, national governments (and, of course the European Union) have to some extent put the kibosh on this- see below for details of the EU legislation in question.

The situation regarding corporation (income) tax is often clearer for an offshore business: profits made in an offshore jurisdiction will be untaxed or very lightly taxed, so long as the offshore trading entity itself is not a controlled subsidiary of a company resident in a high-tax area. (See our Tax Law section for a detailed description of the taxation of e-commerce).

Music is perhaps the quintessential digital product, and the one for which the most progress has been made towards a digital future. The Mp3, and several other formats, allow music to be stored, downloaded and played in digital form.

For a while, it seemed that the technology had bypassed the legal framework of intellectual property and copyright laws and conventions which govern the commercial distribution of music; in particular, it appeared to have bypassed the established record companies and offers independent producers and artists a means of direct distribution.

Programs such as Napster, which allowed the exchange of high-quality music files between music consumers computers gave rise in the early Noughties to alarmingly rapid growth in illicit, or anyway, free copying of music. After hoping for some time that these problems would go away, the record companies faced up to the inevitable and tried to suppress Napster through the courts, a drive which was ultimately successful, and resulted in Napster relaunching itself as a legitimate - ie paid for - file download service in late 2003.


The EU's Digital Supplies VAT Directive

Council Directive 2002/38/EC, in force from 1st July 2003, changed the EU rules for charging Value Added Tax (VAT) on the supply over electronic networks (i.e. digital delivery) of software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, entertainment or similar services. These services are now taxed in the country where the customer resides rather than where the supplier is located.

For the purpose of the Directive, the services concerned are defined as "electronic services" or "electronically supplied services". The changes in their tax treatment will eliminate a long-standing competitive distortion by ensuring that both non-EU suppliers and EU suppliers are subject to the same VAT rules when they are providing electronic services to EU customers.

From 1st July 2003, EU suppliers were no longer obliged to charge European VAT when selling on markets outside the EU.

From the introduction of the legislation, when a non-EU supplier sells to business customers in the Union (at least 90% of this market), there is in practice no change, and the VAT implications will be handled by the acquiring company in the EU under self-assessment arrangements.

For the non-EU supplier whose EU customers are non-business individuals or organisations, from July 2003 there has been an obligation to charge and account for VAT on these sales just as EU suppliers have to do.

The Commission claimed at the time of introduction that the taxation framework contained a number of elements designed to make the operation of the tax as simple as possible and, in particular, to ensure that it is not disruptive or onerous for suppliers of digital services.

Although the Directive created differences in treatment between different categories of businesses, the Commission said that this did not amount to discriminatory treatment, and that the Directive is fully consistent with WTO obligations on non-discrimination.

OFFSHORE E-COMMERCE APPLICATIONS

- Physical Sales and Distribution - Offshore opportunities for marketing, sales and distribution to consumers and businesses.
- Digital Sales and Distribution - Offshore opportunities for marketing, sales and delivery to consumers and businesses.
- Offshore Banking and Financial Services - Offshore opportunities for marketing and sales of financial products and investment management.
- Offshore Corporate Functions - Opportunities for corporations to locate core functions offshore.


 

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