sou · GQB3112 · 2003-01-01 00:00:00 — In this connec- tion it might be worth mentioning Article 29 paragraph 1c/ of the Child Convention, which lays down that education should be di- rected to the development of respect for the childs parents, al- though this provision refers to education through the public sec- tor school system. 3 The movements of the child on the Internet There are no signs in the different sets of rules that children should be stopped totally from accessing the web. This is in con- formity with the Child Convention, as it expressly provides for a freedom of expression which includes freedom to seek, receive and impart information and ideas of all kinds, regardless of fron- tiers, either orally, in writing or in print, in the form of art, or through any other media of the childs choice (Article 13). How- ever, there are certainly dangers connected with the childs surf- ing the web. The Child convention does provide for some restric- tions in the right of the child to gain information, i.e. for the re- spect of the rights or reputation of others or for the protection of national security, public order or public health or morals. This should include restrictions in relation to childrens possibilities to reach the sites of pornographic traders. The relationship between the child and mass media is also dealt with in the Child Conven- tion Article 17, although in a weaker form. Thus the child should be protected from information and material injuries to his or her Council directive (89/552/EEC) of 3 October 1989 on the coordina- tion of certain provisions laid down by law, regulation or administrative ac- tion in Member States concerning the pursuit of Television broadcasting ac- tivities. well-being through guidelines. Such restrictions are also in con- formity with the general ambition within Union to create confidence towards the net. One important issue in this regard is the role of the parents. The duty of upbringing includes helping the child to develop its capacity to take part in matters of society. In the relevant soft law the view of the parents duties varies considerably, and this also affects the duties of the trader. Thus it could be considered a pa- rental duty to sit beside the child in front of the computer. In such a case it might be considered the traders duty to encourage the parents to do so, which raises questions as to what the traders are obliged to do in order to achieve this. Another view of the par- ents role is that they should in other ways take care to ensure that the child does not meet dangerous material while surfing the web. In such a situation the duty of the trader could be to help the parents by means of appropriate hardware or software. A third possibility is to regard the parents as not present at all, which is probably the commonest situation, as many parents still do not have the knowledge to interfere. In such a case, the relevant duty on the side of the trader should be to act in such a way that chil- dren are not harmed. It is obvious that the duties of the traders are considerably lower with a competent adult on the other side than with only a child as their opposite number. 4 The protection of children surfing the commercial parts of the Internet Of fundamental importance for children is the definition of the advertising target group, i.e. whether the target group includes children or exclusively consists of children. There are not many items of legislation in Swedish law concerning the protection of children in connection with marketing, but there is a ban on tele- vision advertising directed at children under twelve, and there is an interesting case to illustrate the effects of it.2 A decision of the Swedish Market Court (MD 2001:5), concerned a television ad- vertisement for the version of . The trailer consisted of sequences from the animated film and pictures of children apparently enjoying the movie. The speaker voice, how- ever, used words which were not regarded as particularly di- rected towards children. Furthermore, the trailer was transmitted at four times which were not believed to be peak viewing hours Radio- och TV-lag (1996:844) Chap. 7 § 4. for children, and in connection with programmes having adults as their presumed primary audience. The relevant times were 15.10, 21.00, 19.30 and 15.35. The advertisements were not considered by the majority to be directed at children and were therefore not covered by the Swedish prohibition of marketing directed to- wards children. Another case of the Market Court could be men- tioned in contrast, namely MD 1981:5, which concerned a whole- page picture in biggest morning paper of a child about 10-12 years old eating a hamburger, with a text about unappetis- ing school lunches. The advertising came next to the editorial page, where nothing else of general interest for children is to be found, but the court found that the advertising generally could reach children as well, and this influenced its reasoning. The cases illustrate the difficulties in relation to mixed messages. Legislation that only covers advertisements specifically directed towards children may be a waste of effort. However, there are also other methods to solve the problems connected with mixed messages. One way is to provide for a minimum protection that all advertising should live up to. An- other approach is to require that advertising should be adapted only to one target group. In that case there will be no mixed mes- sages and it is possible to have special requirements for advertis- ing directed towards children. A third approach might be to com- bine these methods. All these methods have been used in the relevant soft law to protect children from dangerous material within the commercial parts of the web. Such dangers could involve pornography or vio- lence and could appear in pictures and texts in advertising as well as being a part of products and services of different kinds. A minimum