ARELLANO UNIVERSITY SCHOOL OF LAW

Menlo St., Pasay City

THE SUFFICIENCY OF IMPLEMENTING RULES AND REGULATIONS IN TAXING ONLINE

SELLERS

In Partial Fulfillment of the Requirements in TECHNOLOGY AND THE LAW

Thursday, 5:30PM to 7:30PM1st Semester, 2014-2015

Submitted to:

ATTY. ROMULO DE GRANO JR.

Submitted by:

LEIDA MAE L. BUMANLAG2012-0651

TABLE OF CONTENTS

Introduction …………………………………… 1-2

Significance of Study …………………………………… 3-4

Review of Literature …………………………………… 3

Discussion

Freedom of Expression and Right of Privacy

…………………………………… 5

Void for Vagueness Doctrine …………………………………… 10

Facial Challenge and Overbreadth Doctrine

…………………………………… 12

Constitutional Proscription of Double Jeopardy

…………………………………… 18

Conclusion …………………………………… 20

Bibliography …………………………………… 22

ABSTRACT

TABLE OF CONTENTS

Introduction …………………………………… 1

Significance of Study …………………………………… 2

Review of Literature …………………………………… 3

Discussion

Freedom of Expression and Right of Privacy

…………………………………… 5

Void for Vagueness Doctrine …………………………………… 10

Facial Challenge and Overbreadth Doctrine

…………………………………… 12

Constitutional Proscription of Double Jeopardy

…………………………………… 18

Conclusion …………………………………… 20

Bibliography …………………………………… 22

TABLE OF CONTENTS

ABSTRACT …………………………………… 1

INTRODUCTION …………………………………… 2

Review of Literature …………………………………… 3

Discussion

Freedom of Expression and Right of Privacy

…………………………………… 5

Void for Vagueness Doctrine …………………………………… 10

Facial Challenge and Overbreadth Doctrine

…………………………………… 12

Constitutional Proscription of Double Jeopardy

…………………………………… 18

Conclusion …………………………………… 20

Bibliography …………………………………… 22

Abstract

The drastic change and development in the technology has brought the world to numerous dimensions and almost in all aspects of living of the people. From education, gadgets, new machines and devices, communication, new inventions and even to our market, Of course marketing and advertisement has its own growth by itself, but in this paper a certain marketing style will be discussed profoundly in its relation with the evolving technology that the world has to offer.

In basic selling the parties are primarily the seller and the buyer. The buyer will visit the place or the location of the store wherein the transaction takes place. However, with the intervention of the technology and the latter’s response to evolving needs and problems of the people there exist what is called “online selling”. This type of business in marketing trends in the world now and what numerous people are resorting into, mainly because it is just one click away.

People are, most of the time, if not all, are in a rush and have no time for leisure or treating themselves with stuff that is sold in the market. Usually, people failed to go shopping for their needs because of want and lack of time. Also, malls and stores in the Philippines, not to mention malls in abroad, are being too small for the growing buyers. Therefore, with these, the evolution of new style of selling is born. Online selling has answered the different problems and inconveniences. In addressing the problem of lack of time to shop has been simplified by the sellers who goes online and sell their goods and products. However, in every convenience and new inventions there are always consequences that will later exist.

The main issue that has been throwing against these online sellers circulates on whether they are paying their taxes or not. Like other sellers in the market, these online sellers are also need to be subject of taxation. By the principle of equality and uniformity in taxation, all sellers should be treated alike who are similarly situated. The dilemma with this issue is that not all online sellers are even aware that there is a law applicable to them. E-commerce Law has been passed and approved to treat this online sellers same as with the other sellers. Also its Implementing Rules and Regulation has been laid down to empower what it is in the law for its better execution and implementation.

In this paper, the sufficiency of the Implementing Rules and Regulation will be focused on. How does the rule being implemented and why does it seem insufficient making the online sellers not knowledgeable about the law

The increasing demands of internet and online activity carry with it complex issues on privacy and security, contractual and regulatory problems. These concerns though not new in the internet world, need to be clarified and to be addressed.

