 Third Meeting:
Transcript of December 14 1999 ADVISORY COMMISSION ON ELECTRONIC COMMERCE
THIRD MEETING
Westin St. Francis Hotel
San Francisco, California
Tuesday, December 14, 1999
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1 PARTICIPANTS:
2 JAMES S. GILMORE, III
3 JOSEPH H. GUTTENTAG
4 RON KIRK
5 JOHN W. SIDGMORE
6 MICHAEL O. LEAVITT
7 THEODORE WAITT
8 GARY LOCKE
9 DAVID POTTRUCK
10 DELNA JONES
11 RICHARD PARSONS
12 DEAN F. ANDAL
13 PAUL C. HARRIS, SR.
14 GROVER NORQUIST
15 GENE L. LEBRUN
16 ANDREW PINCUS
17 STAN SOKUL
18 ROBERT NOVICK
19 ANDREW MARSLAND
20 MICHEL AUJEAN
21 FRED SMITH
22 CHRIS WYSOCKI
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1 PARTICIPANTS (CONT'D)
2 ADAM THIERER
3 STACEY L. SPRINKLE
4 KEITH LANDRY
5 JOHN MORABITO
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1 P R O C E E D I N G S
2 (1:05 p.m.)
3 CHAIRMAN GILMORE: Good afternoon,
4 ladies and gentlemen, and welcome to the
5 third meeting of the Advisory Commission on
6 Electronic Commerce. I'm Governor Jim
7 Gilmore of Virginia, the chairman of the
8 Commission, and I would like to call the
9 meeting to order.
10 I would like to remind everyone
11 that this meeting is open to the public and
12 is being Webcast over the Internet and can be
13 viewed on our Web site. I also want to
14 welcome C-SPAN and all C-SPAN viewers who are
15 here with us today watching these proceedings
16 in the third meeting of the Advisory
17 Commission.
18 Our Web site where this is being
19 cast is www.ecommercecommission.org --
20 www.ecommercecommission.org.
21 Now, I want everybody to know that
22 this is my second day in California.
5
1 Yesterday I was in Santa Monica, where I was
2 chairing the National Advisory Commission on
3 Terrorism and Weapons of Mass Destruction.
4 So I thought it was a good tune-up for
5 chairing this meeting here today, although I
6 think that we can expect a pretty friendly
7 exchange and a lot of information from all of
8 us.
9 One good thing is that the
10 Commissioners, I think, at this point have
11 had an opportunity to get to know each other
12 a little bit and work together. So I'm
13 confident that we're going to have a very
14 productive meeting and discussion.
15 Now, just a bit of the history for
16 those who are tuning in for the first time.
17 This is the third meeting of the Advisory
18 Commission on Electronic Commerce. The
19 Commission was established by Congress to
20 study the array of taxes on the Internet in
21 electronic commerce.
22 In two prior meetings, the
6
1 Commission has covered an awful lot of
2 ground. We discussed many of the tax issues,
3 from international taxes and tariffs on
4 electronic commerce, to telephone taxes, and
5 the sales tax. In the process, we've heard
6 testimony from more than 30 organizations and
7 experts.
8 In the last meeting in New York, I
9 was encouraged by the Commission's ability to
10 come to a consensus on some of the policy
11 recommendations. We agreed that there should
12 be no international taxes or tariffs on
13 electronic commerce conducted over the
14 Internet, although that anticipates some of
15 the discussions that we are going to have
16 today on this issue.
17 From discussions with other
18 Commissioners at the meeting, it's my sense
19 that there may be some other areas of
20 consensus as well that we will be able to
21 reach. Like closing, for example, the
22 digital divide, reducing regressive telephone
7
1 taxes, eliminating taxes on Internet access.
2 These may be places where consensus can
3 emerge, while the application of sales taxes,
4 to the sale of goods and services over the
5 Internet, continues to present some
6 disagreement.
7 I'm hopeful that our conversations
8 here in San Francisco will help us to define
9 further areas of consensus and refine areas
10 where we might disagree.
11 As we continue to move towards our
12 requirement, to submit recommendations to
13 Congress by the end of April 2000, we have
14 two more meetings, this one and a final
15 meeting in Dallas on March 20th and 21st.
16 My intention is to follow the work
17 plan crafted by Mr. Pottruck, David Pottruck
18 of Charles Schwab, and to accommodate the
19 presentations of the proposals that have been
20 submitted to the Commission pursuant to
21 Governor Mike Leavitt of Utah's motion, that
22 he made in New York, which was adopted.
8
1 Let me point out to everyone who is
2 on the Commission that as we have established
3 the agenda, we have accommodated each
4 Commissioner's requests for the agenda,
5 leaving nothing behind. We've incorporated
6 all recommendations and requests into the
7 agenda.
8 So with that objective, let me walk
9 through the agenda for today and tomorrow for
10 the members of the Commission so we can get a
11 road map of where we are going. First, we
12 explore the issues of international taxes and
13 tariffs and the impact of taxes or tariffs on
14 transactions facilitated by the Internet on
15 U.S. companies' global competitiveness.
16 Following that discussion, the bulk
17 of the meeting for today and tomorrow will
18 focus on presentations of the proposals which
19 members of the public have submitted to the
20 Commission and discussion among the
21 Commissioners. Toward the end of the day
22 tomorrow, we will spend a considerable amount
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1 of time discussing the proposals we have
2 heard and the information that will be
3 contained and the question of whether or not
4 there's anything we wish to alter as a result
5 of the information we're receiving today and
6 tomorrow. And we will review the policy
7 options outlined in the issues and options
8 paper drafted by the report drafting
9 subcommittee.
10 It is not my intention to call for
11 votes on those policy options at this
12 meeting, although there may be some sense of
13 consensus, either for or against some issues
14 that emerge from our deliberations. But on
15 closer questions, it's not my plan to call
16 for votes on these policy options. But the
17 work plan does call for us to have an open
18 discussion on those options and all of those
19 issues that all of you have in the issues and
20 policy paper.
21 We also will take up several
22 resolutions offered by Commissioner Norquist,
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1 and then close tomorrow's meeting by
2 addressing some of the administrative matters
3 as well. Without objection, the agenda will
4 be adopted and then we will proceed.
5 First, then, I would like to
6 introduce our first group of speakers. The
7 first group begins with Mr. Andrew Marsland, I
8 believe -- is that correct, Mr. Marsland? --
9 of the OECD, the Organization of Economic
10 Cooperation and Development; Mr. Michel
11 Aujean of the European Union; and Mr. Fred
12 Smith of the Competitive Enterprise
13 Institute.
14 Now, following these presentations,
15 I will call on two members of the Commission:
16 Commissioner Robert Novick, to update the
17 Commission on the activities of the World
18 Trade Organization, pursuant to the agenda,
19 and Commissioner Joe Guttentag, to update us
20 on the U.S. involvement in the EU and the
21 Organization of Economic Cooperation and
22 Development. At the conclusion of the panel
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1 presentations, so everyone has their
2 opportunity to do that, then we will have
3 questions from the Commissioners.
4 Gentlemen, each of you has been
5 designated 10 minutes. If you could help us
6 with that and keep your comments in that
7 amount of time, it would be appreciated,
8 because we do have a fairly tight timetable
9 for the next two days.
10 Mr. Marsland, please begin. Thank
11 you.
12 MR. MARSLAND: Thank you, Mr.
13 Chairman.
14 Mr. Chairman and members of the
15 Advisory Commission, on behalf of the
16 Secretaries of the OECD, I'd like to thank
17 you for this opportunity to appear before you
18 today and to inform you about the work at the
19 OECD in relation to taxation questions
20 touching on electronic commerce.
21 The OECD's work in this field is
22 just one part of a comprehensive program
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1 aimed more generally at encouraging the
2 positive developments of the information
3 society and of E-commerce. The program
4 includes work to foster a stable and
5 predictable regulatory environment, to
6 promote the enhancement of the information
7 infrastructure and access to the
8 infrastructure, and to address constructively
9 such issues as consumer protection privacy.
10 In terms of taxation, the OECD is
11 fulfilling a well-established role in
12 relation to the international taxation issues
13 by helping to coordinate the examination of
14 these issues. Recognizing that electronic
15 commerce is a global issue, the OECD has very
16 deliberately sought to involve both business
17 and non-OECD member economies in a
18 comprehensive dialogue.
19 The input of business is recognized
20 as especially important. Whatever
21 governments decide to do, it must take
22 account of the realities of the business
13
1 world and must ensure that taxation
2 provisions operate in such a way as to
3 minimize the compliance burden on business.
4 Equally, the involvement of nonmember
5 counties in Latin America, in Asia and in
6 Eastern Europe is a vital part of identifying
7 and pursuing options which are as far as
8 possible capable of global amplification.
9 The overall objective lies in
10 achieving a fiscal climate within which
11 E-commerce can flourish, but which at the
12 same time protects the revenue base.
13 It's important to point out that
14 OECD does not make laws in relation to
15 international taxation matters. Rather, it
16 provides a forum and mechanism for debate and
17 helps when necessary to establish certain
18 norms.
19 An important example of such a norm
20 is the OECD model tax convention, which
21 serves as a basis for a very large number of
22 bilateral tax treaties dealing with the
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1 taxation of the income and capital. Against
2 this background, then, the international
3 community selected the OECD to take the lead
4 in the examination of taxation implications
5 of electronic commerce in the international
6 context, and to work towards international
7 consensus on what should be done, either to
8 adapt existing tax norms or to develop new
9 ones. Of course, in the field of indirect
10 taxation, the European Commission plays an
11 important role in Europe and, therefore, the
12 OECD is working closely with the Commission
13 on this.
