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The following are the outputs of the real-time captioning taken during the Tenth Annual Meeting of the Internet Governance Forum (IGF) in João Pessoa, Brazil, from 10 to 13 November 2015. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid to understanding the proceedings at the event, but should not be treated as an authoritative record. 




>> MODERATOR:  Thank you so much for joining us.  We have some speakers for this panel.  We are waiting for the Commissioner de Freitas.  Maybe he was taken by an alien.  The panel is talking about Internet and taxation matters.  We have different people here from different backgrounds representing different stakeholders.  The whole idea of this handle is when we proposed it to M3AAWG and to the steering committee of the Internet Governance Forum, we had the evaluation of someone saying this would not be a topic; taxation was not a topic of Internet Governance.  A couple days ago, the opening session, he stated that taxation is one of the hardcore topics that we would need to face in the upcoming time, which was already really rewarding for us that we have here a pioneer session. 

What we have here is we are identifying some global trends on this front.  There are countries that are trying to fight legal practices of tax evasion.  There are some other initiatives that we have seen that are aiming at closing the loopholes that favor tax avoidance, for instance. 

There are also trends on new taxes, duties, pertaining to some Internet services or portions of Internet services in a country or even a state.  So we see this in different areas.  We see it in different countries and you see this in the OECD.  You see this in the actions in the U.K., Hungary, and other places.  The idea here is we are organizing a research in this topic and reaching with this panel.  This is just a first step for something that we want to make organized in looking to other opportunities of going deeper into this topic. 

So some of the questions that we are put in here is what are the basic topics?  This is the very initial stage of the research.  Are there good practices?  What are formal instrument?  Are there ‑‑ is there anything in place?  Should there be anything in this area?  What are the ways for it?  I'll keep some of this topics in the background just for as an inspiration for some of our speakers and for anyone in the audience.  We have a good group of people here.  We have from my left, Balazs Gulyas from Hungary.  We have my good friend Carlos from Mexico.  We have Parminder from IT for Change in India, and we have Usman Ahmed from Georgetown University.  And I see that commissioner Igor is joining us now.

>> AHMED USMAN:  Thank you, it is a groundbreaking topic and I want to say things for even proposing it and at the IGF is really kind of demonstrates the maturation of IGF that we can discuss topics like this which are a bit removed from the technical aspects of the Internet, but are certainly Internet issues in a sense.  And so why am I talking about this topic in my academic capacity at Georgetown, I teach a topic of taxation.  A lot of the discussion that you'll hear today will be about cross‑border taxation, and the Internet enables cross‑border commercial activity in a way that was simply never possible before.  That's where a lot of the issues that we're going to be talking about will arise. 

So the title of this panel is Double Irish Dutch Sandwich.  I don't know if many of you particularly you Internet people have ever heard this term before or would know what it is, it refers to a corporate taxation scheme that certain multinational corporations use where they take the profits that they make, usually through intellectual product products, and they book them, those profits, in an Irish subsidiary, and then they transfer from that Irish subsidiary to a Dutch company that they also own, and then actually transfer it back to another Irish subsidiary. 

The reason for this is highly convoluted and complex, dealing with tax codes, but I will just say that it greatly reduces the amount of effective tax that large corporations pay on their global earnings. 

So like I said, most companies that do this do it with their intellectual property.  The reason for that is traditional tax laws were designed to tax whatever you produce.  And when you produce something that was physical, like a manufactured product, it was pretty clear where the product was produced.  But now that it's intellectual property, you can say that the intellectual property was produced or is stored in almost any country around the world. 

And this is particularly relevant for Internet companies, because they don't really produce physical products.  They just produce a service usually, some idea, a search engine or social network or a marketplace or a payment service.  These are mostly ideas, intellectual property.  And the fact that that intellectual property results in profits means that Internet companies can utilize these types of schemes. 

So the decentering of corporations, meaning the idea that they can locate their profits in all sorts of countries around the world, is what has led to this being such a major issue.  It's led to what some economists say are the lowest corporate tax rates in history. 

But what I thought was interesting about this panel is that it wasn't just designed to focus on this Double Dutch Irish Sandwich, it wanted to cover all taxation issues.  I think there are a number of other Internet taxation issues that are uniquely impacted by the Internet.  I wanted to raise three more and then talk about where these discussions are happening, because they're not just happening at IGF.  They're happening in a lot of other places.  And then, unfortunately, I have to go to another panel, so I'll ask a bunch of questions for everyone on in the audience and the rest of the panel to think about as we approach this new area. 