With the advent of R.A. 8792 some questions as to the legal recognition of electronic document, data messages, electronic signatures and electronic contracts had been defined. Internet subscribers were ensured of their privacy for penalizing the offense of hacking and piracy.

Republic Act No. 8792 known as E-Commerce Act is the effect of the merging of the House Bill No. 9971 and Senate Bill No. 1902. It was signed into law on June 14, 2000. “A month later or on July 14, 2000, the Implementing Rules and Regulations (IRR) was digitally signed by Secretaries Manuel A. Roxas II (DTI) and Benjamin E. Diokno (DBM) and Governor Rafael B. Buenaventura (BSP) during the plenary session of the Global Information Infrastructure Commission’s (“GIIC”) Asia Regional Conference held in Makati City, Manila.”1

In general, the E-Commerce Act intends to assist domestic and international dealings, transactions, and exchanges of information through the utilization of Information Technology. Moreover, the Act recognizes the authenticity and reliability of electronic documents for the promotion and use of electronic transaction.

Such is the nature of E- Commerce that it generates profits for the private investors and provides goods and services for the traders. In this view, the government sees the need of taxing cyber trade in exchange of the protection and services rendered by the government. Hence, the researchers are prompted to conduct a study on the how such trade is taxed, and as to how it is enforced.

1

Introduction

In this modern age where electronic technology had reached global market for various undertakings such as but not limited to selling of goods through cyberspace, it is noteworthy to identify legal issues and potential risks to ensure a safe and secure environment for trading and other internet transactions.

Due to the increasing demand and recognition of the vital role of the InfoTech in nation building, the E- Commerce Law was enacted. This was approved in order to warrant a healthy and friendly atmosphere in procuring goods and providing services in the internet world. The birth of this Act provided security on the part of the investors as well the consumers or traders. This removes the clouds of doubts in the mind of each trader that his or her rights are protected and that his or her privacy is secured. And since more and more Filipinos are beginning to shop online, the country’s e-commerce potential is expected to grow even more with the emergence of enabling technologies.

Online shopping or online retailing is a form of electronic commerce whereby the consumers directly buy goods or services from a seller over the internet without any intermediary service. An online shop, e-shop, e-store, internet shop, web shop, web store, online store, or virtual store evokes the physical analogy of buying products or services at bricks-and-mortar-retailer or shopping center.

However, the taxability of our online retailers has become an issue due to the insufficiency of the regulations being executed in collection on such taxes. The Bureau of Internal Revenue has issued recently the Revenue Memorandum Circular No. 55- 2013 entitled Reiterating Taxpayers' Obligation in Relation to Online Shopping. The said circular was formulated to imperatively remind the parties to the transaction of their tax obligations.

The Memorandum Circular specifically provides that like any other business establishments, persons who conduct business through online transactions and its permutations have the obligations to register the business at the Revenue District Office (RDO) having jurisdiction over the principal place of business/head office or residence in case of individuals by accomplishing BIR Form 1901 for individuals or Form 1903 for corporations and partnerships and pay the registration fee to any Authorized Agent Bank (AAB) located within the RDO. Also to issue registered invoice or receipt, either manually or electronically, for every sale, barter, exchange or lease of goods and properties, as well as for every sale, barter or exchange of service. Said invoice or receipt shall conform to the information requirements prescribed under existing revenue issuances and shall prepared at least in duplicate , the original to be given to the buyer and the duplicate to be retained by the seller as part of the latter's accounting record. They are required to file applicable tax returns on or before due dates, pay correct internal revenue taxes, and submit information returns and other tax compliance reports such as the Summary List of sales/purchases at the time or times required by existing rules and regulations. The memorandum as well requires them to keep books of accounts and other business/accounting records within the time prescribed by law, and such shall be made available anytime for the inspection and verification by the duly authorized Revenue Officer for the purpose of ascertaining compliance with tax rules and regulation. The memorandum was also clear in providing that any person engaged in the internet commerce who fails to comply with the

applicable tax laws, rules and regulations shall be subject to the imposition of penalties provided for under the existing laws, rules and regulations, in addition to the penalties pursuant to the applicable Sections under Chapter II and IV, Title X of the National Internal Revenue Code of 1997, as amended.

