Legal structuring of web-based trading and tax complexities in Pakistan: A comparative study.

Abstract

The invention of information technology has brought revolution in every segment of life. Advent of cyber world makes it possible to have access any information just on one click. The digital technology drastically changed the entire structure of trade and business across the world. The major chunk of the world trade is now comprises on services industry. The digitalization has changed the concept of the jurisdictions and permanent establishment. In the new era of digitalization, the revenue is generating in virtual word without having physical presence. The generation of revenue is interlinking with taxation laws. The existing tax laws are unable to bring the digital revenue in tax circle. The BEPS project of OECD realizes this problem and gave a framework of digital taxation in order to prevent the tax evasion of digital companies. The BEPS give proposition about the amendment of double taxation treaties after ratification of multilateral treaties. Many OECD countries changed their tax laws and levied taxes on web-based trading companies. The principle of significant digital presence provides bases of these taxes on digital services. Pakistan as sovereign state faces many difficulties in tax collection. The double tax treaties (DTT) are also big hurdle in collection of taxes from foreign digital companies. There is no proper legal provisions exist in Pakistan tax law about in order to levy taxes on web- based trading entities. Pakistan has become the signatory of the multilateral treaties in 2017 and in 2020 it has been ratified. This thesis will discuss the legal structure of the Web Based Entities (WBE) and high light the tax complexities in Pakistan. This thesis also will discuss about the proposed framework and tax structure of the Web Based trading entities that are showing significant digital presence in Pakistan. In the end it will give way forward for tax legislation that how to bring these WBE in tax circle in Pakistan keeping in view the best practices of developed countries.