INTELLECTUAL ECONOMICS 2007, Number 1(1)
Irmantas Rotomskis, Darius ŠtitilisNEW RELATIONS OF TAXATION WITHIN ELECTRONIC COMMERCE
Mykolas Romeris University Publishing Centre. Vilnius. Lithuania 2007 Nr.1(1), p. 64-73
Abstract
Electronic space is steadily gaining popularity as an attractive environment for business organisation.
Electronic dispatch of goods in a digital form allowing to avoid traditional checking procedure, increased level of
anonymity of operations carried out within internet, introduction of electronic currency, and considerable mobility
of electronic commerce account for the governmental institutions’ concern about effective application of tax rates
that have existed up until now. Special attention is given to the more sophisticated procedures of value added tax
(VAT) as its regulation by current legislation has become largely ineffective in terms of newly-introduced business
models.
Criticism of VAT for its poor effectivity in the area of electronic commerce was based, to a degree, on the
circumstance that identification of the second party of a deed, that is the buyer, was impossible. Most authors argue
that information technologies allow to identify only the IP of a computer system, not a subject who used it.
The main objective of this article is to analyse the dilemma of e-commerce and value added tax (VAT) compatibility.
A search for effective ways of imposing a VAT tax on electronic commerce lasted in the European Union up till
2000. In 2002, the adoption of the Sixth Directive “On Value Added Tax” consolidated a new pattern applied to the
taxation of services rendered exclusively in an electronic way. Requirements of this Directive are in force also in the
Republic of Lithuania since 01 May 2004.
High demands are raised to the e-commerce sellers, therefore the focus is set on inadequateness between obligations
which are defined in legal norms and opportunities which e-commerce provides. Even the new changes applying
VAT does not wholly balance the relationship between tax institutions and e-commerce sellers. The new scheme is a
first step to the efficient application of traditional VAT to the new form of commerce.
Article also emphasises legal approach of virtual goods concerning VAT. Conservative legal stand of the EU
towards VAT object does not facilitate equal competition between traditional and electronic commerce. Legal approach
of virtual goods as being services, does not allow for electronic commerce to use all the advantages of information
and communication technologies can offer.
Keywords: electronic commerce, electronic commerce taxation, value added tax, virtual goods, digital goods.