Also under Implementing Rules and Regulations of our E- Commerce Law, under paragraph 5 section 3 of which states that transactions conducted using electronic commerce should receive neutral tax treatment in comparison to transactions using non-electronic means and taxation of electronic commerce shall be administered in the least burdensome manner. Thusly, just like all retailers, online stores must collect sales tax. Notwithstanding the fact that online transactions make up only about 1 percent of total retail and are mostly made up of occasional sellers, still the government must pursue more stringent executions of its laws and implementing rules regarding the collection on tax online sellers on sites such as multiply.com, sulit.com.ph, e-bay Philippines, alibaba.com, ayosdito.ph and even Facebook should be registered, issue electronic invoices, and pay taxes the way entrepreneurs with physical stores do. Besides purchasers and sellers will be definitely the beneficiaries themselves of these taxes from the on their protection, education, health care and other services that sales taxes financed. And of course, internet retailers could not get their wares to their customers without the airports and roads that state and local governments maintain, all of which, again, are financed through sales and other taxes.

Significance of the Study

In this age of technology, where everything is moving so fast and everything is tuned in an instant, we cannot but forced ourselves to be abreast with the innovation so that we may be equipped in the world advancement. For in a wink of an eye, we may forever left behind.

The same goes with the laws and our rules. In today’s generation where people recognized the importance of information technology in nation building, laws must be revisited and reviewed in order to adopt in this fast changing world.

This research will aid in revisiting R.A. 8792 and other pertinent provisions relating to Electronic Commerce. Moreover, this study addressed itself to: cyber traders, online merchants and government that they may gain valuable insights and awareness in engaging in the e-business industry. This will contribute to future studies of law students interested in E-Commerce.

Finally, this study intended to be a guide for future court decisions regarding these prevalent issues on e-business, such as; issues on jurisdiction in case of conflict against foreign corporations and to stamp the issue on taxability of the trade and services that are exchanging from line to line.

Statement of the Problem

In seeking to sufficiently apply the law through its implementing rules and regulations the study would like to provide solution to the problem of awareness to the regulation and so as to its stringent implementation. Online sellers are gaining income so as like other sellers thusly they need also to be taxed by the government.

It is undeniable that E-Commerce is a profit generating device, thus must be subject to tax. Most sellers now transacts through their personal facebook accounts, and if these transactions are done on a regular basis, it would make him or her engaged in business which must be registered and the sales of which must be registered and the sales transactions of which must be accompanied with the issuance of receipts and/or invoices. Taxation is said to be the life blood of the government in the absence of it the State will not exist. It is then but right to tax the cyber trade in exchange of the protection it received from the government and in exchange to the public services granted by the government which are directly or indirectly crucial factors in conducting the online shopping and retailing. The E- Commerce Law, its Implementing Rules and Regulations, the revenue Memorandum Circular no. 55-2013 are all but good legislations of the government however on sufficiency wise these are but lacking. There are still existing online retailers who do not register their business however big or small it is, worse is that some of them may not even know that they are already engaged in business which must be registered. In reality what really is happening is that the sale transactions begin and end with no legal conformities to the existing laws. The buyer usually visits the page of the online seller and picks the item or product he desires to avail. Next would be informing the seller or owner of the internet site, facebook accounts and the like of his orders. The seller in return would ask the buyer to deposit the payment of the product plus the shipping fee through a bank or through Cash Express Door to Door Delivery like LBC, western Union and the like. After payment, the buyer will receive the item or product through the same door to door delivery. In such a case both parties consumated a sale transaction without having to comply with the legal requirements.