So the second area where Internet taxation really is an interesting area for study:  First of all, citizens could be taxed for accessing the Internet.  You'll hear a lot more about that from our colleague in Hungary, Balazs, who will talk about his experience where an Internet access taxation law was proposed in Hungary.  But this issue is not just limited to Hungary.  Lots of countries have considered taxations on accessing Internet content. 

In the U.S., for example, there is a law called the Internet Tax Freedom Act and it bars federal, state, and local government from taxing Internet access.  But this law is not permanent.  It requires to be renewed every couple of years.  So presumably this type of law could be passed in the U.S. at some point. 

But as Balazs will tell you, passing an Internet access law is kind of difficult because you're taxing your citizens for accessing the Internet.  They don't tend to like that.  They don't want to pay more for accessing content on the Internet. 

There are other methods for tax collectors to use that could get the same type of revenue that they want.  So instead of taxing the citizens for downloading the Internet content, a taxing authority could just as easily tax the businesses or the content providers for uploading or sending the content.  For domestic business or domestic content provider, that would be quite easy.  It's just like a sales tax.

If any of you ever go to a store, the merchant that you buy the piece of gum or the food from has to actually collect and remit sales taxes.  So you could imagine a regime very similar to that being created for the Internet where anything that is bought and sold over the Internet, the person buying or selling it or the person generating the content has to pay a tax on it to the government of the citizen that is downloading the content.  When you talk about a foreign government, that would be like a customs duty.  When you send it across borders, there's customs duties. 

I'm sorry it's getting a little bit weedy, but taxation is a very weedy, difficult issue.  I'm trying to make it as interesting as possible. 

So the last ‑‑ on this issue of a foreign business sending an Internet transmission to a Brazilian consumer, let's say, the world trade organization actually has a moratorium, which means you can't tax, for duties on electronic transmissions in exactly what I described.  Chile business sells a song into a Brazilian consumer, you're not supposed to tax the transmission portion of that.  Again, this moratorium is temporary and must be renewed with regularity. 

So countries that want to tax foreign businesses would not have to worry about the backlash from domestic citizens who would get upset at the fact that they are being taxed, but you would imagine that if such a regime were to be enacted, the businesses, just like in the physical world, would probably pass that tax along to businesses.  If the Chile country has to collect 5% and give it to the Brazilian government, they'll probably make the consumer pay 5% more. 

We discussed corporate tax, inter-transmission tax, but I want to throw one more Internet‑specific tax issue on the pile.  I would call that eCommerce taxation.  Products and services that were traditionally only sold in person are sold over the Internet remotely.  They are buying these products from retailers in different cities, states, and countries.  And this is difficult for sales tax regimes that were for in-person transactions.  I will describe the Chile person selling a song to a Brazilian consumer, let's just change it a little bit and say it was a bicycle bought online.  So traditionally, a bicycle couldn't really be easily bought by an individual consumer from somebody in another country.  That would be very difficult for that to happen.  But now it's pretty easy to go on a platform and buy a product from somebody in another country.  But the tax regimes weren't really designed for this type of transaction. 

The idea was you only tax those over whom you have jurisdiction, meaning they are citizens of your country or you have physical proximity to them.  Now it's a lot more difficult for the taxing authorities to kind of handle the eCommerce products and services that are flowing across borders.  So collecting and remitting for a lot of these eCommerce cross‑border transactions is incredibly difficult. 

So the difficulty in all of this, hopefully this is the more lively part, is that in the area of taxation there is nothing like the Internet Engineering Task Force, which all the IGF people know about, kind of setting the technical standards for the Internet.  There is no one body that decides here is how the tax laws for all the different countries work together.  They are usually set up by the national governments and they don't really harmonize with other countries. 

The closest equivalents are modern principles that the organization for corporation and development, OECD, and the UN commission on trade and commission, and there are people that know about that on the panel.  Those are not binding and result in variations amongst themselves.  You'll hear about the OECD inquiry about the corporate taxation issued I talked about.  I want to close with a number of questions for everybody else on the panel and for the audience to think about with this very new, exciting to me, I hope it's exciting to you area of Internet policy, which is kind of taxation and the Internet. 

Number one, do we see a world where there is no new taxations on the Internet?  I think that would be difficult to imagine with so much commerce shifting to the Internet, that we're not gonna see some type of new taxation regimes enacted to deal with both the corporate profits on the Internet and also the actual physical and digital sales during over Internet. 

