Faculty Scholarship 1994 - Present

The Challenge of E-Commerce Growth and Tax Regulation in Latin America

One of the most problematic issues facing Latin American countries is the potential erosion of their single largest revenue raiser: value-added tax (VAT). Existing domestic and international tax regulations were written before the advent of e-commerce and do not address the unique issues raised by Internet business. In many cases, nations and states are attempting to use a mid-twentieth century tax system designed largely for manufacturers and vendors of tangible personal property to tax a technologically advanced 21st century service industry. The accelerated increase in on-line transactions, both business to business and business to consumer, has created concerns about fairness and equity relative to the taxation of traditional commerce and has exposed the cumbersome and inappropriate aspects of many existing taxation systems that until recently were deemed adequate by businesses, consumers, and tax authorities worldwide. E-commerce activity is expected to continue to grow in the major Latin America markets. Business enterprises that take advantage of the new opportunities will undoubtedly be faced with various international tax issues that, in the absence of careful planning, have the potential to trigger various levels of tax and legal exposure. This paper briefly reviews the current international tax regime that governs the taxation of cross-border business sales and articulates the tax issues and challenges presented by e-commerce in Latin America and addresses the potential proposals for adoption regionally in Latin America as well as the implications for compliance by corporations engaging in cross-border e-commerce business transactions.