Scope and Limitations

The scope of the study includes taxation of online retailers and their business registration. However, it does not include other issues which had already been settled and do not call for interpretation.

In the first exploratory phase on the issue the paper would like to cover transactions using the internet in the Philippines as a mode of business dealings. It covers all the goods and services exchanged in online shopping as the object for taxation. These objects provided by the seller were hosted by the server to open a forum for buyers in making negotiations. In case taxation is proper, this paper intends to set guidelines for stricter and proper monitoring of e-business transactions.

Methodology

This chapter identifies the appropriate research method to be used in conducting the study. This paper will utilize qualitative data collection. The researcher will gather relevant information and laws from the specified documents and compiling databases in order to analyze the material, provide legal basis and arrive at a more complete and comprehensive understanding of the subject.

The instruments to be used to extract information are identified. The researcher will utilize the use of internet resources to gather related literature pertaining to the fact in issue.

This research is descriptive in character. The researcher will examine facts and conditions relating to the subject matter. The researcher will collect factual evidence, laws and jurisprudence to provide for a legal basis in providing a position. Thus, this paper aims to provide an accurate account of a subject by utilizing evidence and laws in resolving the fact in issue. As a result this study is explorative in nature.

Review of Related Literature

The Lifeblood Doctrine of Taxation

Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. In the case of CIR vs Algue, it is laid down that axes are the lifeblood of the government and there prompt and certain availability is an imperious need. Taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the state affects its functions for the benefit of its constituents

Benefits Received Principle

Also in the case of CIR vs Aguirre it was held that despite the natural reluctance to surrender part of one’s hard earned income to the taxing authority, every person who is able to must contribute his share in the running of the government. The government is expected to respond in the form of tangible or intangible benefits intended to improve the lives of the people and enhanced their material and moral values. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property.

One is compensation or consideration for the other. Protection for support and support for protection. However, it does not mean that only those who are able to pay taxes can enjoy the privileges and protection given to a citizen by the government. The only benefit to which the

taxpayer is entitled is that derived form the enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to public purpose. The government promises nothing to the person taxed beyond what maybe anticipated froman administration of the laws for the general good.

Principle of Equality

Equality of taxation as a maxim of politics, means equality of sacrifice. It means apportioning the contribution of each person towards the expenses of government so that he shall feel neither more nor less inconvenience from his share of the payment than every other person experiences from his. This standard, like other standards of perfection, cannot be completely realized; but the first object in every practical discussion should be to know what perfection is.’ [J.S. Mill (1848, Book V, Chapter II)]. The equal sacrifice principle has often been invoked to justify specific types of tax schedules. In particular, some have claimed that it justifies progressive, or at least nonregressive, taxation. Since a dollar of tax falls more lightly on a rich man than on a poor one, it seems right that the rich should pay at a higher rate than the poor if all are to sacrifice equally. But in fact, equal sacrifice only implies that the rich should pay more in tax. As Schumpeter remarks, ‘This error can be found, as a witness to our loose habits of thinking, in the writings of quite reputable economists, though it should be obvious that, given the intention to take away equal “amounts” of satisfaction, nothing follows from the “law” of decreasing marginal utility of income except that higher incomes should pay higher absolute sums than lower incomes. [Schumpeter (1954, p. 1070, n.3)].

Implementing Rules and Regulation of E-Commerce Law

As declared under the Implementing Rules and Regulations of E-commerce Law

Section 3 (d) Neutral Tax Treatment. - Transactions conducted using electronic

commerce should receive neutral tax treatment in comparison to transactions using

non-electronic means and taxation of electronic commerce shall be administered in the

least burdensome manner.chanrobles

The abovementioned provision provides that taxing online sellers is same as taxing the

non-electronic sellers. There is no exemption to pay tax unless the law expressly provide.