14 All 29 OECD countries are actually
15 involved in this process. As I mentioned,
16 nonmember countries, and in particular,
17 businesses are being drawn into it. In
18 practice, this is managed through the
19 establishment of five technical advisory
20 groups looking at issues from technology to
21 the practical detail of how consumption tax
22 systems will be applied in practice. Each of
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1 the groups has 20 or so members with a
2 majority from the business community.
3 The core starting point of the
4 OECD's work in this area lies in the taxation
5 framework conditions, which were endorsed by
6 OECD Ministers and in Ottawa in October '98.
7 These key principles already represent, in
8 effect, an important international consensus
9 which has gained acceptance beyond OECD
10 states. For example, they were welcomed by
11 APEC finance ministers in May of this year
12 and have been noted with interest by a number
13 of regional organizations.
14 The framework conditions include a
15 number of key conclusions, including -- and
16 importantly -- that the same principles that
17 governments apply to the taxation of
18 conventional commerce should equally apply to
19 E-commerce: Namely, neutrality, and that
20 taxation should seek to be neutral and
21 equitable between forms of E-commerce and
22 between E-commerce and conventional commerce,
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1 so avoiding double taxation and unintentional
2 non-taxation.
3 Efficiency in the compliance cost
4 of business and administration costs to
5 government should be minimized as far as
6 possible. Certainty and simplicity in the
7 tax rules should be clear and simple to
8 understand. Effectiveness and fairness, in
9 that taxation should produce the right amount
10 of tax at the right time and avoidance and
11 evasion should be as far as possible
12 minimized.
13 And, finally, flexibility, in that
14 the taxation system should be flexible and
15 dynamic and ready to adapt and keep pace with
16 technological and commercial change. The
17 firmer conditions noted that these principles
18 can be applied through existing tax rules,
19 and that any new or revised administrative
20 measures should be directed towards the
21 application of existing mechanisms and should
22 not be intended to impose a discriminatory
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1 tax treatment on electronic commerce.
2 The conditions also noted that the
3 technologies underlying electronic commerce
4 offer significant opportunities for improved
5 taxpayer service which government should
6 actively pursue. And finally, that the
7 process of putting flesh on these principles
8 should involve intensified dialogue with
9 business, with non-business taxpayer groups,
10 and with non-OECD countries.
11 It's worth stressing the important
12 distinction between tariffs and taxes.
13 Internationally, there's world consensus
14 amongst developed countries that tariffs
15 should not apply to electronic commerce
16 services, and it reflects in large part the
17 status quo. The taxes whether direct or
18 indirect are an entirely different matter.
19 In effect, tariff-free does not equal
20 tax-free.
21 The work program at the OECD has
22 three broad components in relation to
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1 consumption taxes, -- sorry,
2 international direct tax rules, and tax
3 administration. The first thing in respect
4 to consumption taxes, it's worth noting that
5 28 out of 29 member countries of the OECD
6 operate a national consumption tax system,
7 such as a evaluated tax or a goods and
8 services tax.
9 Such systems are generally
10 comprehensive in scope, applying in principle
11 to all goods and services, subject to certain
12 release that are usually very narrowly --
13 narrowly defined. Consumption taxes account
14 for a significant part of the revenue yield
15 in these OECD countries. In this context,
16 the OECD that work in consumption taxes is
17 examining how the principles agreed to at
18 Ottawa, the framework conditions for the
19 treatment of international transactions, can
20 be translated into practice.
21 The principles in relation to
22 consumption tax were that rules for
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1 consumption taxation of cross-border
2 transactions shall result in taxation and the
3 jurisdiction where consumption takes place,
4 thus avoiding double taxation and
5 unintentional non-taxation. For the supply
6 of digital products should not be treated as
7 the supplies of goods for consumption tax
8 purposes. For the cross-border,
9 business-to-business transactions of
10 intangible services, self-assessment
11 collection mechanisms or direct-payment
12 mechanisms are a viable means of safe
13 guarding revenues.
14 And finally, the countries should
15 ensure that appropriate systems are in place
16 to collect tax on the importation of physical
17 goods, and that such systems should support
18 efficient delivery of goods to consumers.
19 As a basic principle, then,
20 electronic commerce transactions already fall
21 to be taxed under consumption tax systems in
22 common with their conventional commerce
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1 counterparts.
2 So what is at issue, really,
3 especially for international transactions, is
4 whether the rules provide for the desired
5 outcome -- that is, taxation in the place of
6 consumption -- and then how should such rules
7 apply in practice. This is the main focus of
8 the OECD work at the debate going on at the
9 OECD.
10 The choice of consumption principle
11 already works quite readily in many instances
12 for international transactions. For example,
13 imported goods are subject to -- generally to
14 consumption taxes when they enter a country.
15 But of course the picture gets less clear
16 when you look at services. Following through
17 the logic of taxation in place of
18 consumption, online transactions of digitized
19 products should be subject to consumption
20 taxes in the country of the customer. But
21 the challenge lies in identifying clear and
22 practical arrangements to make that happen.
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1 Most business-to-business
2 transactions can be probably be administered
3 under a self-assessment system. It's the
4 sales to private consumers, especially of
5 digitized products, that present a particular
6 challenge. And it's in this field that the
7 primary, although not exclusive, focus of the
8 OECD work in consumption taxes is focusing.
9 Currently this work is examining
10 how the principle of taxation at place of
11 consumption should operate in practice. How
12 will consumption in the case of a private
13 consumer be established? And how will that
14 be determined in the real time, online
15 environment?
16 Linked to that set of questions is
17 how tax that is due should be calculated and
18 paid over. In terms of direct taxes, the
19 work is looking at the extent to which
20 E-commerce can impact some on existing
21 principles of international direct taxation.
22 These principles are widely accepted and are
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1 reflected in large part in the extensive
2 network of bilateral tax conventions.
3 One important issue in this area is
4 the application of E-commerce -- the existing
5 principles for taxing business profits which
6 are based on the concept of permanent
7 establishment. The OECD recently issued a
8 document that it seeks to clarify how the
9 existing definition of permanent
10 establishment applies to E-commerce. In
11 outline, the document suggests that a Web
12 site alone cannot constitute a permanent
13 establishment, and that situations in which
14 the server at a fixed location could
15 constitute a permanent establishment are
16 quite limited.
17 Comments have been invited on the
18 documents, and we hope to finalize it next
19 year. But that only addresses an issue of
20 narrow legal interpretation. Far more
21 important is the work that the OECD is doing
22 through the relevant technical advisory
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1 groups examining the application of existing
2 tax treaty rules, including both of
3 determining where business profits ship --
4 when business profits should be taxed in a
5 country and how much of them should
6 be taxed.
7 Finally, on tax administration, the
8 OECD's work is looking at how tax systems can
9 be made to work better, harnessing the new
10 technology opportunities. For example, how
11 best can the information needs of revenue
12 authorities be integrated with normal
13 business practices, especially in the
14 electronic systems, so that governments'
15 needs on that with the minimum compliance
16 demands?
17 To what extent, for example, can a
18 minimum common framework of tax-related
19 record requirements be identified which is
20 consistent ideally with commercial systems?
21 Equally, how can the new technologies
22 available to governments best be used to ease
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1 compliance with business? There's obviously
2 a host of possibilities here, from electronic
3 filing, online information, interactive
4 systems, which many countries are already
5 exploring. So here the OECD is looking
6 towards the sharing of experience and of best
7 practice.
8 In terms of the timetable for this
9 work, the post-Ottawa agenda was framed
10 around a two-year period. So technical
11 advisory groups with business, for example,
12 each have a two-year mandate. Through 2000,
13 the aim will be to intensify dialogue with
14 business and nonmember economies, to expose
15 more ideas and options for public comment,
16 and so to move towards international
17 consensus.
18 CHAIRMAN GILMORE: Mr. Marsland, I'll
19 have to ask you to wrap up.
20 MR. MARSLAND: Okay. So in
21 summary, our work is directed at establishing
22 an international consensus on the application
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1 of taxation norms and practices which will
2 serve the interests of governments, business,
3 and consumers, particularly in terms of
4 certainty, consistency, and simplicity; doing
5 that through a comprehensive dialogue with
6 the aim ultimately of delivering an
7 international fiscal environment which
8 fosters the develop of growth and growth of
9 electronic commerce, and at the same time
10 safeguards the revenue yields of governments.
11 Thank you.
12 CHAIRMAN GILMORE: Thank you, Mr.
13 Marsland. And there'll be a few moments also
14 for some questions and answers at the end
15 where you may which to elaborate on some of
16 this. Thank you for your presentation.
17 Mr. Aujean?
18 MR. AUJEAN: Thank you, Mr. Chairman
19 and members of the Advisory Commission.
20 Thank you for the invitation to talk today.
21 I'm Michel Aujean, director of tax
22 policy of the European Commission in
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1 Brussels, and my responsibilities are with
2 initiating and negotiating common tax
3 legislation in the EU and monitoring its
4 implementation in the member states.
5 The EU has, with their European
6 Commission, the sole responsibility of
7 initiating the legal measures which are
8 needed for the efficient and free-functioning
9 of what we call our single markets. Such
10 proposals for tax legislation must pass
11 though a legislative process involving the
12 representative of our member states, and may
13 be a long process, given that taxation area
14 is always submitted to the principles of
15 unanimity of member states.
16 Nevertheless, we have a
17 well-established common legal framework for
18 both customs and indirect taxation in the EU.
19 Let me explain how it works today. First of
20 all, we have the customs union, which has
21 been in place for many years and which is
22 characterized by a common external frontier,
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1 a single harmonized tariff system, and no
2 internal borders within the EU.
3 Then we have a common legal phase
4 for VAT and excise duties. I will talk
5 mainly of the Value Added Tax, of course.