Secondly, will countries revise their corporate taxation rules to kind of prevent the forum shopping, let's call it, that companies are currently doing?  And I proposed that in a bailout of Ireland, when the EU was helping out countries that were suffering through the financial crisis, Ireland could not be convinced to change their corporate tax rates and corporate tax rules.  It's a very difficult proposal to try to change some of the corporate tax rules.

Third, can companies sign up to a code of conduct on business taxation?  Some kind of voluntary agreement where they agreed to pay taxes and remit them on behalf of the different countries through which consumers are buying? 

Lastly, fourthly, a few articles have been written for a proposal for a global eCommerce flat tax rate.  You would create this big pool where every eCommerce transaction is reported.  Maybe it uses Blockchain, I don't know, and is required and at the end of the month or the end of the year, payments are made out to individual countries based upon how much their consumers consumed.  That seems like a very far out there solution, and it's academic solution, no doubt.  But it's one that's been proposed to potentially deal with a lot of these issues. 

Thanks again.  I have hope I made it somewhat more interesting than tax discussions usually are.  I think there will be a lively discussion about these topics.  Thanks.

>> MODERATOR:  Thank you, Usman.  That was sometimes not an easy to understand topic.  Thank you for explaining the name of the panel, because there might be someone here thinking that this was ‑‑ we would be sharing recipes or this is just a bar.  That's not the case.

>> RENATA EMERY:  Good afternoon.  As Usman was saying in an interconnected world, it's difficult for countries' national tax laws to keep pace with all the movement of capital in the world and the Digital Economy.  Due to this difficulty of governments to keep pace with all of these developments, gaps and mismatches arise in the legislations of the countries that allows double or double nontaxation situations to occur.  That is the main concern of developed countries of the countries in general, how to tackle these situations and to prevent double nontaxation to occur, especially in a Digital Economy. 

Having that in mind, the OECD.  Along with the G20 launched an effort to prevent base erosion and profit shifting.  Among this huge work that we have initiated, there are 15, if I'm not mistaken, different action plans.  The first one deals with the Digital Economy.  The reason why Digital Economy is so important, as Usman was saying, is because it's due to the virtual and the demilitarization of the Digital Economy.  It's easy to relocate activities or IP rights from one country to the other and to place such IP rights or activities in tax havens or low tax jurisdictions.  So as the main reason was to identify the situations, the digital systems we have in place, and try to establish some measures to avoid this double nontaxation.  OECD is combating the artificial arrangements that segregate income from the actual activity that generates such income. 

Also, when we talk about income, we are talking about corporate income tax.  When we are talking about transactions with goods and services, there is also the concern about the VAT.  And in a Digital Economy, it's also easy to avoid or to reduce largely the VAT collection.  So all of these create a distortion in competition.  It affects the countries and reduces collection, which is a big issue for governments.  The focus of the OECD plan is on multiple national enterprises and their schemes.  But when we talk about Digital Economy, it's much wider than that, especially when it comes to end users, which are buying and small applications and softwares every day at the Internet. 

The OECD action plan focused, as I mentioned, in the multinational enterprises.  The main issue was how to attribute income to a permanent establishment or to a company in a certain country.  For example, we have iTunes.  I don't know where iTunes is placed, but I can buy music, I can buy a song through the Internet in Brazil via the iTunes.  So to which country the tax is going to be paid on that transaction?  That is the question that is posed whenever we come to this kind of transactions.  So OECD focused on determining how to attribute this profit and the competence of the country to tax such profit. 

There are several proposals.  One of those is to determine digital presence which would be according to the presence of the country where the company has a large number of contracts or business being done in such a country.   Another proposal is to establish a virtual fix to place the place of business, VPE, virtual establishment, where it's located.  It's also difficult, because a website is in the Internet, so it may not be located in a physical place. 

Also, virtual agency has been proposed as a manner to determine the permanent establishment.  This would apply in the place where contracts or a sign are entered for the acquisition of goods and services, despite the actual location of the parties selling those goods and services.  Contracts in this case ‑‑ I mean, contracts signed in a technological environment. 

So all of these proposals from the OECD, they only reveal how difficult and complex the issue is.  That's why we can ‑‑ the OECD could not come up with a final solution for all of that.  One of the proposals is to establish a withholding income tax that would send most of the payments are made with credit cards or via other electronic means; these withholding tax would be under the responsibility of financial institutions to withhold and collect.  This, of course, is one of the proposals. 