Section 3 (f) Electronic Commerce Awareness. - Government and the private sector will inform society, both individual consumers and businesses, about the potentials of electronic commerce and its impact on social and economic structures.

The Bureau of Internal Revenue issued Revenue Memorandum Circular number

55-2013. This intends to govern how individuals and businesses should handle their

sales and taxes accordingly.

Sellers rendering the following services are covered by this guideline:

Online shopping or online retailing – This includes e-commerce business owners

who owns a website and sells their own products and services. An online shop, e-shop,

e-store, internet shop, web shop, webstore, online store, or virtual store evokes the

physical analogy of buying products or services at a bricks-and-mortar-retailer or shop-

ping center.

Online intermediary service – An intermediary is a third party that offers intermedi-

ation services between two trading parties. The intermediary acts as a conduit for

goods or services offered by a supplier to a consumer, and receives commission there-

for. In this case, the relationship between the intermediary and the merchant shall be

that of a principal-agent relationship which shall be governed by their agreement in-

cluding but not limited to the amount of commission, manner of transmitting the same,

etc. However, in the following instances the intermediary service provider shall be con-

sidered the merchandiser / retailer itself:

a. when consumers buy goods or services from an intermedi-

ary service provider who controls such collection of buyers’

payments, and thereafter receives commission from the

merchant / retailer

b. when the intermediary markets multiple products for its

own account (considered retailer or merchandiser as to the

said products).

E-Commerce Business Owners are required to issue invoices or official receipts to

customers. Give acknowledgment receipt for amount received from payment gate-

ways. Pay the commission of payment gateways net of withholding tax.

Like any other business establishments, persons who conduct business through on-

line transactions and its permutations have the obligations to:

1. Register the business at the Revenue District Office (RDO) having jurisdiction over

the principal place of business / head office (or residence in case of individuals), by

accomplishing BIR Form 1901 (for individuals) or 1903 (for corporations or part-

nerships), and pay the registration fee to any Authorized Agent Bank (AAB) located

within the RDO. A BIR Certificate of Registration shall be issued by the RDO, re-

flecting therein the tax types required of the concerned taxpayer for filing and pay-

ment, which shall be displayed conspicuously in the business establishment;

2. Secure the required Authority to Print (ATP) invoices / receipts and register books

of accounts for use in business, which may either be:

a. Manual books of accounts, booklets of invoices / receipts, accounting records or

loose-leaf of such;

b. Computerized Accounting System (CAS) and / or its components including e-Invoic-

ing System under Revenue Memorandum Order (RMO) No. 21-2000 as amended by

RMO No. 29-02.

3. Issue registered invoice or receipt, either manually or electronically, for every sale,

barter, exchange, or lease of goods and properties, as well as for every sale, barter,

or exchange of service. Said invoice or receipt shall conform to the information

requirements prescribed under existing revenue issuances, and shall be prepared

at least in duplicate, the original to be given to the buyer and the duplicate to be re-

tained by the seller as part of the latter’s accounting records;

4. Withhold required creditable / expanded withholding tax, final tax, tax on compen-

sation of employees, and other withholding taxes. Remit the same to the Bureau at

the time or times required, and issue to the concerned payees the necessary Certifi-

cate of Tax Withheld.

5. File applicable tax returns on or before the due dates, pay correct internal revenue

taxes, and submit information returns and other tax compliance reports such as the

Summary List of Sales / Purchases (SLS/P), Annual Alpha List of Payees, etc., at the

time or times required by existing rules and regulations; and

6. Keep books of accounts and other business / accounting records within the time

prescribed by law, and such shall be made available anytime for inspection and ver-

ification by duly authorized Revenue Officer/s for the purpose of ascertaining com-

pliance with tax rules and regulations.

The existing tax laws and revenue issuances on the tax treatment of purchases

(local or imported) and sale (local or international) of goods (tangible or intangible)

or services shall be equally applied with no distinction on whether or not the market-

ing channel is the

internet/digital media or the typical and customary physical medium.

