Tax analysis of e-Commerce transactions

We have tabulated below some categories of typical e-commerce transactions and their tax implications.  The list is not intended to be exhaustive.  We have provided examples for a few categories by giving a brief outline of a typical transaction scenario and then discussing the direct tax implications.  If you are interested in knowing the tax consequences of any of the stated categories or indeed of other e-commerce transactions not on the list please contact us.  We will be pleased to discuss both the direct and indirect tax implications of e-commerce or internet transactions.

Category of e-Commerce transactionScenarioTax analysis
  • Electronic order & processing of tangible or “physical” products
Buyer selects  & orders physical goods from an online catalogue/website. Goods delivered by mail/courier. No charge for using catalogue/website.The income from such sales is “business profits” in the hands of the retailer as the sale does not involve use of copyright.
  • Electronic order & download of digital products
Buyer selects & downloads software from website onto a hard disc or other mediaIs income “business profits” or “royalties” connected with payments for the use of or right to use a copyright?  Business income not royalty as payment is for personal use
  • Digital products downloaded for purposes of sale
Buyer downloads the product onto a hard disc or other media and acquires the right to commercially exploit the copyright in the productThe income is a “royalty” as the payment is for the right to use the copyright in the digital product
  • Updates and add-ons
Seller agrees to provide buyer with updates and add-ons to digital product.  No agreement to produce updates or add-ons specifically for a given customerWhether delivered on a tangible medium or electronically the income from transaction is business profits.
  • Limited duration software & other digital information licenses
For the categories below please contact us for detailsFor the categories below please contact us for details
  • Single-use software or other digital product
  • Application hosting – separate license
  • Application hosting – bundled contract
  • Application Service Provider (ASP)
  • ASP License fees
  • Web site hosting
  • Software maintenance
  • Data warehousing
  • Customer support over network
  • Data retrieval
  • Delivery of exclusive or high-value data
  • Online advertising
  • Electronic access to professional advice / consultancy
  • Technical information
  • Information delivery
  • Access to interactive website
  • Online shopping portals
  • Online auctions
  • Sales affiliates or referral programs
  • Content acquisition
  • Streamed web broadcasting


  • Carriage fees
  • Subscription to website allowing downloading of digital products