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Some commentator describes the process of applying current treaty notions to electronic commerce as the story of Cinderella, trying various shoes on one foot. But what if the foot is what the shoe makers did not envisage? Current PE rule is designed in a traditional environment and attaches great importance to physical presence such as place of business and agents. The strong market penetration effects of electronic commerce are not what it has or ought to have contemplated.
In view of the ineffectiveness of PE rule in the electronic commerce context, international communities have proposed a variety of policy options to address this issue. Depending on the extent to which these policy options deviate from the existing PE rule, they are classified as revolutionary or conservative. Revolutionary approaches include new taxes such as BIT tax advocated by Canadian tax expert A.Cordell, withholding tax proposal by R L Doernberg and the so called abandonment of PE. In contrast, some commentators are rather conservative in even proposing a possible solution to this problem. To them, good taxes are old taxes. A status quo or hands-off approach would be the best way to deal with the challenges by international electronic commerce which merely represents the natural evolution of conventional channels to conduct business. A compromise between these two extremes, namely virtual PE, is advocated by Professor L.Hinnekens, Unversity of Antwerp.
Not surprisingly, current discussion mainly focuses on the determination of PE in the electronic context. The profit allocation issues are mentioned only incidentally. Sine the profits allocation issues arise only if and when a PE is found to exist, which rarely occurs in an electronic environment.
III. OECD as international forum in the taxation of electronic commerce
(i) The appropriate forum to address the challenges
OECD has been playing an important role in the process of re-evaluation and monitoring of the current international business with a view to establishing a tax framework that enables such business to develop to its full potential while protecting the tax revenue basis of the concerned States. It offers the appropriate forum in conjunction with the contribution of other international organization such as European Community to coordinate government response to this tax challenge.
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