level of protection for children could be to recommend that advertising should not contain any element which might re- sult in harm to children or cause moral, mental or physical detri- ment to children. A similar solution is also used in connection with television. Thus, Article 22 of the Television-without fron- tiers directive prohibits TV-programmes which might seriously impair the physical, mental or moral development of minors. Such minimum rules are also used in the different items of soft law. The other solution, i.e. ensuring that advertising is not con- strued in a mixed form, appears to be used, although in a less clear-cut form. What is required is that the advertising should be adapted to the relevant target group. However, in my view achieving such a goal must be an almost impossible task. There are also interesting differences as to how the different items of soft law describe the duties of the trader. Such duties could be ascribed the trader or the commercial communication as such (cf. code subscriber may not... with codes should). Furthermore, the duties could be described as a positive obliga- tion, (e.g. to encourage young children), or as a prohibition or something similar (e.g. children should not be tempted or do not encourage). The rules could be comparatively precise (e.g. entertainment should not be combined with or punctuated by ad- vertising messages) or very imprecise (e.g. do not encourage children to buy a product by exploiting their sense of loyalty). Even a comparatively precise positive obligation could constitute a weak safeguard for children if the traders only duty is to iden- tify material intended for adults only, if it is not also required that such material should be clearly separated from material intended for children or young persons. In this connection it is also important to mention the risk of the trader having links to unsuitable material from his web site. This is particularly dangerous when the web site is directed to- wards young persons. But in other situations too, such links could be highly inappropriate. One way to regulate this is per- haps to consider such a link as an encouragement to enter such pages. However, it is still debatable whether a mere link is suffi- cient proof of encouragement. Protection could be more difficult to achieve when pornog- raphy or violence is used as a marketing device for other prod- ucts, considering that such means could be quite effective mar- keting in relation to teenage boys. However, this is more of a general marketing problem and is preferably solved by such rules. Generally, according to Swedish law, it is required that marketing, also in relation to children, is of good standard and does not exploit childrens or young persons natural credulity or inexperience. Even childrens illusions are protected in one of the soft law systems. Generally, there is also a requirement that ad- vertising should be clearly identifiable as such, which could in- volve a difficulty in connection with the construction of a web site. What is advertising and what is general information about the company? It is not acceptable for games or other forms of en- tertainment to be interrupted by advertising messages. 5 Childrens conclusion of contracts National legal system generally develop forms to keep children from concluding contracts they are not allowed to conclude. However, as we have now seen, the national rules as to the ca- pacity of children vary considerably. It might also be difficult to ascertain which legal system should be applied. Thus general rules concerning legal signatures are one measure which also protects children.3 However, these are still at the implementing stage and it is still impossible to evaluate the result. By compari- son with the present situation it could involve an important change for the better. Another measure to protect children is to have the same soft law regulating the problem. In the soft law discussed there are suggestions that traders should not accept or- ders from minors without the explicit and verifiable consent of the parents/guardians. This might in my opinion be going too far even if it perhaps may be justified through the particular dangers to children which Internet contracting entails. However, it is a good solution for those countries where children are al- lowed to conclude any contracts at all without their parents con- sent. It might also be a good solution as a precaution to ensure that children do not pretend to be someone else, which might be an important problem, given the anonymity of Internet. So far we have been dealing with the situation when a con- tract is about to be concluded. But another interesting point is how the child reaches that point. Not seldom it has been encour- aged to do so by marketing. This matter is also dealt with in the relevant soft law, although in varying ways. Generally, minors should not be encouraged to buy, and, more specifically, should not be encouraged to conclude a contract of credit. It is unclear what kind of encouragement is covered by such provisions. Probably their main target is web sites aimed at children and in- cluding special offers or using hidden techniques as an induce- ment for children to buy or to conclude other contracts. The privacy of the child or the family as a whole could be endan- gered if the child is lured into providing the trader with informa- tion of different kinds as to the habits of the family, who does the shopping and so on. Dangers in relation to privacy are recog- nised, for example, in Article 8 of Convention on Human Rights, and they have also been realised in the different items of soft law. Thus traders are recommended not to encour- age children or young persons to give information about them- selves, the household or any other person. It is also recom- mended that the provision of information should not be made a Directive 1999/93/EC on a Community framework for