It says also important to bear in mind, the reason it's being focused is because it's a group of entities to shift profit and transfer in an artificial manner among the companies of the same group.  But it's also easier for countries to fiscalize those larger groups.  Once these measures are implemented on larger groups and its more difficult, of course, to implement the same measure for smaller companies or end users, which can be multiplied in millions and be located everywhere, but once you implement those measures against multinational enterprises, you will also have those multinational enterprises collaborating with the government.  Otherwise they would be harmed in competition because they would face taxation while the smaller companies would not be taxed.  There will be expected to be some collaboration from them to tackle the smaller companies as well. 

The Double Irish Dutch Sandwich that Usman referred here earlier, I just tried to put the example of what it means so we can understand how in this Digital Economy world taxation can be severely affected by these types of schemes. 

So you have as an example, a U.S. parent that owns the IP rights, licenses this IP rights to a double residence entity.  It's a holding ‑‑ an Irish holding, but it's also a Bermuda company.  It's Irish because it has been incorporated under the laws of Ireland, but it is tax resident in Bermuda, because the control and management of this company is run out of Bermuda. 

So the U.S. parent licenses the IP rights to these double resident entities, and the double resident on the other side will sublicense the same IP rights to a Dutch holding.  The Dutch holding on its turn will sublicense once again the same IP rights to the operational Irish company.  All of these take places within the same multinational enterprise group.  The operational Irish company will then realize the actual activities, will sell ads, for example, to clients and will receive money revenues from its activities, but it will have a huge expense, royalties that it has to pay to the Dutch holding for the IP rights that it has sublicensed.  So in the end of the day, it will leave the operational company with no profit at all or just a small profit being taxed in Ireland. 

Since there is no withholding in Ireland, royalties can be remitted to the Netherlands without any taxation.  The same rationale will happen in the Netherlands.  The Dutch company will receive the royalty payments, but it also has huge expenses because it has to repay royalties to the double resident Irish/Bermuda company. 

There's no withholding as well in the Netherlands when such royalties are paid to the holding ‑‑ to the double resident holding.  And since the double resident is actually in Bermuda ‑‑ is actually in Bermuda, it's not going to pay taxes at all in Bermuda because it's a tax haven. 

So the Bermuda company will finally pay royalties to the U.S. company, but the difference here is that the amount of royalties being paid to the U.S. company is just a small amount, leaving most part of the profit in Bermuda with notation at all. 

So throughout the whole chain only a small part of tax has been paid in each country because just small margins were left.  This is the kind of arrangement of artificial arrangement that the OECD is trying to combat.

>> MODERATOR:  I guess we could come back, because I guess it's very clear with the Double Irish and Dutch Sandwich, amazing explanation.  Do you mind if we hand it to someone else and then we come back to the other topics.  I would like to give the word to Balazs.  My question for him it's something like how in this scenario that we have with taxation companies trying to maximize their efficiency in paying taxes.  Countries are going after a big source of revenue, which is on the Internet.  Could you tell us the experience you had in this matter in Hungary?

>> BALAZS GULYAS:  Let's be clear.  It was the taxation of the Internet itself.  The government wanted to put an extra tax on the Internet above the value added tax you already pay after your subscription and that would have been half dollar per gigabyte.  That would make Hungary the first country in the world where torrent downloading film could be more expensive than buy a DVD.  So it would be quite interesting.  Then they put two and a half dollar monthly limit on this tax, but it was sometime ridiculous.  It was very visible to get money for the government, but also it was interfering in the people's private life.  People did not like government propaganda, and the government went after them. 

Technically, what happened on the day when the tax was announced, I found the Facebook page after my class at my university and when I got home, there were already more than a thousand likes on it.  I felt we should work on this topic.  The page was named 100,000 against Internet tax.  We reached it within 24 hours.  So it was a very honest Facebook page name.  It doesn't promise anything more than it was. 

Then we reach more than 200,000 likes on the Facebook, more than the government party had.  The government did not withdraw the tax.  So we needed to be street protest to stop it.  There were protesting in rural town.  So the only withdraw the stupid tax after it. 

And the symbol of what we imported from Asia, the lighting of the mobile phones was also an important thing, which could be symbolizes modern digital culture against medieval views of the government.

So what was important to note that there were Internet issues protest in Hungary, but they were much smaller ones.  In 2012, the ACTA, the anti‑counterfeiting trade agreement, which was very soon signed by the Hungarian government, it was only protested by hundreds of people.  So it wasn't as a big issue as this Internet tax.  So actually what was the most important what we did is we focused on the one issue that interested the people and angered the people so we could stop this stupid move, and we also wanted with that to improve the civic culture to make people understand that people can stop the government and that happened.  So we were quite happy. 