6 The Value Added Tax covers the definition of
7 what constitutes a taxable base and the
8 approximated range of tax rates which member
9 states are allowed to apply. In essence, it
10 provides for the taxation of all goods and
11 services supplied for consumption within the
12 territory of the EU.
13 Therefore, for us, E-commerce
14 doesn't give rise to any particular questions
15 of principle as the mode of delivery of a
16 supply for consumption, or the means by which
17 the parties communicate is simply not an
18 issue.
19 Let me talk about the EU VAT in
20 practice in the EU. First of all, it's clear
21 that in spite of being a consumption tax, VAT
22 is a tax for which businesses are responsible
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1 for charging and collecting the tax. How
2 does it work in practice? Let me take goods
3 first.
4 For goods coming from outside the
5 EU, we collect VAT at the point of import,
6 subject for certain allowance for low-value
7 imports -- around $20 -- which are and can be
8 exempted. And then the goods circulate
9 freely within the EU without further
10 formalities.
11 Within the community and between
12 member states, we have a special arrangement
13 for what we could call in comparison with the
14 US situation "interstate commerce." With
15 this in mind, we have a very straightforward
16 system by which, irrespective of the way the
17 order is placed, whether through a Web site
18 or through mail order, we have always
19 application of VAT taking place in the EU,
20 either through the country of origin, where
21 the seller is established for sales under a
22 certain threshold -- around 100,000 Euros, or
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1 dollars, if you prefer -- today's right --
2 with a very simple system for start of
3 businesses, because they are not required to
4 tax in the country of destination up to this
5 threshold.
6 When the threshold is passed, then
7 the seller must register in the country of
8 destination, in the member state of
9 destination, within the EU. So that at the
10 end of day, whatever the kind of sale is
11 made, each sale is taxed at origin or
12 destination, whatsoever. So interstate
13 commerce within the EU, with private
14 consumer, is not an issue, whatever the
15 format of the order.
16 VAT also applies to services. VAT
17 applies to all services without regard to the
18 manner of their delivery. So once again, in
19 general terms within the EU, we don't have a
20 specific problem in applying the VAT to
21 E-commerce. We certainly need to update our
22 system for services, and there we must come
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1 to other area, the export and import of
2 services.
3 Concerning the export of services,
4 it's clear that the EU system was based on a
5 concept of the '60s or '70s, by which to be
6 able to control the taxable person, the place
7 of taxation, the place where taxation had to
8 be applied was a place of registration or
9 establishment of the seller. Which means
10 that today, exports, for most of them, of this
11 new services of electronic commerce are taxed
12 within the EU at present.
13 We need to revise this legislation.
14 We need to change this legislation to be
15 adapted to the new place of consumption:
16 principles of taxation, and that will be the
17 subject of a legal proposal, to exempt the
18 supply of services through the net.
19 Conversely, we need to think of our
20 scheme for import of services into the EU.
21 And, as I said before, we apply VAT to goods
22 and services, which means that services are
31
1 the way we deal with digitized products.
2 They are considered to be services. That is
3 one of the two categories that we have for
4 applying VAT.
5 Concerning imports of services, two
6 schemes must be envisioned. First of all,
7 business-to-business. Most of the services
8 dealing with business-to-businesses must see
9 revision of the way we have been dealing with
10 these, because the principle of taxation of
11 the place of establishment of the supplier
12 means that today services imported within the
13 EU are often not taxed. And there we will
14 rely on the principle of the reverse charge
15 mechanism for business-to-business
16 operations. This is a very simple,
17 straightforward way of dealing with these
18 services.
19 Converting our legislation into
20 this area will allow to us effectively deal
21 with that question. That we certainly need
22 other adaptations lies the possibility for
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1 third-country traders to have access to the
2 identification database, allowing to know
3 who their customer is, to know in terms of
4 taxable status. That will be allowed by
5 having access through the Internet to the
6 identification status, tax status of
7 customers.
8 Concerning business-to-consumer,
9 which is today an extremely limited segment
10 of the trade taking place on E-commerce, we
11 need to revise our legislation to make sure
12 that we will be able effectively to collect
13 taxes on E-commerce -- online E-commerce with
14 private final consumers. That part of our
15 legislation will be revised in order to allow
16 effective taxation to take place, which will
17 mean means of effectively registering in a
18 single place of registration for all the EU
19 for third-country traders. This is very
20 important step forward which we have to take
21 in proposing legislation, to make sure that
22 effectively through a single place of
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1 legislation, third-country traders may offer
2 and supply services within the EU without too
3 burdensome administrative or bureaucratic
4 activities.
5 As you heard from Andrew, we are
6 pursuing this issue in line with the Ottawa
7 principles and in close connection with what the
8 OECD is developing on inside. The European
9 Commission is in charge of making sure that
10 the VAT legislation of all its 15 member
11 states can be changed and adapted to the need
12 of this economy. And E-commerce is a major
13 challenge, but opportunity as well for
14 development of the E-commerce activity within
15 the EU from the other member states and from
16 a general point of view, making sure that we
17 have developed all the elements necessary to
18 this effect.
19 We have been launching a series of
20 initiatives in this respect, dealing with the
21 possibility notably of initiating electronic
22 invoicing for VAT delivered -- products
34
1 delivered online, and for developing the
2 possibility of electronic return to take
3 place with a single place of registration
4 which should be enforced in the community.
5 We are looking at present all the
6 questions of implementation. We know that we
7 must remove or ameliorate a number of aspects
8 of the existing VAT system. We know that we
9 have to take care of rapidly changing the
10 system for business-to-business and
11 business-to-consumer in a way which is simple
12 to effectuate, simple to understand and
13 sustain for the operators. The message we
14 heard from our business community is quite
15 clear. They need certainty. They need
16 certainty as to which kind of general system
17 is to be applied. The system of taxation
18 according to the principle of the country of
19 consumption will certainly be the best way
20 forward for applying VAT in the future.
21 Thank you.
22 CHAIRMAN GILMORE: Thank you,
35
1 Mr. Aujean. And again, we will have some
2 time for some questions and answers in a
3 short while.
4 Mr. Smith, I understand you were
5 kind enough to come to New York to offer a
6 presentation and we didn't get to you because
7 of the hurricane. So I want to thank you
8 very much for coming back and being with us
9 again. We appreciate it.
10 Oh, by the way, you're familiar
11 with these assists to you down here, the ones
12 that show you the amount of time that you
13 have remaining and so on, that are before
14 you. Green means you're on your way, wrap up
15 means wrap up, and when red flashes up, it
16 means it's over.
17 Isn't there a television right in
18 front of you there? It's not on that screen?
19 So much for the E-commerce, okay? We won't
20 be paying sales tax on that television, okay?
21 All right.
22 Thank you, Mr. Smith, and my
36
1 apologies to Mr. Aujean and Mr. Marsland.
2 Please proceed.
3 MR. SMITH: Thank you very much.
4 I'm glad to be here, Governor and members of
5 the Commission.
6 I was recently at the World Trade
7 Organization where reluctantly we did, in
8 fact, extend for at least temporarily, the
9 no-tariff on E-commerce. CI has also
10 recently completed a financial privacy
11 conference where we dealt with some of the
12 difficulties of reconciling U.S. concepts
13 with European concepts, particularly in the
14 area of individual privacy. And in earlier
15 career, I almost made it to OECD as a excise
16 tax expert, so it's kind of an interesting
17 world.
18 We've heard a lot about -- it's
19 there now. We've heard a lot about how the
20 Internet is one of the most promising
21 technologies ever to come forth. And indeed,
22 if anything, that's understated. You know,
37
1 it eliminates space and time, and by doing
2 so, it lowers transaction costs. It makes it
3 possible for the world to be a much smaller
4 place. That is, it makes it possible unless
5 we kill off that promise by too quickly
6 rushing in to tax, to regulate this promise
7 out of existence. The United States has a
8 major lead here. We should be careful before
9 we blow it.
10 It also offers promise in a way
11 that was never seen before to the world's
12 poorest people. Unlike earlier revolutions,
13 this gives us an opportunity to have a
14 low-capital form of creative wealth creation
15 in India and the countries of the world. And
16 the unanimity promised by this technology
17 makes it possible for pariah groups around
18 the world -- minority groups often at risk in
19 their own countries -- to create wealth
20 without the risk we see here -- we see in the
21 world today.
22 My major point, and the reason I
38
1 think that this Commission should focus very
2 carefully before it rushes in to extend taxes
3 across the country, across the globe, is that
4 the concept of taxing people to whom you're
5 not politically accountable violates one of
6 the basic principles of good government, the
7 no-taxation-without-representation concept.
8 People need to be accountable to
9 the people they lay burdens on, whether those
10 burdens be tax burdens or those burdens be
11 regulatory burdens. When you can extend the
12 tax reach to people who do not have the
13 chance to vote you out of office, it is far
14 too tempting, and I think it's far too
15 politically attractive, but it's wrong.
16 Also, I think -- and this is
17 relevant on this panel -- U.S. markets are,
18 in world terms, very consumer-friendly.
19 European markets are considerably less so.
20 In Europe, discounting, advertising between
21 nations and other nation -- if you're a
22 Wal-Mart, you can't say our prices are better
39
1 and they're not as high quality as we are.
2 Hours of services are highly restricted. The
3 Internet, by eliminating time and space, or
4 reducing it, has made it possible to
5 breakdown some of these rigid barriers which
6 are so anti-consumer. Barriers which
7 essentially have restricted the ability,
8 especially of lower-income Europeans and
9 people throughout the world, to benefit in
10 the consumer society that we in America have
11 so long had. That's particularly true in
12 more oppressive regimes outside of Europe and
13 the United States.
14 One example: The Germans have been
15 complaining because amazon.com doesn't keep
16 business hours. You can actually buy after
17 the night closes. Well, that's very good,
18 and Europe should be seeking the competitive
19 forces that the Internet brings, because
20 they've got to modernize their economies if
21 they're going have any role in the 21st
22 century. And we can help, if Internet is not
40
1 blocked.
