E-commerce Trade Taxation and WTO Moratorium on Electronic Transmissions
The basic WTO document for electronic transmissions, including all sorts of transmissions such as video and software, is the WTO Declaration on “Global Electronic Commerce“. The Declaration was adopted on 20 May 1998, at the Second Ministerial Conference, and its most important paragraph is when the WTO Members decide about the moratorium on electronic transmissions.
WT/MIN(98)/DEC/2, 25 May 1998
Without prejudice to the outcome of the work programme or the rights and obligations of Members under the WTO Agreements, we also declare that Members will continue their current practice of not imposing customs duties on electronic transmissions. (…)
Though there is much confusion about the distinction on goods and services (see for instance discussions about the inadequacy of the WTO Services Sectoral Classification List (MTN.GNS/W/120)), the WTO moratorium on electronic transmissions was mainly intended to deal with services. In short, for the WTO, services electronically transmitted should be exempted of customs duties.
As our digital world evolves, the distinction between goods and services challenges the WTO moratorium and becomes a fundamental issue for e-commerce taxation. Several questions arise: is it possible to separate services from goods in electronic transmissions? should all goods and services electronically delivered be exempted? is it possible to convert goods into services or vice-versa? should governments treat differently goods and services transmitted electronically from those delivered physically? for me none of these questions have a straight answer.
Without clear answers, the fact is that since 1998, most WTO members continue to extend the moratorium on electronic transmissions, regardless of the distinction between goods and services. For instance, at the Nairobi Ministerial Conference in December 2015, the matter of not imposing customs duties on electronic transmissions is in document WT/MIN(15)/42.
WT/MIN(15)/42, 21 December 2015
3. That Members will maintain the current practice of not imposing customs duties on electronic transmissions until our next session which we have decided to hold in 2017.
The main challenges related both to goods and services transmitted electronically are listed in the WTO Work Programme on Electronic Commerce, Adopted by the General Council on 25 September 1998, WT/L/274, 30 September 1998.
For trade in goods the named challenges are: a) market access for and access to products related to electronic commerce; b) valuation issues arising from the application of the Agreement on Implementation of Article VII of the GATT 1994; c) issues arising from the application of the Agreement on Import Licensing Procedures; d) customs duties and other duties and charges as defined under Article II of GATT 1994; e) standards in relation to electronic commerce; f) rules of origin issues; and g) classification issues.
The listed challenges for services are: a) scope (including modes of supply) (Article I); b) MFN (Article II); c) transparency (Article III); d) increasing participation of developing countries (Article IV); e) domestic regulation, standards, and recognition (Articles VI and VII); f) competition (Articles VIII and IX); g) protection of privacy and public morals and the prevention of fraud (Article XIV); h) market-access commitments on electronic supply of services (including commitments on basic and value added telecommunications services and on distribution services) (Article XVI); i) national treatment (Article XVII); j) access to and use of public telecommunications transport networks and services (Annex on Telecommunications); l) customs duties; and m) classification issues.
In particular for goods, one of the operational challenge is to provide better logistics, transparent taxes and faster clearance for international trade through e-commerce platforms. Most of e-commerce uses postal or express courier services, where adequate national legislation needs to be in place to handle the increasing traffic. Here, a common discussion is about flat tax rates, including customs duties and internal taxes, and the adoption of simplified clearance processes.
In conclusion, in my opinion, some of the main points for consideration about e-commerce taxation and the WTO electronic transmissions moratorium should be: (a) the understanding that the WTO moratorium on electronic transmissions is not a general exemption on e-commerce for goods; (b) the knowledge that the application of traditional WTO trade rules might create trade bottlenecks to the increasing volume and low value of e-commerce; and (c) the concern that any new legislation for e-commerce taxation should be friendly and programmable for future use with blockchain systems and smart contracts.
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Originally published by Leonardo Macedo, Global Customs, WTO WCO Customs Valuation, Trade Facilitation on Linkedin, 2 August 2018.