But also I hope that what's happened with the Hungarian government with the tax idea will deter countries on the taxation issue.  As our government once heard of its supporters after these protests and other protests, and lost all the parliament by actions after it.  So we hope that there won't be taxation on the Internet itself, because that's quite ridiculous thing to do. 

Thank you. 

>> MODERATOR:  We had a video.  You can just type online.  This is a short video that Balazs shared with us.  You can find it on YouTube.  The size of the demonstration on something like taxation, it's very interesting.  As Balazs mentioned, it was very much turned towards the access topic that Guzman referred to. 

I would like now to share some of his views, Carlos, and then we keep moving.

>> CARLOS GUTIERREZ:  Thank you all for coming.  It's an honor to be with you and my colleagues sharing this panel.  I'm just going to try to compliment Renata's position about the OECD plans if BEPs should be imposed, if it's possible to be imposed and a possible solutions to go forward.

For you to understand ‑‑ and I would like to go back and why the Internet has changed so much the way of doing business than the local tax jurisdictions have decided to take changes in the regulations so they can start having income from those type of businesses that the Internet has derived. 

The two main accesses in Digital Economy is data.  The intangibles that multinational enterprises can separate ownership from the activities that created both intangibles so they can shift the profit.  Second, the mobility of the users.  Now a person can reside for tax purposes in one country, for example, I live in Mexico.  I can come to Brazil, download something, and then I can go to Colombia and use that product in Colombia.  Third of all, is the mobility of businesses.  

Now, they can be in whatever country, for example, Colombia, and from Colombia, give services to people all around the world.  The second aspect is the reliance of data.  Now it's a lot of intangibles that are really hard to value and content from the Internet.  Even now, like the reviews you buy a product on Amazon, have value because they now can create marketing specific ads for your profile. 

So these changes have changed a lot of the way business is done.  For example, before the Internet, business to business commerce was biggest of all, because only companies would buy and sell to companies.  Now with the use of Internet, Amazon can import just one book from the United States to your country without great expenses.  And even now consumers to consumers can buy and sell products.  Amazon itself is a great example.  You can buy or sell your used books to another person in another state or another country. 

What happens, VAT regulations before didn't contemplate this kind of situations because normally you would import something, a company would say, okay, I'm going to import at least a hundred million products into this country, so all the expenses are worth it.  So the tax regulation said, okay, if you import less than a hundred thousand products in value, there's no VAT.  But now a lot of consumers, personal consumers, now get from Amazon a lot of books individually.  Now VAT regulations under the VAT regulations, these purchases are exempt and the local jurisdictions are not collecting any revenue.  This is what they have decided to change and this is why the OECD is trying to make an effort in this BEPS solution to try to make ‑‑ to update the taxing rules all across the world. 

But this OECD has a lot of problems, because it's an international matter.  Tax regulations are domestic regulations by principle.  Imagine yourself this.  So the United States and United Kingdom are the biggest countries with Internet companies, withholding companies like Amazon, Facebook, Twitter, all the big companies you can imagine.  90% are in the United States.  So they will oppose a lot of Renata's provisions she told about OECD, because those positions are beneficial for countries like Spain, Mexico, Chile, Italy, that have a lot of consumers, but do not have the companies that produce those goods.  So when you impose those measures, but if you're from Mexico, you would welcome them, because they would allow you to collect the income that they are not collecting.  So the action 15 of BEPS is the multinational agreement, that all countries sign this huge contract, and all countries obliged to follow the rules of this contract.  It's really hard for that to happen, since I just said.  Also, because, according to domestic legislations, a lot of legislations have to implement domestic changes in the real rules in order for tax treaties to be efficient in each country.  So even though are you all the countries come to here sign the treaty; a lot of countries have to implement changes in the domestic laws in order for the treaties to be effective. 

This is really hard.  For example, United States, it's really hard, even though the president signs a treaty, that conga proves it afterwards.  So it is really hard right now to reach a common ground.  But I think it's very necessary, because if we're to reach a common ground, things like in Hungary could happen.  And it's happening right now, because each country is deciding to implement its own rules, because each country wants their share of the pie. 

So in Mexico, for example, there have been a lot of tax changes and rules citing BEPS, like this magical form that legitimizes any change in taxable rules.  Not exactly in Digital Economy, but.  I would like to say one example.  Social welfare expenses.  Normally under Mexico law, these social we will fairly expenses are not taxable to the employees.  It's a way of the government to promote cultural and social welfare for the population.  But now, under BEPS and one of its principles that it says that if one party deduces the payment, one payment has to recognize that income so they have limited the deduction on the employers, because the employees do not tax that income. 