2 The taxation without representation
3 issue, I think, is a key one. Let me just
4 spend a little time on that. In a democratic
5 society, there are two ways of accounting
6 for -- making the political system
7 accountable: Exit and voice. Both of those
8 are harmed if we expand Internet taxing to
9 out-of-state. It's hard to exit if everybody
10 has the same tax as you do, or you can be
11 reached by the arm of the state, even when
12 you're not subject to that state's
13 jurisdiction.
14 Exit is closed or reduced
15 dramatically, even more so, if we go to
16 worldwide global Internet taxing. And voice,
17 the ability to say, "I thank you very much,
18 but I don't want any more taxes. I think
19 we're overtaxed already," is weakened if the
20 people you're taxing who are requiring to
21 collect taxes for you are not in your own
22 political jurisdiction. All politicians want
41
1 to tax other people. We shouldn't allow them
2 to do it.
3 Moreover, taxing frontier sectors
4 is particularly silly, because this is a
5 field which you've heard over and over again
6 is in flux. Everything is changing. Who's
7 involved, how we go about closing out
8 transactions, how we basically clear the
9 books. I rode out here with an individual,
10 one of the many silicon gurus, and I was
11 explaining what I was going to try to do
12 here. And I said, "Now they tell us that
13 software manufacturers have got a new way
14 that will magically allow us to collect these
15 taxes seamlessly, error-free, and so on."
16 He said, "Yeah, they promised that
17 to me, too, in a dozen other areas." He
18 said, "I'm in a really simple area. All I do
19 is collect monies for telephone
20 communications in various cities around the
21 world. The error rate is 60 percent in that.
22 And this is a simple transaction with both
42
1 sides trying hard to make it work well."
2 Promise -- I mean -- trust --
3 verify, I think some other Americans once
4 said. If we try to capture the dynamism of
5 this industry -- what is, after all, a fairly
6 rigid political net -- we run the risk of
7 losing the dynamism of this world and only
8 capturing a stagnating economy. Applying
9 yesterday's tax policies to today's growth
10 industries is only going to endanger the
11 hopes of a better world which I hope we all
12 believe in.
13 Don't blame the Internet.
14 America's problems are not that too many
15 people are escaping taxes; it's that we're
16 too taxed already. Jack Kemp, one of our
17 senior fellows, tells of the promise of the
18 Internet on the global scale. He tells of a
19 Chinese elderly couple coming in and trying
20 to put their blankets down in Tiananmen
21 Square. There's a crowd there; they can't do
22 it. They wander into a store -- it's an
43
1 Internet store. Two Chinese brilliant kids
2 are putting it together. The kids sort of
3 look at this elderly couple and respectively
4 say, "Well, what do you guys do?"
5 "We sell garlic," they said.
6 "Well, what do you do?"
7 "Well, we sort of sell things
8 internationally."
9 He says, "Well, can we help?"
10 And he said, "Sure."
11 So they put chinesegarlic.com on
12 the Internet, and within a matter of two days
13 these two elderly illiterate Chinese are
14 world businessmen. That's the promise of the
15 Internet. That's the promise that we're
16 threatening by taxing.
17 Privacy. Privacy is one of the
18 greatest values that is at risk in this
19 Internet situation, at home and abroad -- and
20 civil rights, also, I might add. The
21 technologies that are now emerging --
22 anonymous, digital money, encryption -- all
44
1 of those are far too likely to be viewed as
2 risky propositions, making it too easy for
3 people to evade tax liabilities. They're
4 not. They're ways of making it possible to
5 live in a world where government knows what
6 it needs to know and we keep the other things
7 we want to know private.
8 Trusted third-parties is an
9 interesting term, and I don't know what it
10 means. But it clearly suggests that a level
11 of trust that most of us don't have in our
12 sister-in-law and brother-in-law, not much
13 less than government out there.
14 Look, there's a real question
15 here -- and I think we have an example in
16 America, the "know your customer rule." The
17 "know your customer rule" was an idea that,
18 "Hey, people are evading the money-laundering
19 rules of the United States. Let's just
20 require all banks to be sort of enforcement
21 agencies for the agency involved."
22 We put that out and a firestorm of
45
1 opposition occurred. You've never seen a
2 firestorm of opposition that it will
3 occur if you try extend this tax around the
4 world to all the small businesses, to all the
5 people now who feel it's their right to try
6 to get the best deal in a complex world they
7 can.
8 But that's in the United States.
9 Around the world there's much greater
10 problems. We're a society that has a lot of
11 respect for individuals, a lot of respect for
12 the civil rights of citizens. Anonymity
13 promises people in areas where there are
14 minorities -- Chinese, in Indonesia, or
15 blacks in a -- in many racist societies,
16 Indians, in some areas of the world -- the
17 ability to create wealth, to link up with the
18 world's economy, but anonymously. Not
19 letting their governments know how vulnerable
20 they are, how much revenues they could
21 contribute to the state if we knew exactly
22 what their bank accounts were.
46
1 Do we really want to have the
2 United States act as tax collector for the
3 world? There are countries out there that I
4 would be ashamed to be tax collector for.
5 Indeed, I think we ought to think very
6 carefully before we go in that direction.
7 And, incidentally, does government
8 need more taxes? I don't think so. Most of
9 us think that Internet offers a promise of
10 reducing the burden of government and
11 reducing tax burdens, not closing it down.
12 You know when I started in tax policy
13 when I was a young naive economist, and I
14 thought efficiency of tax collection and
15 administrative burdens were all that counted.
16 One of the old guys at the Office of Tax
17 Analysis said, "Fred, you don't understand."
18 He says, "Remember, I've been in this game a
19 long time. A good tax is a bad tax and a bad
20 tax is a good tax."
21 And what he meant by that is, a tax
22 that is good from the economist perspective
47
1 is a tax that is easy to collect and makes
2 the job of the tax collector very, very
3 simple. But it also is a tax that is very
4 easy to collect.
5 Let me tell a little story about a
6 Frenchman of an earlier age. A French
7 Minister, Cobert (phonetic), once stated that
8 the goal of the politician is to pluck the
9 feathers from the goose in such a way that
10 the goose barely squeals. That is
11 essentially the definition of an
12 administratively good tax. It is not the
13 definition of a democratically good tax. A
14 democratically good tax is one that basically
15 has some pain, has some suffering associated
16 and is not hidden, is not buried, and is not
17 collected by people who can vote you out of
18 office. That kind of tax is one that if it's
19 worthwhile, the voters will vote it in, and
20 if it's not worthwhile, it will vote the
21 politicians out. That's the tax we want to
22 see in America.
48
1 We want to make politicians as
2 accountable as they are and more so in the
3 future world.
4 Let me just summarize. Look, we
5 don't need -- see, I've actually timed
6 myself. We don't need new tax revenues. We
7 do not -- it is premature to tax at this
8 time. Some of you read my earlier testimony,
9 and I used the analogy of the wonderful
10 movie, I think, the "Seven Samurai" movie,
11 the movie about the Japanese, sort of cowboy
12 guys, who defend a village from bandits. The
13 beginning of the movie starts off with this
14 bandit tribe riding down and looking at the
15 poor vulnerable village below. And one
16 bandit says, "Let's go down and rob, rape,
17 and pillage the village."
18 And the leader says, "No, that
19 would be wrong."
20 And the guy says, "Why?"
21 He says, "Well, the rice isn't ripe
22 yet. It's not harvested yet."
49
1 Let's at least wait until this
2 industry matures and grows up and freezes
3 before we go out and try to kill it.
4 Thank you very much.
5 CHAIRMAN GILMORE: Thank you, Mr. Smith.
6 Thank you.
7 The next place on our agenda calls
8 for a presentation by Commissioner Novick.
9 If you will indulge me for just a moment,
10 Robert, I'm going to just be sure that
11 everyone -- since C-SPAN is covering this --
12 has an opportunity to know exactly who is on
13 this panel. If you gentlemen would just
14 stand fast for a few moments?
15 If you'll bear with me a minute,
16 Fellow Commissioners, I want to make sure
17 that I get all of your titles exactly right.
18 To my immediate left is Delna Jones. Delna
19 is the county commissioner of Washington
20 County of the State of Oregon.
21 David Pottruck, the president and
22 co-chief executive officer -- I believe,
50
1 David -- of the Charles Schwab Corporation.
2 The next individual is Governor
3 Gary Locke. He is Governor of the State of
4 Washington.
5 The next is Ted Waitt. Ted is the
6 chairman and chief executive officer of
7 Gateway, Incorporated.
8 The next is Governor Mike Leavitt.
9 He is Governor of the State of Utah.
10 The next is John Sidgmore. He is
11 vice chairman of MCI Worldcomm and Chairman
12 of UUNet.
13 The next is Ron Kirk. Ron is the
14 Mayor of the City of Dallas in Texas.
15 The next is Joe Guttentag. Joe is
16 the senior advisor of the Office of Tax
17 Policy of the United States Treasury
18 Department.
19 Beginning on the other side, we
20 begin with our next presenter. Mr. Robert
21 Novick is the general counsel, the Office of
22 the United States Trade Representative of the
51
1 delegate of Embassador Barchefsky.
2 The next is Andrew Pincus. Andrew
3 is the General Counsel of the United States
4 Department of Commerce.
5 The next is Stan Sokul. Stan is
6 the independent consultant for the
7 Association for Interactive Media.
8 The next is Gene Lebrun. Gene is
9 the president from 1997 through '99 of the
10 National Conference of Commissioners on
11 Uniform State Laws.
12 The next is Grover Norquist. He is
13 the president of Americans for Tax Reform.
