Tag Archives: ecommerce

How changes to UK Consumer Law affects ecommerce businesses?

Effective earlier this year, the UK Consumer Contract Regulations came into force replacing the prior law on distance selling. Ecommerce businesses selling to UK customers will now need to review and update their sales process, terms and conditions of sales and refund policies to comply with the new regulations.

The Regulations were designed to implement the specific provisions of the EU Consumer Rights Directive (Directive 2011./83/EU). The directive applies to all consumer contracts for goods and services, including most particularly, online sales. The new regulations set out the information that must be provided to customers before the goods or services are purchased:

1. A specific description of the goods or services and the length of time any commitment on the part of the customer will last.

2. The total price of the goods or services, or manner in which the price will be calculated.

3. The cost of delivery and if the customer returns items, who will be responsible for the price of any return shipment.

4. Order cancellation details. Pursuant to the new rules the customer has no less than 14 days following receipt of the goods in which to cancel, this is an increase from prior law which mandated only 7 days.. There are exceptions to the 14 day right to cancel, including CDs, DVDs, or software if the wrapping seal is broken, the goods are perishable, tailor-made or personalized.

5. Information about the seller of the goods or services must be provided, including geographical location address and telephone number.

6. If the product is digital content, then the seller must provide information on the compatibility of the content with hardware and other software.

Sellers will no longer be able to charge a customer for an item that is selected for the customer as a pre-ticked box, rather the customer must actively tick the box. Finally, premium rate telephone numbers for help lines or other customer contact during the sales and return periods are no longer permitted.

Bottom line is that ecommerce companies selling to UK customers should review and revise, if necessary the terms and conditions of sale to ensure compliance with the new regulations. Failure to comply may result in contracts being unenforceable and criminal penalties may be imposed. Please let us know if you need any assistance or would like to discuss these new regulations to ensure your compliance.

Taxation of Ecommerce Transactions: Spotlight on Russia

The Russian ecommerce sector will continue to experience significant growth, whether serving the B2C or B2B markets.  And Russia has much to gain by supporting a robust ecommerce marketplace, for example, broadening the labour market for skilled workers and increasing the tax base,  Absent specific tax legislation, existing tax laws will be applied to ecommerce transactions.  Yet existing tax laws are often inadequate to address the new business and transaction models arising from ecommerce transactions.

The issues arising from the B2C market and the B2B market are clearly different, as are the type of taxes that may be imposed.  First, income tax imposed on profits arising from the ecommerce transactions, and second, in the case of B2C transactions, VAT.

The application of the existing framework for income taxation on transactions taking place between parties where both are located in Russia is identical to a transaction occurring without the benefit of the internet.  With increasing ease, companies can target consumers in any country, their reach is borderless.  In order fall subject to Russian profit tax, a foreign company must have a permanent establishment in Russia  A permanent establishment is deemed to arise where there is a remote place of business through which the foreign enterprise carries on business on a regular basis.  Although applied primarily where there is a building or other structure, or in the absence of a specific business location, where the business has employees.

In December 2010, the Moscow State Commercial Court held that a representative office of Bloomberg LP, through which employees gathered data which was entered into a database, access to which was subsequently sold through a UK office, constituted a permanent establishment.  Given this ruling, it is not unlikely that the same court would characterize a server located in Russia as a permanent establishment.  The permanency of a server, owned by a foreign company, that directs, stores, and filters customer traffic and through which transactions are completed will not be ignored by tax authorities.  Such characterization would follow similar rulings in other countries.

In terms of VAT, there are no specific tax rules that impose VAT on internet transactions.  Existing VAT legislation can be easily applied to an ecommerce transaction where both the buyer and seller are located within Russia.  VAT, an indirect tax, is generally imposed on goods at the place of consumption, but for services the imposition of VAT will depend on the place of supply.  This is perhaps an overly broad explanation, the Russian Tax Code does makes a distinction between certain types of services and the imposition of VAT on services is reliant on such distinction.  However characterized, foreign businesses are not required to collect and remit VAT.  Since the burden falls on Russian based businesses, then, a disparity arises.  Other countries, including the US have been grappling with this same issue.  Amazon.com is a prime example, it is not required to collect and remit sales tax in the state where the consumer is located if it has no physical presence in that state, providing an advantage over its competitors.  The question remains, in an ecommerce transaction where services are being supplied, such as, access to internet services, including, digital products, is the “place of supply” where the consumer is located or where the server or service provider is located.  This is an area of significant debate, one which will not end soon.  As ecommerce expands its reach, lawmakers will resolve some of the ambiguities present in application of outdated laws.  Until then, be aware of where the ambiguities create the biggest risk for your ecommerce business.

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