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18 Taxation

328 IN ECOM 1 we called for submissions on whether there was a case for special rules for the taxation of electronic transactions, and whether such issues should be addressed by the Law Commission or the Inland Revenue Department.⁴⁵³ It seems evident that the Inland Revenue Department is the most appropriate agency to be forming policy in this area. We do not therefore propose to go into detail on taxation issues in this report, but do refer to the work being undertaken by the Inland Revenue Department.⁴⁵⁴

329 The Inland Revenue Department subscribes to an overall principle of neutrality, for example it does not discriminate between delivery mechanisms when taxing transactions. This principle is outlined in the Department’s Guidelines to Taxation and the Internet.⁴⁵⁵ Submissions received on ECom 1 strongly favoured the neutrality principle, and stressed the need to address the anomaly that software imported electronically is considered a service and not subject to GST, whereas GST is payable on the goods component of software imported physically.

330 This issue was addressed in the Discussion Paper GST – A Review⁴⁵⁶ which proposes treating the copyright in software as a service, but copies of programs as goods which would attract GST. The proposal would not affect goods imported physically under section 12 of the Goods and Services Tax Act 1985. Submissions are being received on the Discussion Paper, and Inland Revenue is in the process of reporting to Government.

331 The Inland Revenue Department is supporting the work of the OECD and other international organisations in developing a consensus on taxation issues within the electronic environment.