But they have created an artificial tax base for employers.  So at the end, what is going to happen?  Tax employers are going to reduce the social welfare expenses against the interest of employees and it is completely unjust.  So what do I say we have to get from BEPS?  In this new context is to get certain guidelines that specifically say how to interpret BEPS principles so we can avoid any abuses by each country trying to implement laws in their own entity.  Each country has the decision to do it.  That's the problem.  There's no international rule that prohibits any country to change their taxable rules in order for them to get income. 

So apart from this, and after some discussion, I would like to pass the word to Sergio.

>> MODERATOR:  Carlos, thank you so much.  That was, again, one more amazing talk and speech.  And I'm going to head it now to Commissioner Igor.  We have been talking about the digital topics and what we see internationally.  I would like to see what Igor's vision is. 

>> IGOR VILAS BOAS:  Thank you.  In Brazil, Anatel is one of the largest tax collectors responsible for collecting as we say in Brazil, an amount that reaches 2‑ to $3 billion a year.  This is a new issue from our standpoint because we are not up to now ready, capable of dealing with the sophisticated schemes to see.  That's not our focus of attention. 

I will present you a different perspective from the regulator to this issue of Internet taxation, which is related to something that Renata mentioned in her presentation a few minutes ago regarding the story.  We're not in competition.  In Brazil, this is a real problem.  We have a very high level of taxing telecommunication services.  It's a huge gap between those level and the level applied to Internet services.  All the services provided by the Internet, ordinary telecommunication services.  This is a real problem because there is different level ‑‑ it's not level, not level between telcos, this is a very known complaint from telecommunication providers, not only in Brazil.  Their country mantra is if we provide same services, we should be submitted to the same rules.  And they ask for deregulating telecommunication services in order to reduce regulatory costs in order to make them more competitive when comparing to the same or analog services provided through Internet, which is not subjected to the same level of taxation. 

So this is a very ‑‑ this is quite different perspective from those presented by my colleagues on this session.  It's relevant for you ‑‑ for all of you to reflect.

(Audio dropped)

(Portion of audio lost due to Internet disruption)

>> ‑‑ says the exchange of goods and services and, of course, there is also a principle of neutrality and concern on competition behind all of this, because traditional business cannot just be left behind paying taxes while in digital competent, you know, transactions.  But, of course, there are many challenges when we come to that, because it's easier when you're talking about Pam as on, where you're dealing with a product or even sometimes to tax why the software downloads and whatever.  But there are many kinds of economy business which the government will also seek to tax and we don't have answers for that.  Let's put an example collaborative work.  That's the trend, but in the end of the day, we are going back in time.  We are exchanging things I'm paying your work with my work.  Shouldn't that be taxed?  What about the Bitcoins?  It's also a currency.  Shouldn't that be taxed as well? 

And when we talk about cloud computing, data centers, there are so many situations where taxation, we already know those kinds of businesses, but we don't know how to tax that.  It faces many challenges yet.  And mostly because many countries, they have different grounds in their national laws, different concepts in their national laws which makes it difficult to have a common base to tax those circumstances.  And the action 15 of the BEPS, which is the idea to have a multilateral agreement among countries, just so many of these issues, is something that none of the countries believe will take place because the international policies and the individual interests of all the countries are also in place.  So there are many challenges still to be faced.

>> MODERATOR:  We're open for the floor for just a couple of questions, and then we'll be back with an audio that I guess we have from Madagascar.

>> AHIANA RAKOTOMALALA:  Thank you.  Thank you for a very interesting discussion so far.  I'm going to propose because so far the panel has been characterizing sales tax on transactions online as bad and tax on access on the Internet ‑‑ no; it's the other way around.  Sales tax is good and tax on Internet access is bad.  This is one of the challenges we face, for example, the network debate where countries are saying that you have all these Internet companies having access to all of our infrastructure and we can't tax them. 

As Parminder mentioned, tax is also about economic distribution.  Also considered that the Internet's not really neutral and concentrated in certain areas and certain countries, and that perhaps Internet access that would be appropriate and in fact also good for the public of the Internet and rights based, people‑centered Internet. 

Thank you. 

