| Summary: | Rapid advancements in communications technology and the development of the Internet
into a global 'network of networks' are said to be drivers of the 'new economy'. The
access to these networks have stimulated the emergence of 'cyber business' and
'electronic commerce'. In the world of cyberspace, this 'new economy' represents a
channel, rich in information, choices, opportunities, entertainment, knowledge, and
commerce. It has changed the manner in which society works and interacts, whilst
embracing the commercial sphere. The 'net' may be seen as an instantaneously
accessible global shopping mall. Thus, there is a need to understand the problems
associated with this new technology. As e-commerce continues to boom, globalisation
presents new challenges to governments around the world, tax policymakers and
administrators with regard to the application of existing tax norms. Whether or not the
Internet continues to be a driving force behind the economy depends upon the policies,
regulations, and taxes imposed on this new medium. The fact that the existing tax laws
were developed to deal with the trading of physical goods or the provision of services to
clearly identifiable persons, and not with the border less, faceless nature of electronic
commerce, tax authorities must reach an international consensus and clarity on which
taxing jurisdiction may collect taxes, when businesses and individuals are transacting
online. Characterisation of income is important because national and international
income tax rules assign different categories of income to different jurisdictions. The
concept of 'permanent establishment' is based on a physical presence, which may be
more difficult to apply with the modern communication systems. Due to the increasing
rate at which multinationals share central services and business development activities,
the transfer pricing issue is one of determining an appropriate price or value of
transactions undertaken between related parties. These issues need to be examined by,
among others, the OECD. It has yet to reach definite conclusions, but drafts of its
working papers, made pUblic, suggest a chief focus of the GEeD work will be to clarify
transactions in cyberspace.
This thesis critically examines the ability of the existing tax legislation, within the context
of the Income Tax Act 58 of 1962, to the challenges posed by trading on the Internet. An
examination of the impact of tax principles on e-commerce is prefaced by an analysis of
international response to this subject. The basic structure of the Internet, e-commerce
and its functioning is examined. These daunting challenges and the controversial sets of
issues are powerfully documented in this thesis, up to and including the enactment of the
Taxation Laws Amendment Act 30 of 2002, which took effect on 13 December 2002. === Thesis (LL.M.)-University of Natal, Pietermaritzburg, 2003.
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