electronic sig- condition for gaining access to certain content. However, also on this point there are different views as to the role of the parents. Thus traders recommend that the parental consent should be ob- tained and that the relevant traders should take reasonable steps to ensure this. However, there seems point in any such re- quirement if no particular proof of consent is necessary. A number of conclusions may be drawn. First, the Child Conven- tion is an interesting piece of legislation, even though it does not expressly deal with the consumer market at all. The provisions concerning the best interests of the child, the right to be heard, freedom of expression and the right to information may specifi- cally be mentioned in this regard. Secondly, the Internet may to some extent be compared with television, and the problems con- cerning children and e-commerce have a great deal in common with the problems occurring in connection with television adver- tising. One such problem is connected with mixed messages, and on this point it is important to continue discussing the best ways of protecting children while also giving them a fair opportunity of searching for information on subjects that interest them. How- ever, there are also differences compared with television adver- tising, in particular the mobility of the child in different spheres of the web, interactivity, and the particularly anonymous situa- tion of the child, together with the possibilities of concluding contracts on the web. This problem also appears to have been the most difficult one on which to achieve general agreement. An- other problem generally connected with the Internet is the disap- pearance of geographical boundaries. However, such problems generally affect only older children, due to the language difficul- ties. One measure in this regard is probably the use of such items of soft law as have been discussed above. However, in my view we are only at the beginning of development in this respect. Many problems for children on the Internet could be eased through different technical measures. It is also important that at least some level of common agreement be reached, for example, as to the role of the parents. It thus remains to be seen what prob- lems remain or will be added in the future versions of the soft law produced by the , ICC and guidelines. Bits or Balloons? The to Rethink Tax Concepts and Principles on the Internet Those who will benefit least from this new in- vention will be the tax-collectors, who hence- forth will never be able to prevent the passage of contraband. The walls of our towns will prove no obstacle, and it will require an army of officials to walk round the districts, day and night, to inspect newly-arrived machines.1 The above comment was made in 1784 following the invention of hot air balloons. But air balloons, boats, cars or aeroplanes, were not destined to fundamentally challenge the tax system, which today is fundamentally the same as it was in 1784. The impact on the tax system of electronic commerce and other uses of information and communication technologies is not likely to be less significant than that of air balloons. Nonetheless there seems to be doubt among tax authorities and tax law- yers that the new forms of commerce can be dealt with within the current tax system. Most seem to have full confidence in the sys- tem itself. As I see it, the tax system will be confronted with major challenges in the not too distant future. The economy consists to a growing extent of transactions in digital networks, whereas the tax system is still founded on manufacturing and distribution of physical products. In this paper, I will make some comments on the tax system of today and its chances of survival in the digital economy.2 I will argue that in order to provide for a smooth- is an adviser at the for Public Man- agement (Statskontoret), working primarily with ICT and administrative re- form. He has also served at the ICT Commission and at the tice. 1Lettre à M. De Saint-Just sur le globe aérostatique de M.M. Mont- golfier, 1784, quote from The of ballooning: The of the , : The 1971, p. 2Below manufacturing and transactions of information in digital net- works will be labelled e-commerce for short. running tax system, it is necessary to rethink some of the funda- mental assumptions underlying the tax system. The basis of my discussion will be the general debate on taxation of electronic commerce, which has been going on for several years among legislators, practitioners and academics. I will outline some problems that have been identified in the de- bate: enforcement, classification, and localisation problems. I will then offer some concluding remarks concerning the lines along which further work in this area could be carried out. The IT has issued two reports concerning taxation, one dealing with VAT, and one dealing with general matters. This paper is to some extent founded on both reports.3 There are considerable problems for tax enforcers in the digital environment. The possibilities of hiding transactions are vast and the possibilities of identifying parties to a transaction are in many cases virtually non-existent. The opportunities for tax evasion seem endless. The debate so far has been mainly concerned with enforce- ment problems. The general opinion seems to be that existing tax rules are applicable and should be applied in a digital environ- ment. The problems caused by new forms of communication are not seen as new problems, only as bigger ones. From this per- spective, problems with control and enforcement outweigh more fundamental problems. Discouraging as the enforcement problems may be to tax authorities worldwide, it is my conviction that these problems are trivial compared to the more fundamental problems concerning the basic concepts and principles of todays tax system. The problem of classifying digital products has been a subject of attention