Tax characterisations of e-commerce transactions

The following tax treaty income characterisation issues were identified by the OECD working party dedicated to this matter:

  1. Business profits and payments for the use of, or the right to use, a copyright.
  2. Business profits and payments for know-how.
  3. Business profits and payments for the use of, or the right to use, industrial, commercial or scientific equipment.
  4. Provision of services.
  5. Technical fees.
  6. Mixed payments.

For further information regarding each of the categories above please refer to the links below.

  • Business profits and payments for the use of / right to use a copyright

    One of the most important characterisation issues arising from e-commerce was the distinction between business profits and the part of the treaty definition of “royalties” that deals with payments for the use of, or the right to use, a copyright.  Since the definition of royalties applies to “payments for” any of the various items listed [...]

  • Business profits and payments for know-how

    In some e-commerce transactions involving know-how payments it is necessary to distinguish whether the consideration for a payment is the provision of services or the provision of know-how (e.g, information concerning industrial, commercial or scientific experience). Essential hallmarks of “know-how” transactions include: “undivulged technical information that is necessary for the industrial reproduction of a product or process……..”; imparting of [...]

  • Business profits and payments for the use of/right to use industrial, commercial or scientific equipment

    The income characterisation issues could arise over the classification of income relating to digital or physical products. Digital products Payments could arise from time-limited use of digital products such as limited duration software and digital information licences. Payments for such digital products are generally not considered as payments for “for the use of, or the right to use, [...]

  • Provision of services

    It is important to distinguish between transactions involving the provision of services and transactions resulting in the acquisition of property. The basic element in the distinction is whether the consideration for the payment is the acquisition of property from the provider.  If the customer owns the relevant property after the transaction, but the property was not [...]

  • Technical fees: tax issues

    The term “technical fees” means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any service of a technical, managerial or consultancy nature. Technical services Services are of a technical nature when special skills or knowledge related to a technical field are required for the [...]

  • Mixed payments: tax issues

    Many e-commerce transactions involved payments for a mix of services or were mixed contracts.  It is generally accepted that the tax treatment followed the consideration for the predominant element of the transaction rather than breaking the transaction up into all the constituent parts where the other elements of the transaction were only incidental or ancillary [...]