The table below provides on how online sellers issues receipt with respect to dif-

ferent means of purchaser’s payment.

Transactions thru Credit Card thru Banks

Cash on Delivery or

Pick-Up by the Cus-

tomer

Online Shopping

or Online Retail-

ing-If buyer’s

payment is:

(a) issue electronically

the BIR registered In-

voice / OR (Official Re-

ceipt) for the full

amount of the sale to

the buyer;(b) issue ac-

knowledgment receipt

to the credit card com-

pany for the amount

received; and

 

(c) pay the commis-

sion of credit card

company net of 10%

Expanded Withhold-

ing Tax (EWT).

(a) issue Invoice / OR

(Official Receipt) to the

buyer for the payment

of the goods / services;

and(b) issue acknowl-

edgment receipt to the

bank for the amount

received.

Issue either electroni-

cally or manually the

BIR registered Invoice

/ OR (Official Receipt)

for the full amount of

the sale to the buyer.

If the Online In-

termediary-

control the

collections /

payments of

buyers or mar-

kets products /

services for its

own account,

and are there-

for considered

the retailer /

merchant:

(a) Issue electronically

the invoice / OR (Offi-

cial Receipt) for the

full amount of the sale

to the buyer;(b) Issue

acknowledgment re-

ceipt to the credit card

company for the

amount received;

 

(c) Pay the commis-

sion of credit card

company net of 10%

EWT

 

(a) issue the invoice /

OR (Official Receipt)

for the full amount of

the sale to the buyer;

(b) issue acknowledg-

ment receipt to the

bank for the amount

received;

 

(c) remit the amount

to the merchant re-

tailer net of interme-

diary’s agreed mark-

up / commission (in-

clude in the said re-

mittance to mer-

chant / retailer the

1. Secure the invoice /

OR (official receipt)

from the merchant be-

fore delivery of goods

to buyer/performance

of service and to;2. Is-

sue either electroni-

cally or manually the

BIR registered Invoice

/ OR (official receipt)

for the full amount of

the sale to the buyer.

 

3. Issue OR for the

amount of commis-

sion received, if

(d) Remit the bal-

ance to the mer-

chant retailer net of

intermediary’s

agreed mark-up /

commission (include

in the said remit-

tance to merchant /

retailer the 10%

EWT to be remitted

by merchant to the

BIR)

10% EWT to be re-

mitted by merchant

to the BIR)

agent.

If the Online In-

termediary is

the agent of

the merchant:

(a) Issue the mer-

chant’s acknowledge-

ment receipt (for

goods) / Official Re-

ceipt (for services) for

buyer to claim the

goods / service (in this

case, the merchant act-

ing as the principal

shall assign a number

of pads of such receipt

to the intermediary /

agent);(b) Ensure mer-

chant delivers the

goods to buyer with ac-

companying invoice or

merchant performs the

purchased service;

 

(c) Issue OR (Official

Receipt) to merchant

for the full amount

of the agreed com-

mission, and reflect-

ing therein the

(a) Issue the mer-

chant’s acknowledge-

ment receipt (for

goods) / Official Re-

ceipt (for services) for

buyer to claim the

goods / service (in this

case, the merchant act-

ing as the principal

shall assign a number

of pads of such receipt

to the intermediary /

agent);(b) Ensure mer-

chant delivers the

goods to buyer with ac-

companying invoice or

merchant performs the

purchased service;

 

(c) Issue OR (Official

Receipt) to merchant

for the full amount

of the agreed com-

mission, and reflect-

ing therein the

1. Secure the invoice /

OR (Official Receipt)

from the merchant be-

fore delivery of goods

to buyer / perfor-

mance of service and

to2. Issue either elec-

tronically or manually

the BIR registered In-

voice / OR (Official Re-

ceipt) for the full

amount of the sale to

the buyer.

