E-Commerce and Tax Planning : Canadian Experiences

In this qualitative research, we explore the deployment of electronic commerce by Canadian firms in the global marketplace, with an emphasis on the implications of e-commerce for tax planning. The business press and various governmental task forces discuss concerns created by e-commerce for traditional source-based tax systems; however, these discussions have presented little evidence on firms' reliance on e-commerce for tax planning. Similarly, academic research seldom examines whether tax planning affects firms' decisions to deploy e-commerce. It is thus largely unknown whether firms are actively considering tax issues in evaluating e-commerce, how the factors that have been identified as influencing e-commerce implementation decisions are balanced against tax planning considerations, and what barriers might exist in practice to using e-commerce for tax planning. We choose a qualitative interview-based approach to begin to explore these issues. Our findings suggest that tax planning is not considered by most of our respondent companies in their decisions to deploy e-commerce. The companies we interviewed tended to implement e-commerce over several years, starting with back-office technologies like ERP systems. As such, the ability to perform online sales transactions, which is a key component of using e-commerce for tax planning, often was not in place yet. These results are likely partly a function of size and age of company; larger, more established companies are likely to be in a better position to have the necessary infrastructure and to consider tax planning issues in deploying e-commerce. One implication of our results is that if concerns over tax revenue losses are realistic, tax policy makers may have some time to refine tax legislation to address the challenges raised by e-commerce, particularly for smaller and medium size companies