A relatively new concept at the end of the last century, e-commerce has gone from vague to thriving in just 10 years: By 2008, the estimated economic spend on the Web, excluding travel, surpassed $438 billion.
In Malta, online activity by businesses and consumers is increasing. According to Eurostat figures released last month, Maltese businesses registered 11 per cent of their turnover through sales over the internet; the EU average was 12 per cent. Last Friday, statistics published by the Malta Communications Authority revealed that 73 per cent of Maltese internet users shop online, up by 19 per cent since 2007.
The complexity of online commercial activity has given rise to varied tax implications for e-commerce which decades-old VAT legislation was not able to deal with.
Those issues came under the spotlight at Nexia International's European tax group meeting in Malta on Friday. Forty-five partners from organisations within the global network of independent accounting and consulting firms gathered at the Westin Dragonara Resort for the first of Nexia International's biannual European meetings of the year.
Ranked 10th largest international accounting and consulting network with a total combined fee income of $2.2 billion, Nexia International is represented by 528 offices in 103 countries. It has a total staff complement of 18,000.
Friday's meeting, the first ever to be held in Malta, was hosted by Brian Tonna & Co of Swatar, a Nexia International firm since 2007.
John Voyez, a European Union VAT specialist for over 20 years and a director of Smith and Williamson of Moorgate, London, told The Sunday Times in an interview that tax issues surrounding e-commerce have been debated since the late 1990s.
"Some have been resolved, but there is a generally unsatisfactory situation," he said, alluding to issues tied to permanent establishment and and policing.
Business-to-consumer aspects of e-commerce differed from business-to-business in some ways. In terms of business-to-business, customers accounted for VAT if they were based in a different EU member state. In the case of business-to-consumer, suppliers accounted for local VAT for customers in another EU state and had to charge VAT at the right rate which might be different from that in their own country.
Under a new one-stop shop approach, the latter scenario will be subject to changes in 2015.
A 'use and enjoyment' override provision affected business-to-business services, meaning suppliers had to identify their services' final destination.
Cross-border business-to-business e-commerce, particularly transatlantic, posed other questions.
"Some businesses in the US providing services to Europe are blissfully unaware of their obligations to register for VAT within the EU. Why should they know that? They are providing the services and private consumers are paying for them but there is an unlevel playing field," Mr Voyez explained.
Tax discrimination in this sense, he pointed out, was the reason for the debate surrounding AOL and Freeserve, one of the UK's largest internet service provider, in the mid-1990s.
One was providing services in the EU and did not have to account for VAT, the other was EU-based and had to charge VAT. High-level debates on EU suppliers being discriminated against led to the introduction of rules forcing non-EU suppliers to try to register for VAT purposes in the EU.
"But equally, EU organisations supplying US destinations did not have to charge VAT," Mr Voyez pointed out. "It was a bit disingenuous because there was an unlevel playing field the other way. There is discrimination. The issues are complex, and policing it is extremely difficult."
Years ago, he added, it had been hoped that the creation of a single market within Europe would cause VAT to converge into a standard rate over time but political pressures pulled in different directions and the 'wonderful idea' never materialised.
Asked about the so-called EU 'VAT package' which came into effect on January 1, Mr Voyez said the main issue for many businesses was a practical one and concerned administration. The new set of VAT rules will see the phasing in of fundamental changes on VAT's treatment of services until 2015.
"Until January 1, services supplied to an EU business went through a VAT return and that was the end of it. Now a whole new regime of reporting is necessary, much in the same way as it is for goods," Mr Voyez said, adding that businesses were spending more time doing paperwork, seemingly to no benefit to them.
"The argument for the VAT package within the EU was that it was meant to introduce more simplification and consistency of rules and controlling fraud. In theory, there is a massive exchange of information between who is supplying what to whom. It is for the benefit for the authorities, but none for business. It is also an added cost. Anyone involved in cross-border activities is going to be caught up in it."
Accountants, he smiled, moaned and complained, but it ultimately meant more business for the profession. As long as there will be tax and taxation, there will be paperwork.