14 The next is Paul Harris. Paul is a
15 member of the House of Delegates, a member of
16 the state legislature for the Commonwealth of
17 Virginia.
18 The next person seated is directly
19 to my right, and that individual is Dean
20 Andal. He is chairman of the California
21 Board of Equalization.
22 Absent today is C. Michael
52
1 Armstrong. Mike Armstrong is chairman and
2 CEO of AT&T.
3 Also absent today -- but I think
4 only temporarily; I believe he will be
5 joining us in a short while -- is Richard
6 Parsons. He is the president of Time Warner,
7 Incorporated.
8 And the final member is Robert
9 Pittman, who is absent today. He is
10 president and chief operating officer of
11 America Online.
12 This is a very distinguished board,
13 and I hope I haven't left anybody out. I
14 don't think that I have.
15 This is obviously a very
16 distinguished panel, appointed by
17 representatives of the United States
18 Congress. And of course, our task is before
19 us now and will be concluded the first part
20 of this year. But as you can see, this is a
21 distinguished group of people to hear this
22 information from you gentlemen, from the
53
1 others who previously presented, and the
2 others.
3 Now, I would like to ask
4 Commissioner Novick, the General Counsel of
5 the Office of United States Trade
6 Representative, to provide the Commission on
7 an update on the progress of World Trade
8 Organization negotiations.
9 And, remember, the Governor of
10 Washington is here, Robert.
11 MR. NOVICK: Thank you, Governor.
12 I'm pleased to have the opportunity
13 to provide the Commission a brief update on
14 the status of customs, duties, and electronic
15 commerce, particularly in light of our recent
16 discussions at the third WTO ministerial in
17 Seattle.
18 As I indicated in our previous
19 meetings, the administration's primary goal
20 with respect to electronic commerce is to
21 ensure that trade over the Internet can
22 develop unimpeded. With respect to trade
54
1 policy, our most immediate objective is to
2 achieve a duty-free cyberspace. That is,
3 preventing the imposition of tariffs --
4 otherwise known as customs duties -- on
5 electronic transmissions. This goal has been
6 broadly endorsed, including by this
7 Commission at our last meeting.
8 This is an immediate goal for a
9 very important reason. Currently no member
10 of the WTO considers electronic transmissions
11 as import subject to duties for customs'
12 purposes.
13 In addition, the goal has obvious
14 benefits for American firms, consumers and
15 workers. It avoids the costs associated with
16 imposing customs duties on electronic
17 transmissions. For a delivery mechanism
18 based on an open network where borders are
19 meaningless, imposing customs duties at the
20 border would be a crushing burden that would
21 slow the growth of electronic commerce,
22 leaving aside the question of its
55
1 administrability.
2 Our trading partners broadly agree
3 with the administration's objectives. The
4 countries recognized early on that imposing
5 duties on electronic transmissions would only
6 hurt their ability to attract the investment
7 and technology necessary to build their
8 E-commerce infrastructure. As a result,
9 member governments of the WTO agreed in May
10 of 1998 to continue their practice of
11 refraining from imposing customs duties on
12 electronic transmissions.
13 Since that time, we have worked
14 with our trading partners to carry this
15 consensus forward. We have achieved broad
16 consensus with our trading partners that the
17 moratorium should continue, and its formal
18 extension was an important goal at the WTO's
19 third ministerial conference.
20 Given the many complex issues that
21 remained open at the Seattle ministerial, WTO
22 members did not conclude a formal
56
1 declaration, and as such, did not take formal
2 action on the moratorium. There was,
3 however, substantial consensus on the path
4 the trading community should take on
5 E-commerce going forward.
6 WTO members generally agreed on a
7 carefully balanced set of E-commerce
8 principles, a key component of which is the
9 continuation of the moratorium on electronic
10 transmissions. Given the conflicts of
11 interests on the part of our trading partners
12 with respect to E-commerce generally and the
13 moratorium specifically, we fully expect that
14 countries will neither deviate from their
15 current practice nor jeopardize this balance.
16 As you may recall, duty-free
17 cyberspace is only one of several
18 E-commerce-related trade initiatives the
19 administration has been pursuing. At
20 Seattle, we also worked with our trading
21 partners on building consensus on other key
22 U.S. objectives. Those are outlined in my
57
1 written comments.
2 The administration looks forward to
3 formalizing the broad consensus reached in
4 Seattle. It will continue to push both
5 multilaterally and bilaterally for an
6 environment in which E-commerce can flourish.
7 Thank you, and I'm happy to take
8 any questions.
9 CHAIRMAN GILMORE: Thank you, Mr.
10 Novick. And we will, in fact, come back to
11 some questions and answers.
12 Commissioner Guttentag is with us.
13 He represents the United States Treasury
14 Secretary. He has graciously agreed to
15 inform the Commission about the
16 administration's involvement and the
17 Organization for Economic Cooperation and
18 Development.
19 Joe, thank you.
20 MR. GUTTENTAG: Thank you, Mr.
21 Chairman.
22 I propose to limit my presentation
58
1 as much as possible, in line with the
2 Chairman's comments and all. I will make a
3 few brief comments now, and would like to
4 reserve the balance of my time, as may be
5 required, for the conclusion of the
6 discussion of these international issues.
7 You will recall that I presented
8 the administration's views on the
9 international aspects of electronic commerce
10 at the June meeting of the Commission. I
11 then described the work being done by the
12 OECD and urged the Commission to support
13 these efforts. We've had the opportunity
14 today to hear in more detail the work of the
15 Committee on Fiscal Affairs of the OECD, and
16 the issues facing the European Union and the
17 coordination by these two bodies.
18 The international aspects of
19 electronic commerce taxation are, of course,
20 important. The OECD is doing an excellent
21 job in hearing from all of the affected
22 stakeholders, the member countries and
59
1 nonmember countries -- and, of course, the
2 business community. Again, at this meeting,
3 I urge the Commission to support the
4 framework conditions which the OECD's
5 Committee on Fiscal Affairs has adopted and
6 which you have just heard described, as well
7 as to support the Committee's continuing
8 efforts to develop a consensus around
9 desirable norms.
10 As noted, many of the multinational
11 companies represented on the Commission, and
12 otherwise in this room, are participating in
13 the work of the Committee on Fiscal Affairs.
14 I believe that the approach set
15 forth in Mr. Aujean's paper, as to the work of
16 the European Commission with respect to
17 indirect taxes, can greatly help to inform our
18 deliberations. He told us that the EC relies
19 heavily on taxes imposed at the place of
20 consumption, where the recipients of the
21 goods and services and those who pay the tax
22 also receive the benefits resulting from the
60
1 taxes imposed.
2 Additionally, in his paper, you'll
3 notice the proposed reliance on voluntary
4 cooperation and compliance and the desire to
5 minimize sanctions. This approach mirrors, to
6 a significant extent, some principles
7 contained in proposals that we will discuss
8 tomorrow.
9 In addition, we would do well to
10 emulate the basic principles which guide the
11 OECD work: Neutrality, efficiency,
12 certainty, simplicity, fairness, and
13 flexibility. There should be no
14 discriminatory taxation permitted, and we
15 should use our new technologies to simplify
16 and improve the administration of all of our
17 tax system.
18 In the international consumption
19 tax arena, the key ingredient will be
20 cooperation between governments, between
21 governments and vendors. We should rely on
22 existing principles that have governed our
61
1 tax system generally and avoid being forced
2 into adoptions of new taxes or new tax
3 systems.
4 Technology and E-commerce
5 transactions are changing as we speak. We
6 must move now to assure that we will have the
7 needed revenues for our tax jurisdictions and
8 for the benefits they provide. At the same
9 time, we must move cautiously and make sure
10 that we understand the nature and dimensions
11 of any tax problems with respect to
12 international cross-border sales before we
13 move to solve them.
14 We should attempt to use existing
15 approaches to tax compliance, adapted to
16 today's world, and to new problems that arise
17 before heading out into unchartered seas.
18 Thank you, Mr. Chairman.
19 CHAIRMAN GILMORE: Mr. Guttentag, thank
20 you very much. We have now ample time for
21 the members of the panel to discuss any of
22 the international issues raised by any of the
62
1 presenters, and including, of course, our two
2 Commissioners.
3 The floor is now open for any
4 questions, comments, speeches.
5 Dean Andal?
6 MR. ANDAL: Okay. I was delighted
7 to hear what seems like wide agreement that
8 there should be no customs duties, no
9 international tariffs, on
10 digitally-transferred products. But you were
11 careful -- and I'm interested in hearing
12 Mr. Marsland and Mr. Aujean and Mr. Novick's
13 response, that you were careful to
14 distinguish between customs duties and
15 consumption taxes. And it seems like -- and
16 I understand the fundamental difference
17 between those two types of taxes.
18 But it seems like America and
19 Europe are heading in different directions on
20 that score. It looks like existing practice
21 and what you have in mind for the future
22 anticipates Europe having consumption taxes
63
1 on digitally-transferred products and
2 services, whereas most of the 45 states in
3 America who have a sales tax do not tax
4 digitally-transferred goods and services.
5 If that holds and America doesn't
6 change its mind and Europe doesn't change its
7 mind, aren't you going to be faced with
8 compliance problems in Europe as a result of
9 Americans selling digitally-transferred
10 products to Europeans? We don't collect it
11 here. And unless you want to understand the
12 consumer buying habits of every European, you
13 won't be able to collect it there.
14 I'm interested in Mr. Marsland,
15 Mr. Aujean, and Mr. Novick's response to that
16 scenario.
17 MR. MARSLAND: Thank you. I think
18 the key starting point is that the Value
19 Added Tax systems adopted by most OECD
20 countries are a very comprehensive tax basis.
