Aussies discover regulatory arbitrage...

Robert Hettinga rah at
Thu Aug 28 23:23:43 PDT 1997

--- begin forwarded text

>From today's Australian Financial Review.

   ATO urges no Internet slug

          _By Hans van Leeuwen_

   The Australian Tax Office's attempt to tax electronic commerce should
   include no new taxes and as little extra red tape as possible,
   according to the recommendations of a major ATO report to be released

   The report, _Tax and the Internet_, urges close monitoring of some key
   industries with a growing Internet presence -- including computer
   software, news and information, recorded music, gambling, travel
   services and retail goods.

   But its emphasis is on creating a tax and regulatory environment that
   keeps the online industries in Australia, rather than driving them to
   more lenient tax jurisdictions.

   The report will be the basis for discussions with the information
   industry on how the ATO can prevent the undermining of the tax base by
   electronic commerce.

   The report said the ATO would need to tax and regulate the Internet
   only in concert with other countries if it was to encourage online
   businesses and industries in Australia.

   "As the Internet allows electronic payment system providers to locate
   their operations anywhere in the world, they might choose to flee a
   jurisdiction that unilaterally introduces a strong regulatory regime .
   . . Unilateral action may be more damaging than no action," the report

   But the tax base must be protected, with electronic commerce posing a
   significant threat in the longer term to the revenue base of many

   "There are not too many existing taxes worldwide that are not
   vulnerable," the Tax Commissioner, Mr Michael Carmody, said yesterday.

   The recommendations to strengthen the tax policing of the Internet
     * Numbers displayed on websites.
     * Licence commercial internet sites ("webshops") and webshop hosts.
     * Introduce denomination limits for electronic cash, like those
       already existing for physical cash.
     * Review the current wholesale sales tax categories, given that new
       products were being thrown up by the process of digitisation.

   But Mr Carmody ruled out introducing any taxes on data flows, such as
   a bit tax, in the short term.

   "We don't see major advantages to that at the moment. For Australia to
   jump immediately to a bit tax would just drive Australian business out
   of the country," he said.

   The report said electronic commerce threw up some tough challenges to
   tax administrations, including the difficulty in identifying the
   parties to an electronic transaction, the ability of cyber- businesses
   to store records offshore and encrypt them, and the removal of "middle
   men" -- such as wholesalers and brokers -- from the distribution
   process, who usually make the ATO's tracking of transactions easier.

   But Mr Carmody said the ATO would not be assuming that the reason
   businesses went online was to avoid tax.

   "It's just another medium of transacting business, which does not of
   itself say they're not going to meet their tax obligations," he said.
   "But there are concerns that the Internet opens up wider fields for
   those who are seeking to avoid their liabilities."


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--- end forwarded text

Robert Hettinga (rah at, Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
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