Last month, the Journal reported on the difficulties states are facing in taxing transactions over the Internet. (See "Business Group Addresses On-line Nexus," JofA, Mar. 97, page 21, for details.) Of course, the Internet gives no more respect to international boundaries than to state boundaries, and the U.S. Treasury Department is beginning to address the same Internet taxation issues as the states, from a global perspective.
In November 1996, the Treasury released a discussion paper, Selected Tax Policy Implications of Global Electronic Commerce, which recognizes the radical changes the Internet is precipitating in international commerce. "Most of our concepts of international taxation are based on geographic principles," Bruce Cohen, an attorney adviser in the Treasury's Office of the International Tax Counsel, told the Journal. "But electronic commerce is beginning to render some of those traditional geographic considerations irrelevant."
Cohen said that a main goal of the Treasury was neutrality--companies doing business over the Internet should not pay more or less tax than their competitors doing business through traditional venues. However, because the Internet makes it difficult to trace the source of a transaction, there may be a move to more residence-based taxation. "Even with the Internet, you can determine where a company is incorporated," said Cohen, noting that U.S. tax treaties with other countries favor residence-based taxation. The paper says that, "almost all taxpayers are resident somewhere...and, at least under U.S. law, all corporations must be established under the...