21 They tax essentially everything with a few
22 exceptions -- usually food and items like
64
1 that. So that these tax bases are defined
2 very broadly, and therefore, they seek in
3 terms of neutrality to the tax every aspect
4 of consumption, whether it be delivered
5 digitally or physically. And there are
6 systems in place to deal with physical
7 goods, to capture that tax at the border.
8 There are systems in place to deal with
9 business-to-business transactions, in terms
10 of the self-assessment mechanism.
11 It's clear that the key challenge,
12 if one is to continue to tax those, is to
13 develop a mechanism to capture the sales from
14 businesses to consumers of digitized
15 products. That's the key -- the focus,
16 essentially, of the OECD's work in this area.
17 It's also clear that there are no
18 simple solutions. The OECD is looking at a
19 range of options that might present
20 themselves to deal with that, and no
21 conclusions have been drawn as yet.
22 MR. AUJEAN: Well, I have very
65
1 little to add to this. I mean, it's clear
2 that in the EU we have been used to the
3 individuals charged for business-to-business.
4 And we will continue and extend the scope of
5 this business-to- business scheme.
6 It is very straightforward and it
7 works, and it has produced good results. And
8 it has been recently broadened to deal with
9 telecommunication services. Because, as you
10 may know, we had exactly the same difficulty
11 with telecommunication services. It's now
12 resolved and it works.
13 And the same should also be done
14 with business-to-consumer. That is, we need
15 to change our legislation, and we have been
16 studying carefully the possibilities and the
17 situation, and we consider that it's
18 necessary to establish a level playing field
19 between the EU and the rest of the world in
20 both directions.
21 MR. ANDAL: Would you care to
22 outline briefly some of the alternatives
66
1 you're considering for the problem of
2 business-to-consumer digitized product sales
3 over the Internet?
4 MR. AUJEAN: First of all, it
5 should be clear that, as I said before, this
6 is a very limited segment of existing trade
7 today. And, secondly, even if we agree that
8 the principle of taxation should be
9 implemented as soon as possible, so as to
10 have a level playing field, we still are in
11 the process of discussing and dialoguing with
12 the business community.
13 Along the typical solutions, the
14 solution which is envisaged and on which the
15 working people of the Commission -- which is
16 a valuable Web site -- is that it engraves
17 the principle of registration, and none of
18 the possibilities are explored of electronic
19 registration of traders on the Net,
20 delivering online product to final consumers
21 in the EU.
22 That means an application of the
67
1 common existing VAT legislation through a
2 single place of registration for all trade
3 taking place within EU. This solution is a
4 solution on which we have been working at
5 present. It doesn't preclude the
6 possibilities mentioned -- and none of the
7 mentioned inter-works of this Commission, of
8 third-parties being involved in helping this
9 process. That may be, as well, a very
10 competitive solution which needs to be
11 explored.
12 CHAIRMAN GILMORE: Did anyone else wish
13 to comment on any of that?
14 Robert?
15 MR. NOVICK: I actually think the
16 question is better addressed to my colleague
17 from the Treasury Department, because I
18 didn't hear in either of the comments a
19 suggestion that the European Union is
20 thinking about tariffs on digitized goods.
21 And that certainly is consistent with what I
22 believe the consensus is, and certainly
68
1 consistent with the U.S. practice.
2 So I don't think we're moving in
3 different directions when it comes to
4 treatment of digitized goods at the border,
5 assuming you can even treat them at the
6 border. The question of the consumption tax
7 and registration requirements and other
8 aspects of the European system that they're
9 considering raises a whole set of other
10 issues that may actually implicate trade
11 concerns. But I reserve that until we see
12 what that system is. But with respect to the
13 tax treatment of digitized goods, that's --
14 MR. ANDAL: I'm always thrilled to
15 hear from the entire Clinton administration.
16 So Joe, do you have a view on that?
17 I'm delighted that we've resolved this
18 question of tariffs and customs duties. But
19 that belies a more fundamental question,
20 which is, if we're not taxing digitally
21 transferred products and services in the
22 United States, and they are in Europe, does
69
1 that not create a significant problem for the
2 Internet taxing system around the world?
3 MR. GUTTENTAG: I guess -- well, I
4 can't speak for the entire Clinton
5 Administration. I don't think you want all
6 of them speaking here, Dean. But I --
7 certainly, I agree with my colleagues from
8 the EU and the OECD. First, we are dealing
9 with a relatively small amount of business at
10 this time.
11 Secondly, I think it is up to the
12 jurisdictions involved, the European Union,
13 which has responsibility for Value Added Tax
14 within the -- with their 15-member countries,
15 they have determined that they wish to impose
16 a tax on services, including digitized
17 products.
18 In the U.S., those decisions are
19 made by each one of the states and by local
20 taxing jurisdictions. They should be free to
21 make their decision as to how to tax them.
22 Since the taxes that we're talking
70
1 here are consumption taxes, and we have
2 agreed that those are based on the place of
3 consumption, the fact that in one
4 jurisdiction they're not subject to tax and
5 in the others they are is a matter for the
6 local jurisdiction, it seems to me. It
7 really is not too relevant, Mr. Andal, as to
8 whether we're talking about goods or
9 services. That's a matter for the EU to
10 determine.
11 Once we deal with cross-border
12 issues and collection problems, then it is a
13 matter for us to be able to discuss them and
14 cooperate internationally to agree on the --
15 to try to deal with that in the best ways
16 that we can, with the guidelines that we
17 have. To provide certainty, to minimize the
18 sanctions and to rely to the maximum extent
19 on cooperation.
20 MR. NORQUIST: I had a question, I
21 think, for Mr. Novick.
22 I'm very happy that this Commission
71
1 voted almost unanimously in support of the
2 Clinton administration's negotiating position
3 with WTO and others on not having tariffs on
4 electronic commerce. And I'm glad to hear
5 you say that you think we're coming towards a
6 consensus on it.
7 I was wondering if you could tell
8 us, when you say "getting towards the
9 consensus," I guess I thought we had a lot
10 more consensus on free trade that seemed to
11 show up in Seattle recently.
12 So I'm wondering where the sticking
13 point is where you say it looks like we're
14 getting to consensus. Is there a country or
15 region or industry group that is not
16 cheerfully moving towards a tariff-free
17 electronic commerce internationally?
18 And others, if you want to answer
19 that as well.
20 MR. NOVICK: No, the issue is
21 really the way the WTO third ministerial
22 process worked. And that is to say that the
72
1 going-in assumptions about the ministerial
2 were that we would end up with a declaration
3 which would address the entire range of trade
4 issues, both going forward and certain issues
5 that people wanted resolved in Seattle, of
6 which the electronic commerce consensus was
7 won.
8 There were a range of
9 disagreements, as I think was well
10 publicized, regarding a range of trade
11 issues. Agriculture being among them, for
12 example, that led to the ministerial being
13 suspended, rather than reaching a final
14 declaration, which would have included the
15 consensus on E-commerce. So the issue is
16 really one of process and the time of which
17 the consensus will be formalized.
18 But what was clear during the
19 discussions in Seattle was that there was a
20 broad consensus on these issues. Countries
21 always, for tactical reasons and for
22 negotiating reasons, try to get something for
73
1 agreeing. And since nothing is agreed until
2 everything is agreed, the E-commerce
3 moratorium was not formalized at Seattle.
4 But we would expect that during the course of
5 next year, it will be.
6 So I haven't seen any indication of
7 countries that don't believe that continuing
8 their current practices in their interest, as
9 well as the interest of the technology moving
10 forward.
11 CHAIRMAN GILMORE: Mr. Lebrun?
12 MR. LEBRUN: Mr. Marsland, if I
13 understood you correctly, you said that 28 of
14 the 29 OECD countries have consumption taxes.
15 I assume that those are nationally-imposed
16 and collected taxes, and you don't have the
17 situation in any of those countries, as we do
18 in the United States, where you have 50 or 51
19 jurisdictions that have the authority and the
20 jurisdiction to choose whether or not to
21 impose such consumption taxes. Am I correct
22 on that?
74
1 MR. MARSLAND: You're correct. I
2 was referring to national consumption tax
3 systems. And in answer to the second part of
4 your question, I believe there's only one
5 exception, which would be Canada, which has
6 provincial sales tax systems.
7 MR. LEBRUN: The other countries,
8 the individual sub-governments, if you will,
9 do not have either the jurisdiction or the
10 authority to impose and collect taxes at the
11 local level; would that be correct?
12 MR. MARSLAND: I must admit I'm not
13 an expert. In Canada, the provincial
14 governments have the authority to levy sales
15 taxes. I'm not sure if that's the case in
16 other federal jurisdictions, such as
17 Australia.
18 MR. LEBRUN: If I recall, the
19 Canadian Constitution is just the opposite of
20 our Constitution. In Canada, the reserve
21 power is with the federal government and the
22 provinces have the delegated power; isn't
75
1 that correct?
2 MR. MARSLAND: In Canada, the
3 provinces have the authority to levy direct
4 taxes, which has been interpreted as including sales
5 taxes -- retail sales taxes, and the federal
6 government has the authority to levy any form
7 of taxation.
8 MR. LEBRUN: Thank you,
9 Mr. Chairman.
10 CHAIRMAN GILMORE: Were you driving,
11 Gene, that the other countries of the
12 European Union -- the different provinces,
13 for example of France or Germany, is that
14 what you were inquiring of?
15 MR. LEBRUN: It's my understanding
16 that that's the case. If I go to France -- I
17 just got back from Italy and Turkey and
18 Greece, and the taxes there are nationally,
19 federally-imposed taxes, not Athens or
20 Istanbul or Florence or Milan or something
21 like that.
22 CHAIRMAN GILMORE: So the local units --
76
1 provinces, states, or whatever of the various
2 European states -- do not have the power to
3 impose taxes?
4 MR. LEBRUN: That's my
5 understanding, but I stand to be corrected if
6 these gentlemen tell me otherwise.