>> RENATA EMERY:  Your question is very interesting.  That is one of the things that OECD wants to tackle.  In fact, what happens in this Digital Economy you have infrastructure in one country.  You have the company based in another, the end user in a third country.  Which country has the competent authority to tax the business?  So one of the things is how the profit to any of those countries, is there any material presence to establish a permanent establishment to redistribute profits.  There are a few proposals from the OECD, but all of these procedures are very difficult to implement.  Because it has to take into consideration various factors.  Where the product has been consumed, where the website is located, what is the number of transactions taking place in the country, because you're just defining a virtual permanent establishment, you're creating a virtual figure to allow a country to tax a portion of the profit that has been generated there. 

Take, for example, a case where imagine that you have your Brazilian resident, but you have a bank account in New York.  And you're buying a product to ‑‑ from ‑‑ I don't know, from an Indian company, but you're paying through a media which is a payment which is provided from Austria, an Austrian entity. 

Imagine that what you're buying is software that is placed in a data center in Austria.  So what is the country that ‑‑ where the business was really generated?  What is ‑‑ which of those are the country that has the right to tax this business? 

You're a resident in Brazil.  You paid from the U.S., so source country is where?  Brazil?  The U.S. where the payment is made? 

In the business, where the business was generated is where the software is located?  In the data center?  Or is it where the company, the head office of the company in India is placed?

>> MODERATOR:  Do you want to have a short comment and put it in a very comprehensive way.

>> IGOR VILAS BOAS:  The level of taxation is about wealth distribution from all the cities, states, countries, regions, and there are two sides of this coin we as individuals may be happy not collecting in a specific purchase taxes and allowing us to buy a good or service cheaper.  But at the end of the day, when it concentrates the profits as a consequence the tax level in one specific country or region, tend of the day, we don't have enough resources as Parminder points very correctly.  We won't have resources for the infrastructure to all the economy.  That's a problem when Internet seems a force very good on that way that it promotes competition by allowing people accessing the best prices, the best products, the best information.  When it comes to distributing wealth, we need to realize that it has real and very short term effects on economy on the wealth and distribution in our country, city, and state, and region.  That's what this panel session is all about.  We'll have to deal with taxes, as Parminder mentioned that, but access is ‑‑ it seems possible not to deal with this.  We don't have away for leading taxes without the arrangement.  We put it to make the point here.  It's a multilateral discussion.  It's mostly ‑‑ there's no way there's force.  It's impossible.  I would like to make it up to provocative point here.  It would not be possible to deal with corporate decisions, only mainly we have to deal in a very multinational.

>> MODERATOR:  Thank you.  I guess we have someone online, Carlos, you have three minutes.  This has been the practice in other workshops, if you have that, please.  Can you check?

>> CARLOS GUTIERREZ:  I cannot hear you.

>> MODERATOR:  No.  Carlos, you have a lot to say, but I can't remember now.  That's the name of a song.  And there is more to come.  My friend Carlos will be helping us along the way. 

Is there anyone else ‑‑ do we have him?  Carlos, we'll have to have only a few minutes.

>> CARLOS GUTIERREZ:  I'm Carlos Gutierrez from Madagascar, in the practice of administration policy.


>> First is to offer in Developing Countries to tax companies under the businesses of the Internet.  Sometimes identifying measure of sectors of government in low income countries and taxing those companies.  The eCommerce has the potential to spurn economic growth in industrial country. 


‑‑ agreements are complicated and difficult to apply.  Lay down the framework why we have now this domestic law and agreement.  In Madagascar we only have two.  The third is France, which was done in 1983 and (?) In 1994.  The question we ask is the company as a permanent establishment which has direct tax.  What (?)


So the taxation is not (?) For the type of differences to allow panoramic differences. 


The tax principle should be efficient, simple, effective, fair, and flexible.  So that is the presentation

>> MODERATOR:  Thank you, so much.  (?) That was very efficient.  I want to open the floor for someone if there are questions or comments.  I need to expand a conversation that I started yesterday evening with someone from a jurisdiction project that I would not say who that person is.  But I want to hear from him. 

>> AUDIENCE:  Hi.  This is Mahamat from ISOC ambassador.  I think it's very important topic that we are discussing today.  And I really respect the points which have been put forward.  And there is a broad sense of consensus among the audience as well as the panel member that the transaction should be taxed.  Eventually it will be taxed.  We are in a difficult situation, but I think we will find an answer to this eventually.  I'm very optimistic. 

But like in the case of Net Neutrality, where are some business models where there is no money changing hand.  I think that's where the difficulty will come even more.  So in case of where there is the data, where the consumer is the product.  And the consumer data has been sold and the money collected.  So how are we going to tax those?  That's more intriguing questions to me.  If there is any initial thoughts on that, I'm, again, not a very good tax expert.  I would just like to understand maybe.

