Three things in life are inevitable: death, taxes and another saccharine-sweet prefab boy band selling billions of CDs to impressionable pre-teens.
For a while, it seemed, the Internet created a loophole for one of the three (sadly, not the last). The don’t-tax-e-commerce mantra is rooted in a few realistic arguments—some less superficial than others. Taxation will stifle the growth of e-commerce; nominal operation in low-tax havens will be able to undercut local businesses; the logistics of tracking and enforcing tax laws will be hairy, to say the least.
One has always struck me as particularly specious — that jurisdiction is unclear. Where does the transaction really take place? Who gets to tax what?
The answers are clear to anyone who has shopped in a region where taxes are shoveled on just about anything you can purchase—like, I dunno, let’s say Canada. Taxes are paid where the transaction is concluded—where the item changes hands. That’s no so nebulous in the world of online commerce as some would have you believe, especially in B2C commerce. When the book you order online is delivered to your door (or more likely in Canada, after you’ve gone to the post office and paid duty on it) , when it comes into your possession, that is where the transaction takes place. If the goods are electronic in nature—software, digital music files, e-books—the merchandise changes hands when the data takes up legal residence on your hard drive, which is in your computer, which is on your desk, which, I’m assuming, is in Canada. No jurisdictional mystery there.
And that’s what the European Union appears to be thinking. The EU is planning to tax goods sold to its populace by foreign companies. Value-added tax (VAT) is more or less a sales tax. Companies selling digital media over the Net — more than 100,000 euros ($140,000) a year’s worth, anyway — will have to register for VAT. They’ll collect it from paying customers and turn it over to the respective governments, which will then use it to build roads, bridges and stadiums for boy bands to play in.
Logistically speaking, it’s not clear how this will be enforced. But the point is, the EU is making the effort to prevent the erosion of its tax bases. There hasn’t been much noise on this front in North American jurisdictions, and I wonder if the deafening silence will continue.
The EU’s influence shouldn’t be underestimated. When the region declared that online businesses had to live up to particular privacy protection standards if they wanted to sell to customers who lived there, Canada’s policy mirrored the EU’s in rather short order. So is this first flake in a flurry of tax policy statements?
Canadian governments love their taxes, and rightly so—boggling inefficiencies aside, taxes support the quality of living that we enjoy as Canadians. So how long will it be before our feds start making similar noises? My bet, less than eight months.