Taxation Of Value-Added Tax (VAT) On E-Commerceand Its Legislation Research

The various differences existing between E-Commerce and traditional trade exclude E-commerce out of Chinese current legislation system of VAT. This dissertation discusses the impact of E-Commerce to Chinese current taxation legislation system, and proposes the legislative principle of E-Commerce VAT in China, based on the framework proposal proposed by OECD, and by referencing the specific system and measurement of taxation of E-Commerce VAT in some countries and areas internationally. It mainly includes three parts:The first part, according to circumstance of E-Commerce development, combined with the characteristics and basic features of Chinese current VAT taxation, discusses the impact of E-Commerce to Chinese current taxation legislation system.E-Commerce essentially is the electronization of the traditional trade process. It can be divided into three classical operational modes: Business-to-Business (B2B), Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C). According to different trade subject, E-Commerce can be divided into two main types: indirect E-Commerce and direct E-Commerce.The object of indirect E-Commerce is tangible property. Direct E-Commerce involves digitalized products, with its whole dealing process accomplished online. It has the greatest impact on VAT legislation system, due to the great differences of the means in agreement and transportation between the direct E-Commerce and traditional trade. Although E-Commerce in China starts late, but developing quickly. Online trade volume of 553.1 billion RMB has been accomplished for E-Commerce in China in 2005, with proportion up to 71.30% of consuming and shopping online by netizens, embracing a huge potential E-Commerce market.In 1994, reform of the system of VAT had been taken in China, carried out generalized imposition, expanded the levying scope, reformed the tax-payers' structure and reduced the tax rates. VAT is the largest tax in China's tax system.The E-Commerce characteristics of virtualty, paperless and addressless all make the impacts on current taxation principles of equality, neutrality and efficiency. E-Commerce also caused the uncertainty of levying subject with respect to taxation management, the difficulty to define the taxation object, the difficulty to check and investigate due to paperless operation, the traditional checking and investigation lessened even negated by electronic monetary, and the difficulty of impact of import/export VAT posed by the undetermined transnational trade.As far as the international taxation as concerned, E-Commerce causes impact to sovereignty of state taxation and the concept of well-established organizations, and might lead to the issues of international tax evading.The second part compared the specific systems and measurements in some international countries and areas on E-Commerce taxation, introduced the framework proposal proposed by OECD.The taxation difficulty caused by the development of E-Commerce has drawn great attention upon many countries and international organizations all of which are actively seeking proper tax law system to accommodate the new situation of E-Commerce development.Although new tax categary is proposed by some experts, various countries and relevant international organizations give a modest response, all inclining to levy on E-Commerce based on current tax law. The US federal government has constantly advocating tax-free of Internet in order to keep its advantage on E-Commerce. However, since the different states have different opinions on E-Commerce taxation domestically, the US congress passes《Internet Tax Freedom Act, ITFA》to prevent states from doing their own. Different with US, EU deems taxation should be imposed based on current tax law system, in order to keep the roughly balance of E-Commerce and traditional trade with regard to taxation negation, and define the legal nature of the digitalized products as supply of service, to guarantee the development of E-Commerce. After holding three international conferences, OECD proposed that E-Commerce taxation should obey the basic principles of neutrality, efficiency, certainty and simplicy, effectiveness and fairness and flexibility, and provide four policies as references to member countries, e.g. self-assessment system, registration of non-registration, tax at source and transfer, and withholding by financial institutions. In Asia, Singapore government accommodates E-Commerce into traditional taxation principles; whereas Japan regards it necessary to develop the proper taxation on E-Commerce with its own method; Taiwan region of China proposed the policy framework to impose E-Commerce VAT.The third part proposed the legislative principle of imposition of E-Commerce VAT in China.According to China《Constitution》and relevant legislative regulations, in order to guarantee the sustainable and healthy development of China economy, with Chinese Government declaration on taxation of E-Commerce, and the legislative practices of various countries in the world, and the position held proposed by relevant international organization, China should levy tax on E-Commerce. And should legislate E-Commerce taxation under the guidance of the framework of, maintaining state taxation sovereignty, taxation equality, taxation neutrality, proper discount, and efficiency and conveniency, make E-Commerce taxation has law to follow, in order to guarantee the healthy and orderly development of E-Commerce in China.E-Commerce taxation legislation in China can be proceeded with reforming current VAT system. In order to meet the demand that the productive forces continue to develop, current production VAT in China should be gradually transformed into consumption VAT. And the VAT taxation scope in China should be expanded to all fields leading to value-added commodities and labor trading, to keep equal taxation negation for all subjects pursuing the same kind of economic activity, to prevent improper trading behavior due to taxation, to improve VAT formative management.Based on this, improve the tax administration of E-Commerce. Firstly, the rules on E-Commerce should be added to current tax law system, redefine the connotation and scope of taxation elements such as taxation subject, levying scope, imposing object and location etc., within the circumstance of E-Commerce, complement the regulations on relevant E-Bank definition, the management and use of electronic proofs etc. Further regulate the obligations and rights of all parties involved in E-commerce VAT taxation. Secondly, divide E-Commerce taxation object, define the legal nature of the digitalized products as VAT taxable service, in order to enlist all products and services involved in E-Commerce into the VAT taxation scope, undifferentiate the property of trading business, and prevent taxation process from being disorder. Thirdly, establish the authority of E-Commerce taxation, with indirect E-Commerce covered under the current VAT tax law system; whereas with direct E-Commerce adopting the destination principle due to Internet's boundlessness. Fourthly, in order to impose VAT better, the concept "branch" in Chinese current tax law system should be replaced by "permanent establishment", in order to determine the tax payers. Fifthly, levying method of E-Commerce VAT can adopt the "self-assessment system", or set up independent E-Commerce taxation management system. Sixthly, the unique discount tax rate shall be applied to E-Commerce, in order to guarantee the development of E-Commerce in China.In summary, to respond the challenge on current tax law caused by E-Commerce, China shall not give up the taxation rights on E-Commerce. Instead, E-Commerce VAT law system shall be improved upon the basis of current VAT taxation law system according to China's situation.