>> IGOR VILAS BOAS:  Thank you for your question.  Of the thing we were talking about was the taxation of valuation of profit creation.  If there's no creation, that's what the OECD stated at the beginning.  So there has to be a base erosion or base creation of income.  That's the only justification for countries to decide to tax on the Internet there is no base creation, no base erosion.  There is no advantage of the multinational companies by shifting profits.  So if we stick by the OECD rules, they stated, we can conclude there can be notation at that point.  And I think there should not be notation.  I don't know if that answers your question. 

(Off microphone)

>> RENATA EMERY:  Your question is very important.  This has not been tackled in the OECD action plan, one, but this is the future, because we have business.  Of course, we have some business where we have trade.  We have wealth being exchanged between individuals without money exchange.  And in the future, I think governments will want to tax those transactions.  How will they do that?  We don't know yet.  But this is the next step.  I think it is.

>> MODERATOR:  Okay. 

>> AUDIENCE:  Good afternoon.  I'm the director of the Internet and Jurisdiction Project, but I speak completely on my personal behalf.  This is an extremely complex topic.  I want just to highlight the natural distinction between the sort of value added tax versus the corporate tax problem.  And when I look at the very nice poster up there, it's fundamentally the problem of the corporate tax that is becoming one of the most sensitive.  The other one is not a minor one, but I wanted to address this one. 

The situation we're in today is the result, as I discussed with Sergio yesterday and you may have mentioned it before, of a typical situation of a dilemma, where fundamentally, particularly in Europe, let's be honest, the governments themselves are entirely responsible of the situation that has now we have to deal with.  And without naming names, we exactly know which countries have chosen very legitimately in their own view to do very great effort to have a tax benefit or very low taxation regime to bring very large companies into small countries, because it was extremely interesting to have a very large company with a very low taxation that brought a lot of money in comparison with the size of the country. 

And so when we talk about all those amazingly novelty schemes, putting aside those that are illegal and certainly there are some, but most of them are really intense that you can get when you have the money to pay extremely intelligent lawyers and tax accountants.  The problem and the reason why I was nodding my head when you said this is a multilateral problem, is that the current situation is the result of a multilateral nonwork, because the unilateral interests in each of the countries and the principle of separation of sovereignties, means that if one dumping in Europe, collectively they don't have a right. 

This actually leads to the situation that we have today and fits with what Parminder was alluding to earlier.  Part of the money that should be raised through corporate taxation should be also enlisted in facilitation of investments in infrastructure.  By the way, would potentially benefit the companies themselves, which is one of the reasons where they normally accept to pay taxes in one country. 

Unfortunately, I've been in the French administration and I've seen how a lot of the distribution of licenses in Europe a few years ago were conducted.  The money that had been taken on licenses, which was another type of taxation, from the companies has been reinvested in things that had nothing to do with the Digital Economy.  It went in pension funds.  It went in other things.  And the end result for the economy of Europe and the companies and the governments themselves was absolutely a negative sum game.  The reason why I was nodding is if you continue to discuss this in a purely multilateral thing, it will remain a sum game.  I do not mean it is companies that must fix the taxation.  That's a stupid idea, but unless, and we are the IGF here, unless there is a serious open public discussion with the governments, with the companies and with the different users of citizen representatives on how to get into a positive sum game so that there is money that is being distributed or collected and invested infrastructure, we're going to continue the circle of the dilemma.  We need to have the information between the different actors, I think.


>> MODERATOR:  We need to wrap up.  We are out of time.

>> PARMINDER SINGH:  Nobody is saying without discussion.  There should have been intensive public participation of years and months to get the writing.  With the commissioner I was seeing the decisions is all non‑definition of multilateralism which we get confused with.  Everybody says huge public participation.  Second thing, the original problem was that we need to shed sovereignty, which you share spaces and force each other to I'll do it and rule to do it sign onto something.  Last thing, I don't think companies pay tax because they think the tax is going to good purposes.  They pay tax because they have to pay tax.

>> MODERATOR:  Any other interventions?  I guess we are out of time.  I know we had one more question.  I don't know if we can make that ‑‑ it's over; right?  But I wanted to thank everybody for coming here.  It was a long time of planning for this to happen.  I have some good friends here, and people from all over.  I really want and appreciate ‑‑ I want to thank your presence here.  And I do appreciate the time that IGF gave to us to comment on this emerging topic.  We might be back with this at other countries.  Thank you so much on behalf of IDP.