for several decades, and has become more important with the arrival of e-commerce. , Elektronisk handel och indirekt skatt Observatory Report 14/2000), , e-skatt? (IT 18/2000). References to sources and further reading relevant to this paper can be found in the latter report. In taxation, it is often necessary to classify a transaction or the object of a transaction. Transactions are classified, for example, as income from employment or from royalties, and the objects of the transactions are classified, e.g. as products or services. I will focus here on the classification of products and services. Traditionally, distribution of information has depended on the distribution of the media. When the information has been fixed, e.g. on a CD, the information has been distributed in fixed form. These transactions have traditionally been taxed as transac- tions in goods, without regard to the fact that the actual object of the transaction is the information contained in the physical prod- uct. In these cases the information product is an object that exists and can be observed in the physical world. The classification problems connected to e-commerce are primarily related to the principle of neutrality. An information product, e.g. a music album, can be delivered either physically, in the form of a record, or digitally. According to current tax law, the same information product will be taxed differently depending on how it is delivered. It is hard to find a way to classify informa- tion deliveries within the framework of current tax law, which at the same time satisfies fundamental taxation principles and con- siders the characteristics of information. Classification problems occurred in the traditional physical environment. As long as information was distributed mainly in physical form, these problems were of importance. As pro- duction and distribution move out into the networks, the prob- lems grow more pressing. In the end, the neutrality problem may seriously endanger the legitimacy of the tax system. The domi- nant view among the tax subjects is or will be that the two forms of delivery are just that: different forms of delivery of the same product. The law, which treats them as different products, will then seem out of touch with the real world. These problems may to some extent be problems of termi- nology. But underlying them are more fundamental assumptions of tax law. These assumptions are deeply rooted in the history of tax law and its connection to trade in goods. The discussion re- garding classification can contribute to the discussion of informa- tion taxation mainly by highlighting the fact that products in networks are neither goods nor services in a traditional sense. In- formation simply does not fit into tax law, because tax law is rooted in the production and distribution of physical products, and not services, still less information. This is even more evident from the discussion of localisa- tion problems. 4 The problems of localisation Much of the debate has concerned international taxation. In fact many argue that international issues are the only problems related to electronic commerce. A representative position could sound like this: The expression [Cyberspace] risks overshooting. A person, transaction, income or other fiscal fact, whether physical or digital, is situated in a country (or in two or three etc. countries, or in a country that does not im- pose tax), not in some extraterrestrial realm. As a tax concept the expression can only highlight the jurisdic- tional problem of determining in which specific coun- try or countries electronic commerce and its players are situated and how much profit must be allocated to that country. In my view, this is a flawed approach. Several taxation concepts relate to the physical or geo- graphical location of a person, a company, or a transaction. This is due to the fact that taxes are national. It is therefore always necessary to attribute a transaction to a certain geographic loca- tion. The aim is always that the creation of value should be taxed where the value is actually created. The connection can be for- mal, e.g. connected to where an organisation is registered. It can also be based on where a transaction is regarded as taking place. One instrument for allocating a transaction is the concept of permanent . In one of the most influential tax documents, the , permanent is defined in the following way: 1.For the purposes of this Convention, the term per- manent means a fixed place of business through which the business of an enterprise is or partly carried on. 2.The term permanent includes espe- cially: a) a place of management; b) a branch; c) an office; 4 , of Applying VAT and Income Tax Territo- riality Concepts and Rules to International Electronic Commerce, in Inter- tax, vol. 26, 1998, p. d)a factory; e)a workshop, and f)a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. The application of this provision to e-commerce is one of the main themes in the debate. It goes without saying that the definition primarily refers to traditional manufacture of and trade in physical products. This does not mean that the provisions cannot be applied to new phe- nomena, but it seems far-fetched to apply it to non-physical ob- jects. The discussion of this provision has been mainly concerned with how transactions in computer networks can be connected to physical objects and thereby to states where those objects are lo- cated. This calls for a method of unambiguously connecting the transactions in the networks with physical locations. In the debate, many more or less elaborate attempts have been made to find a connection between physical and logical infrastructure. In these attempts it often seems as if the networks are perceived merely as the means of delivery. Information is treated as if it were transported through the networks. One is looking for information factories and information shops in the networks.