OECD faces taxing issues on Internet

Date: 01/10/1998

By Peter Chapman

MINISTERS from some of the world's richest countries will meet in Ottawa next week to dot the 'i's and cross the 't's on the closest thing yet to a global trade rulebook for electronic commerce.

Most of the 29 members of the Paris-based Organisation for Economic Cooperation and Development (OECD) got rich the old-fashioned way by selling products such as machines, wine, cloth, wheat and, until the last century, slaves.

When they assemble in the Canadian capital next Wednesday (7 October) for a key three-day meeting, their mission will be to ensure that they keep the trade train on the rails as the Internet begins to replace traditional methods of buying and selling.

The discussion itself is unlikely to generate much excitement. Diplomats from all sides predict a soporific gathering, with lots of pre-cooked oratory from ministers. Behind the scenes, the technocrats complain that the more high-level such meetings are, the less meaningful the debate on hi-tech issues about which ministers usually know little.

But this will all be forgotten afterwards if, as expected, the OECD lays the foundations for a sensible regime which does not stifle the huge potential for growth that cyber-trade offers.

The Ottawa agenda is topped by a series of 'ministerial declarations' on four key electronic commerce issues: data protection, authentication, tax and the Internet, and consumers' rights. These will be accompanied by concrete recommendations for action or plans for further work to be carried out by OECD experts or similar organisations.

The EU already has detailed legislation in place governing data protection, with a directive adapting its existing laws to take account of the online world due to come into force on 24 October.

The Union has also published proposals on electronic signatures and 'authentication' which would allow electronic signatures to be given the same legal recognition as handwritten ones, giving a boost to online trade.

At the same time, the EU has issued its own policy guidelines on 'authentication'. These support industry schemes to develop technology which verifies the identity of buyers and sellers on the Internet, in order to build trust in online trade.

European Commission trade negotiators point out that the OECD declarations will not overtake EU work in these areas. What they will do is add to the list of countries which openly support the basic liberal principles which trade blocs such as the EU and US have already agreed for themselves.

"The declarations are a bit of a compromise. They are not squarely like the EU's own proposals, but they are all broadly in line with EC legislation, proposals from the Commission, or positions of the Council of Ministers," said one.

Of these four key issues, taxation is the area where governments can do most to influence online business, and where most attention will be focused at Ottawa.

EU finance ministers have already thrashed out an agreement between themselves on the principles which will govern the Union's approach but, unlike on data protection and authenticity, concrete proposals have yet to be put forward.

OECD ministers are expected to sign up to the basic principle that there should be no new taxes for the Internet - it should be tax neutral, should not be accorded special status and should not be used as a test bed for clever new fiscal devices. This, they hope, will lay to rest the ghost of the 'bit' tax which some academics were proposing as a replacement for lost tax revenues as trade flows disappeared into the ether of cyberspace.

But while online trade will not be given special treatment, this does not rule out the possibility that governments will decide to exempt certain goods from existing customs duties.

Many countries, such as the US, appear to be in favour of allowing goods which can be delivered directly online to their end-user, such as computer software, pictures and music, to be sold duty-free.

Technical issues to be tackled include the question of whether value added tax should be levied in the country where products are consumed, as the EU argues, or where they came from. The Union's view is likely to prevail, although technical discussions on this and other issues will continue after Ottawa has laid down the political guidelines which expert officials will have to follow.

On consumer protection, the OECD has changed its position to avoid a possible conflict with the EU.

"They originally wanted to have some guidelines about what level of protection consumers should have. These said the place in which the consumer is should determine the laws that are applicable," said one Commission trade negotiator, who added that the rules originally proposed would have conflicted with existing EU legislation on distance selling which gives customers a cooling off period.

"All the declaration now says is that there should be some guidelines on consumer protection drawn up during 1999," she said.

The online industry is hopeful that the OECD declarations, while only representing the voices of the organisation's 29 members, will set the scene for a liberal world regime for electronic commerce.

Alastair Tempest, EU affairs director of the European direct marketing lobby FEDMA, sees the organisation's role as crucial.

"We are very keen that they have a successful meeting, and we are sure that they will. There are really only two bodies, the OECD and the World Trade Organisation, that could deal with these issues," he said.

"People are looking at the WTO and saying that maybe that is the solution for setting the principles of electronic commerce. But it is not set up to do that sort of thing."

Tempest points out that the WTO's role is to agree and then police detailed global trade rules, rather than to decide the basic logic behind those rules in the first place. "For the moment, the OECD is the only organisation where this can be done," he said.

Industry Commissioner Martin Bangemann is also expected to use next week's meeting as a platform to repeat his call for greater cooperation among different fora working on electronic commerce issues.

Bangemann's original plan for a global information technology charter has given way to a looser 'global business dialogue' where firms interested in electronic commerce meet to flag issues which need to be resolved by one or more of the organisations such as the OECD and WTO.

Tempest hopes Bangemann's idea will be given fresh momentum by the Ottawa meeting, as members give their approval to his efforts and business delegates voice their support for the plan.

"It would be nice to see the global business dialogue get off the ground, and maybe that will take place in Ottawa," he said.

Report of OECD Ministerial Meeting, Ottawa, 7-9.10.98 to discuss electronic commerce and the need for rules.