Consumption Taxation in a Digital World : A Primer

At present, destination-based taxation of goods is the international norm. It is technically difficult, however, to implement destination-based taxation of digital products and intangible services sold over the Internet, reflecting the difficulty of determining the location of the buyer and seller. Most of the potential solutions to this problem require a great deal of administrative cooperation between national tax authorities. Case studies of several countries show that policy responses to electronic commerce have differed, with the European Union taking the lead in implementing a system of destination-based registration. In this article, the author reviews the economic and administrative issues that arise in the taxation of electronic commerce; addresses how best to meet the criteria of a good tax system, such as efficiency, administrative simplicity, and a fair sharing of the tax base; and examines recent policy developments in the European Union, the United States, and Canada