 

3. Issue OR (Official

Receipt) for the

amount of commis-

sion received, if

agent

amount withheld by

merchant.

amount withheld by

merchant.

Discussion

a. Taxation challenges on E-Commerce

Electronic Commerce is defined as the process of buying and selling goods electronically by consumers and from company to company through computerized business transactions .2

It has changed the manner of doing businesses in the country. A lot of businesses are already selling goods and services online. Banking sectors, travel industry, clothing lines, and other industries are now being offered online. E-commerce likewise has changed how the government agencies and offices deliver its services towards opportunities for better tax administration.

However, the E-commerce Act including its implementing rules and regulations and the tax code do not have a clear definition of proper characterization of income derived from digitized transactions.3 The internet and E-commerce have confronted huge challenges to tax administrators such as the proper characterization of income, challenge on audit and collection, and lack of audit trail.

E-commerce transactions are hard to track down and trace in the absence of papers on which to establish audit trails, as it is, the cost of discovery methods for conventional taxable transactions is already quite high, but with the increasing use of electronic processes, our

2 Padilla, Joan M. RA 8792: An Overview of IT’s Impact on the Philippine legal System viewed September 10, 2013, http://ustlawreview.com/pdf/vol.L/Articles/The_Electronic_Commerce_Act_RA_8792.pdf 3 Basu, Subhajit and Jones, Richard. Taxation of Electronic Commerce: A Developing Problem viewed September 16, 2013, http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan007357.pdf

conventional audit skills would have to be enhanced at considerable expense in order to match the required computerized auditing skills in an E-Commerce regime.4

Taxing on-line professional service also arise when actual service is being provided through the internet which involves the establishment of an ongoing relationship between the foreign service provider and a local customer. Examples of such service would be providing consultancy work on-line, and even on-line gambling.5 Article 14 [Independent Personal Service] and Article 15 [Dependent Personal Services] of the tax treaties adopt a length of stay test, normally an aggregate of 183 days as one for the criteria to determine the rendition of services in the source country is taxable. With the Internet, certain services can be performed without even setting foot in the source country. One can access the internet and download various information and avail of various services such as consultancy, advisory, designs without even requiring the service provider to be physically present in the source country.

Transactions can therefore occur directly between the parties and without the knowledge of tax authorities simply because there is no more need to establish physical presence in the country by the service provider.6 A tax loss should likely be anticipated.

CONCLUSIONThe Philippines still has a number of hurdles to face, even though E-commerce is gaining

momentum in the country. The E-commerce law is confronted with challenges as regards to the proper characterization of income, challenge on audit and collection, lack of audit trail, and jurisdiction in case of conflict.

The country has to exploit the potential of the internet in facilitating the e-commerce transactions and continue the use of information communication technology to strengthen tax administration to attain transparency in its operations and empowerment of revenue personnel in the performance of its functions at the same time collect tax dues on clearly taxable incomes earned or gained over the internet.

Moreover, the complex taxation issues brought about by E-commerce need to be addressed on both international and national level. On the international level, the issue should be focused on the right of a State to exercise its sovereign power within its jurisdiction. On the national level, it should focus on the application of existing taxation regimes to different e-commerce transactions. The BIR shall implement E-Commerce taxation by taking into consideration all the accepted and agreed taxation principles with other nations. In order to achieve high international acceptance, cooperation between and among tax administrators of different jurisdictions must be achieved.

4 Lacson, April and Pasadilla Gloria. E-Commerce in the Philippines: A Preliminary Stocktaking viewed Sept 16, 2013, http://serp-p.pids.gov.ph/serp-p/details.php?pid=3922&param=Lacson%2C+April 5 ibid., p.4 6 Cueto, Franklin. Legal Ramifications of Philippine E-Commerce viewed September 16, 2013, http://ublawjournal.tripod.com/issue/jan-mar2000/legal_ramifications.html