Taxing e-bay!

What would you think if your tax authority started taxing income derived from sales in e-auctions, like the famous e-bay? This is closer to reality than you imagine. According to a recent Associated Press story the IRS May Consider eBay Sales Taxable Income.

This may suggest that with regards to the discussion about “e-taxation” we are certainly not at the beginning of the end, but that we are, perhaps, at the end of the beginning. In fact, Richard M. Bird, published recently in the BIFD an article called Taxing Electronic Commerce: The End of the Beginning? Which gives some useful insights into the current unfinished discussion.

According to Richard Bird, “to date, most of the discussion on income taxes has focused on three problems: How can we attribute income arising in “cyberspace” to a particular jurisdiction?, How can we characterize such income?, and most importantly, How can it be taxed? One way to deal with these problems may be to reduce the importance presently attached to the characterization of income in determining its tax burden. Under present conditions, distinguishing between a “royalty”, a “service fee”, “interest”, “dividends” and “management fees” is often an exercise in futility, with the best lawyer and accounting firm winning. Nonetheless, considerable attention has been paid, notably in the OECD working groups, to such issues, in part simply because that is now how these things are generally done. For example, some forms of income have been characterized as profits (e.g. web site hosting and online auctions) and some as royalties (e.g. downloading with the right of reproduction). The importance of this distinction is that profits are, under existing rules, primarily subject to tax in the country of source, while royalties are taxed in the country of residence (although sometimes subject to source withholding)”.