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    E-Commerce Taxation

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  • How do you tax profits made by a foreign company with no physical presence in the Netherlands that is selling goods to Dutch customers on the internet. The answer is: The Dutch tax authorities but also many other foreign tax authorities, do not know.

    The problem is that foreign companies are only subject to Dutch income tax if they have a so-called permanent establishment or branch office in the Netherlands. And since you only need a server somewhere in the world to sell goods on the internet, profits realized on sales in the Netherlands will escape Dutch taxation. And they may escape foreign taxation as well, if the required servers are established in a low tax jurisdiction. In other words, the Dutch but also the international tax system is not prepared for the internet let alone cloud computing.

    It is a major concern for many industrialized countries and frequently discussed in EU and OECD fora. New developments are expected, whereby levying withholding taxes on cross border internet sales is considered as one of the alternatives. Such withholding tax could be levied in combination with VAT, as for instance within the EU, sales of goods via the internet are subject to VAT in the jurisdiction where the customer resides. Such VAT is charged by the selling entity and paid to the local tax authorities. It is clear that we will not need to wait long for further developments.

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