7 MR. AUJEAN: Yes, if you will allow
8 me. With the adoption of the EU VAT system
9 in the '60s, it was clearly in the
10 legislation that no other alternative taxes
11 could be imposed -- or sales taxes could be
12 imposed that the EU -- within the EU by
13 member states. So the response is no, there
14 is no other alternative or sales taxes within
15 the EU legislation.
16 CHAIRMAN GILMORE: That was a dramatic
17 surrender of sovereignty by each of the
18 states, isn't that right?
19 MR. AUJEAN: Each of the member
20 states agreed to have this common, general
21 rules for VAT, but kept sovereignty over the
22 rate within certain limitations and conceded
77
1 during this, they agreed not with the
2 abolition of border controls in 1993 within
3 the union, to effectively agree on a minimum
4 set of rules concerning the rates, but kept a
5 very large room for maneuver. And they have
6 different rates in each of the 50 member
7 states.
8 CHAIRMAN GILMORE: You don't mean the
9 VAT's different for each individual state, do
10 you, each individual nation?
11 MR. AUJEAN: Every member state has
12 the right effectively to keep different
13 rates. And this is one of the reasons,
14 certainly, why in some areas they are so keen
15 to have taxation at the level of country of
16 consumption.
17 CHAIRMAN GILMORE: You have taxation on
18 services all through the European Union, is
19 that correct?
20 MR. AUJEAN: Concerning taxation of
21 services, which also was introduced in the
22 late '60s when the VAT system was adopted,
78
1 all services are subject to taxation. There
2 are also rules determining the rate, and also
3 the rules concerning the place of taxation
4 which, as I said before, are based on the
5 principle of taxation as a country of
6 establishment of the trader, which is a great
7 simplification of EU trade until the
8 business-to-business enters the scene, for
9 which we have this reverse charge mechanism
10 in order to simplify the collection of tax in
11 the country of consumption.
12 CHAIRMAN GILMORE: So you have a level
13 playing field between goods and services all
14 throughout the European Union with respect to
15 taxation, is that right?
16 MR. AUJEAN: Yes, absolutely. And
17 the reason for this is that all transactions,
18 be they goods or services, are effectively
19 taxed, even in interstate commerce between
20 business and consumers of different states.
21 CHAIRMAN GILMORE: Let me ask
22 Mr. Marsland and Mr. Aujean a question -- and
79
1 I'll keep my eye open for other Commissioners
2 as well, of course.
3 If a person in France buys an
4 object or a good from America and it is
5 shipped to France, you would rely upon
6 interdicting that good at the border at
7 customs, identifying it, and then charging
8 the VAT tax to the consumer who ordered it;
9 is that correct what I understood you to say?
10 MR. AUJEAN: Yes. If goods are
11 shipped from any country outside the
12 community, they are subjected to formalities
13 at importation within the community. Then
14 they will pay VAT at the place of importation
15 and will be able to move freely within the
16 rule of the community of the 50-member state.
17 CHAIRMAN GILMORE: Well, I'm sure it
18 would.
19 The other question, though, is
20 what's the difference between that and a
21 tariff? A tariff is a duty imposed on a
22 large box of goods that would be
80
1 imported-exported from one country to the
2 other. It affects, of course, the ultimate
3 price, because the tariff is being added to
4 it. It's designed to do that for some
5 reasons. Sometimes it's revenue, other times
6 it's something else. It's an effort to do
7 protectionism.
8 But that would be a tariff. But on
9 this single good purchased by this
10 individual, and by the aggregate millions of
11 individuals, isn't that the same way of
12 imposing a tariff by a VAT tax proposal?
13 You're imposing an additional cost
14 on the good at its point of entry.
15 MR. AUJEAN: No, we are simply --
16 by imposing VAT at importation, we are simply
17 putting all the goods that were produced
18 within the EU or imported on a level playing
19 field. And that has nothing to do whatsoever
20 with any kind of protectionism given the
21 level playing field which results from the
22 application of this taxation at importation.
81
1 All the goods suffer exactly the
2 same rate of taxation, whether they're
3 domestically-produced or imported.
4 CHAIRMAN GILMORE: But the good in
5 America might be cheaper. And the reason is
6 it's not produced subject to a VAT tax at its
7 point of sale. But when it enters one of the
8 nations of the EU, an additional charge is
9 placed on it for the consumer in the EU.
10 Isn't that right?
11 MR. AUJEAN: No, because if the
12 price in the United States is lower, the
13 application of the VAT at importation will
14 bear on the lower price, and consequently
15 will keep this product competitive, vs-a-vs
16 of domestically-produced goods.
17 CHAIRMAN GILMORE: In the EU.
18 MR. AUJEAN: According to your
19 assumption of a higher price.
20 CHAIRMAN GILMORE: Yes. The last
21 question I have is what do you do about
22 someone in Germany who decides to buy,
82
1 download, a digital product from America? He
2 purchases and downloads an album: "Duke
3 Ellington in Paris," for example, or
4 something like that. He downloads that
5 product. Or for that matter, a pamphlet or a
6 report, that otherwise he would have to go
7 downtown and purchase.
8 How do you tax that under the
9 system?
10 MR. AUJEAN: Under the present
11 system, if this supply is made from another
12 member state or domestically, whatever,
13 within the Union, it is taxed at the place of
14 establishment of the supplier.
15 CHAIRMAN GILMORE: How do you know about
16 it?
17 MR. AUJEAN: It's quite simple, and
18 that's why the system works within the EU
19 this way. Because every supply of service on
20 the net will be invoiced with VAT by the
21 supplier. And the compliance is effectively
22 easy, because the supplier can be controlled
83
1 by the tax authorities of the same member
2 state where he is established.
3 CHAIRMAN GILMORE: What if the supplier
4 is an American company?
5 MR. AUJEAN: Then when the goods or
6 services, more precisely, in our
7 denomination, are brought into the United
8 States at present, given our rules of
9 taxation at the place of establishment, there
10 is no taxation taking place. And this is why
11 we are thinking to changing this rule, as
12 well as reversing the situation for European
13 trade, which today is taxed when exporting
14 services to the U.S.
15 CHAIRMAN GILMORE: Delna Jones?
16 MS. JONES: A couple of questions.
17 First of all, let me see if I'm correct. In
18 your explanation of the difference between a
19 tariff and a tax, it wouldn't matter whether
20 the product came from China, the U.S., or any
21 other country. You would impose a
22 consumption or use tax or sales tax on that
84
1 product at the border, no matter its country
2 of origin; is that correct?
3 MR. AUJEAN: Let me be clear. If
4 this is a good which is effectively a
5 material good imported within the EU, we will
6 apply customs, duties and VAT at importation.
7 The tariffs will be -- the tariff, which is a
8 common, external tariff for the EU -- it will
9 be the same whatever the country of
10 importation within the EU is.
11 And the VAT will be applied at the
12 same time and will be dependant upon the
13 member states of importation.
14 MS. JONES: I know you were
15 attempting to clarify, and I thought that
16 that was what I was doing, but I don't know
17 that I came away with the same clear
18 understanding.
19 Let me pose another question, if I
20 may. Currently your producers of product are
21 being taxed, or suppliers, as I think you
22 used the term. And that tax rate can vary
85
1 among the countries, but they are all under
2 the same system; correct?
3 MR. AUJEAN: Absolutely.
4 MS. JONES: Okay. Do they also
5 have the same system of taxation in
6 relationship to the income produced by those
7 businesses? And do they tax that at a
8 varying rate? Do they have a unifying system
9 of taxation? Or how do they determine the
10 other piece of that taxation?
11 MR. AUJEAN: Concerning income
12 taxation, there is no harmonization at all
13 within the EU. And consequently, income
14 taxation or company taxation is something
15 which is totally left to the will and
16 sovereignty of each member state.
17 MS. JONES: Thank you.
18 CHAIRMAN GILMORE: Mayor Kirk?
19 MAYOR KIRK: Mr. Smith, you looked
20 like you were off the board over there, so,
21 Fred, I want to go back on your analogy of
22 our Chinese garlic sellers. Help me through
86
1 that. And it's obviously you believe in a
2 fairly tax-free, at least, economy and
3 society in that sense. But in the case of
4 the Chinese garlic sellers or my wife or, you
5 know, somebody's wife here. One of us. We
6 cook. We want garlic. We order Chinese
7 garlic. How does that garlic get here? How
8 does that garlic physically get from my
9 Chinese garlic sellers to Dallas, Texas?
10 MR. SMITH: I assume it gets here
11 the same way that other goods would, by
12 Parcel Post or one of the mail systems out
13 there.
14 MAYOR KIRK: But through the mail
15 systems and then carried, presumptively, on a
16 ship or an airplane, and then over streets or
17 roads or whatever?
18 MR. SMITH: It's a physical good.
19 Some of the problems we're dealing with here
20 earlier about informational goods don't
21 involve that.
22 I think it was -- one of the
87
1 points -- I wasn't quite bored. I was trying
2 to understand -- there's a man named Michael
3 Sailor who was just interviewed in Business
4 Week, and he makes this incredible global use
5 of this. He suggests that we're about an
6 eight and a half trillion-dollar economy,
7 about half of which is wasted, he says.
8 People having the wrong train, the wrong
9 operation, the wrong goods, the wrong time.
10 And he thinks we will be able through this
11 Internet system to create about a $4 trillion
12 reduction in the cost.
13 How in the hell are we going to tax
14 that? I don't know.
15 MAYOR KIRK: My point to you is
16 that -- and I agree with you, I think it may
17 grow to a $4 trillion. I hope it grows to a
18 $10 trillion economy. But whatever the
19 point -- I mean, unless at some point far in
20 the future, you and I can't materialize or
21 envision at some point those goods still have
22 to be delivered by some way, usually over
88
1 streets, highways, air transport. And in the
2 general sense, we still have to find some way
3 to build those streets and to pay for those
4 highways and those airports. I mean, you
5 would agree with that.
