roles. These new international regulatory agencies will perform former government func-
tions in counterpoint to increasingly global large companies and also to individuals and
smaller private organisations who can operate globally over the Net.
The US approach to governance, formalised in the Framework for Global Electronic
Commerce in 1997 is to avoid any single country taking control.
Dyson (1998) describes different layers of jurisdiction. These are:
1 physical space comprising each individual country where their own laws such as
those governing taxation, privacy and trading and advertising standards hold;
2 ISPs – the connection between the physical world and the virtual world;
3 domain name control (www.icann.net) and communities;
4 agencies such as TRUSTe (www.truste.org).Taxation
How to change tax laws to reflect the globalisation through the Internet is a problem
that many governments are grappling with. The fear is that the Internet may cause sig-
nificant reductions in tax revenues to national or local governments if existing laws do
not cover changes in purchasing patterns. In Europe, the use of online betting in lower-
tax areas such as Gibraltar has resulted in lower revenues to governments in the
countries where consumers would have formerly paid gaming tax to the government via
a betting shop. Large UK bookmakers such as William Hill and Victor Chandler are offer-
ing Internet-based betting from ‘offshore’ locations such as Gibraltar. The lower duties in
these countries offer the companies the opportunity to make betting significantly
cheaper than if they were operating under a higher-tax regime. This trend has been
dubbed LOCI or Location Optimised Commerce on the Internet by Mougayer (1998).
Meanwhile, the government of the country from which a person places the bet will face
a drop in its tax revenues. In the UK the government has sought to reduce the revenue
shortfall by reducing the differential between UK and overseas costs.
The extent of the taxation problem for governments is illustrated by the US ABC
News (2000) reporting that between $300 million and $3.8 billion of potential tax rev-
enue was lost by authorities in 2000 in the USA as more consumers purchased online.
The revenue shortfall occurs because online retailers need to impose sales or use tax only
when goods are being sent to a consumer who lives in a state (or country) where the
retailer has a bricks-and-mortar store. Buyers are supposed to voluntarily pay the appro-
priate sales taxes when buying online, but this rarely happens in practice. This makes
the Internet a largely tax-free area in the USA.
Since the Internet supports the global marketplace it could be argued that it makes
little sense to introduce tariffs on goods and services delivered over the Internet. Such
instruments would, in any case, be impossible to apply over products delivered electron-
ically. This position is currently that of the USA. In the document ‘A Framework for
Global Electronic Commerce’, President Clinton stated that:The United States will advocate in the World Trade Organisation (WTO) and other appro-
priate international fora that the Internet be declared a tariff-free zone.Tax jurisdiction
Tax jurisdiction determines which country gets tax income from a transaction. Under
the current system of international tax treaties, the right to tax is divided between the
country where the enterprise that receives the income is resident (‘residence’ country)CHAPTER 3· THE INTERNET MACRO-ENVIRONMENT