6 So even you would agree that some
7 level of taxation is necessary to make sure
8 that we have roads and highways just to
9 deliver all of the stuff we're going to buy;
10 is that right?
11 I mean, just -- because in your
12 broader sense -- it's real fun to laugh about
13 no taxes and -- the only thing I would just
14 commend to you, since you're a movie buff --
15 I haven't seen "The Seven Samurai," but since
16 I have a 10- and a 7-year-old, I have seen
17 "The Lion King" 4 or 500 times. And I must
18 admit I liked it the first 100 times I saw
19 it. But you might go -- if you haven't seen
20 it, you ought to see it. There's two
21 wonderful characters in the movie, Timon and
22 Pumba. I know it real well. And they have
89
1 this wonderful, dangerous philosophy that
2 they live by, that to some degree sounds like
3 the same song as these anti-tax advocates.
4 It's called acumba matada (phonetic). We
5 have no problems, no worries, everything's
6 fine. We live in this paradise. We don't
7 give a damn about anybody else.
8 And the message of the story is
9 that that's a pretty great philosophy for
10 fun, but not a good, real way to build a
11 community. And only until you come back and
12 everybody pays their fair share, you can't
13 grow and prosper as a community.
14 So in that sense, I might commend
15 "The Lion King" for you the next time you're
16 sitting on top of your hill thinking where
17 you might want to rape and pillage next.
18 MR. SMITH: What we want to do is
19 probably exchange movies.
20 But you raised a very interesting
21 point, and I think it's a serious one. The
22 question is, obviously there is -- I mean, I
90
1 live in Washington, D.C., and I recognize bad
2 roads can be a problem in any major city.
3 It's obviously a question of how we
4 go about providing the essential services of
5 our communities? And not just cities, of
6 course -- counties and states and national
7 governments.
8 The challenge is whether or not the
9 way we've done it in the past has to be given
10 some kind of sacred status. I think as the
11 administrative costs and the potential risk
12 we face change -- I mean, we used to fine the
13 United States by tariffs. We decided that
14 that wasn't the best way to do it.
15 I mean, the point I'm trying to
16 make is just because it's an owed tax doesn't
17 mean it's a good tax. And I do believe in
18 the area of like some of the services there
19 is the potential of creating some alternative
20 ways, like highway pricing and so on,
21 through -- your city has one of the more
22 innovative toll road systems in America, and
91
1 getting better and better. And you're one of
2 the centers of the Internet commerce in the
3 world. All of which allow us potentially to
4 do a much more creative job, rather than
5 broad taxes, to move us toward taxes which
6 actually -- where the beneficiary actually
7 directly benefits from the thing he's paying
8 for.
9 CHAIRMAN GILMORE: Stan Sokul?
10 MR. SOKUL: Thank you. Plus
11 there's always the gas tax.
12 I have -- I'm not an expert on
13 international tax. I have some -- just a
14 couple of really basic questions here.
15 When a person in France orders a
16 book from, let's say, amazon.com, and you
17 stop the book at the border to collect tax,
18 the VAT tax, who does the collection? Is
19 there a French official at the post office or
20 do you want -- in your ideal world, would
21 Amazon do the collecting of that and remit it
22 to you?
92
1 MR. AUJEAN: First of all, today
2 Amazon is established in Europe, because they
3 found it more economical to effectively run
4 their stock there.
5 MR. SOKUL: Let's talk about
6 Chinese garlic, then.
7 MR. AUJEAN: At the end of the day,
8 their current application would be much more
9 simple, because Amazon will deliver the goods
10 from within the EU, and will just do this
11 under our distance-setting regime, which is
12 extremely simple to apply.
13 But would that be the case,
14 effectively, if the goods were imported from
15 the U.S., it would have to go through the
16 customs procedure to be imported within the
17 EU. And once again, I repeat, then there
18 would be application of the current tariff
19 from book, external tariff of the EU from
20 book, and application of VAT at the point of
21 importation.
22 If the point of importation is,
93
1 let's say, Rotterdam, which is one of our
2 main harbors for such imports, it would be
3 the Dutch VAT rate which would be applied.
4 If the point of import is France, it would be
5 the French VAT rate which would be applied.
6 And that being done, the book will
7 circulate after that without any other burden
8 within the EU.
9 MR. SOKUL: But how is it applied?
10 In other words, the French citizen paid by
11 American Express and on the Amazon web page
12 paid, submitted the information and thought
13 the transaction was over. How do you get the
14 extra tax -- not the extra tax, but the VAT
15 tax applied to that transaction?
16 MR. AUJEAN: Usually quite simply,
17 because there are agreements between the
18 customs administration and most of the
19 Express carriers to have expressed delivery
20 and the VAT -- and the customs apply on the
21 invoicing price provided to the Express
22 carrier who will take care of the --
94
1 MR. SOKUL: So Fed Ex or UPS?
2 MR. AUJEAN: Absolutely.
3 MR. SOKUL: Okay. Not -- well,
4 putting aside from Amazon. Not Amazon, it
5 would be Fed Ex or the common carrier?
6 MR. AUJEAN: Well, it might be
7 Amazon or it might be a third party
8 designated by Amazon who would be in charge
9 of making the duty and respecting the
10 procedure for customs.
11 MR. SOKUL: I guess in our country,
12 where we have states' taxation -- if a
13 citizen from Virginia bought some wine for
14 someone in France, they would have to submit
15 a use tax. You don't expect a French company
16 to figure out which tax might apply in one of
17 the 50 states and collect that for the state
18 of Virginia, do you?
19 MR. AUJEAN: That might be the case
20 in some cases, that the company has
21 effectively, first of all, to know what rate
22 of duty. But moreover, because you talk
95
1 about wine, what rate of excise duties and
2 sales taxes might have to be applied in some
3 jurisdictions.
4 MR. SOKUL: I have one other quick
5 question, which isn't based upon anything
6 that either of you have said today. It's
7 based upon something, as I try to follow
8 what's going on in the OECD or the EU, I read
9 officials saying -- and I don't believe I've
10 read either of you saying this, but it has to
11 do with the notion of harmful tax
12 competition. That you're setting up these
13 systems because everyone has to cooperate,
14 because we can't have harmful tax
15 competition.
16 To whom is harmful tax competition
17 harmful? And what is wrong with it?
18 MR. AUJEAN: Well, I don't really
19 think that this is a subject for today, but
20 I'm totally available to respond to this
21 question.
22 The harmful tax competition project
96
1 is a matter dealing with spatial schemes
2 provided between member states of the union
3 by some tax administration in favor or
4 notably, namely non-resident companies and
5 with some kind of re-fencing of these
6 measures, vis-a-vis of domestic tax bases.
7 And, this was considered to be harmful
8 to the extent that, in fact, it implies real
9 and effective distortion of competition through
10 very low effective level of taxation being
11 reserved to transactions made with only
12 non-residents.
13 So this is a kind of situation in
14 which we have been dealing with in terms of
15 harmful tax competition.
16 MR. ANDAL: Instead of a book from
17 Amazon.com, what if someone in Paris bought
18 the soundtrack to "The Lion King"? And
19 instead of it being delivered in physical
20 form, it was sent from Burbank, California,
21 to Paris in digital form, one computer to
22 another and downloaded by the French
97
1 customer. How would you enforce a VAT tax on
2 that transaction?
3 MR. AUJEAN: Well, it depends on
4 whether the customer is a business or a final
5 consumer.
6 MR. ANDAL: In this case it's an
7 individual.
8 MR. AUJEAN: In the case of an
9 individual --
10 MR. ANDAL: Presuming, of course,
11 that French businesses don't have much need
12 for the soundtrack of "The Lion King."
13 MR. AUJEAN: In that case,
14 effectively this is a case of we are trying
15 to -- this is effectively rather a difficult
16 case for getting a simple system of voluntary
17 compliance.
18 MR. ANDAL: It's taxed now, right?
19 MR. AUJEAN: No. At the present,
20 it will not be taxed, because it does not
21 belong to this category of services for which
22 a place of supply is already within the
98
1 community. It is, for the time being, a kind
2 of supply for which the place of supply is at
3 the place of the establishment of the
4 supplier in the United States, in the case
5 you gave.
6 We should change our legislation in
7 this respect, based on the scheme on
8 voluntary compliance by trader, by making as
9 simple as possible the registration and, as I
10 say, registration should certainly be made in
11 a single place for all the 15 EU member
12 states who ask to be instrumental.
13 MR. ANDAL: In my example, you
14 really only have two places you can assert
15 that tax obligation. You'd be either
16 counting on Walt Disney to voluntarily
17 collect it for you, or you'd be counting on
18 the French customer to identify the sale for
19 you. That's basically your two options, and
20 those are unappealing, I think.
21 MR. AUJEAN: We have at the present
22 explored more options than that, and we are
99
1 studying in more detail two options. One is
2 to request the U.S. supplier to register
3 within the EU through either a direct simple
4 way of electronic registration or through a
5 fiscal representative which you could design
6 within the EU.
7 MR. ANDAL: And that's where I'm
8 getting lost. Who would register?
9 MR. AUJEAN: The supplier of the
10 service.
11 MR. ANDAL: In this case, Walt
12 Disney?
13 MR. AUJEAN: In that case, the U.S.
14 supplier of service.
15 MR. ANDAL: Okay.
16 MR. AUJEAN: Would register in the
17 EU. As it -- you know, this is exactly the
18 situation where today a number of American
19 companies are involved in transactions taking
20 place within the EU as intermediaries in
21 these transactions, and they register and
22 they pay and collect VAT when they are
|
