REVOLUTIONARY developments in digital information and communications technology continue to transform our models of socialisation and industry. The mass migration of traditionally brick and mortar operations into cyberspace has fundamentally changed the global commercial landscape.

Although the commercial benefits of "digital migration" are by now obvious to most, the phenomenon presents some interesting legal challenges for national governments. The ubiquitous nature of the Internet and its ability to swiftly and effortlessly transcend national boundaries and sovereign territories present difficulties for governments and laws which have traditionally relied on principles of territoriality to regulate activity within their jurisdictions. Authorities are now being forced to address the fact that many of the actions and effects within a lawmaker's territory will not actually have physically taken place there. Questions now arise in relation to the connecting factors which should be used to attribute certain acts and effects to a certain jurisdictions and the mechanisms used to afford judiciaries and other national authorities powers over matters theoretically located in cyberspace. Nowhere are these challenges more pronounced than in the realm of international tax law and, in particular, the application of traditional residence and source tax concepts to cross- border e-commerce.

Under standard principles of tax law, countries (including Jamaica) generally subject entities resident within their jurisdiction to tax on their worldwide income. The rules which are applied by individual jurisdictions to determine residence, however, present the possibility of an entity being deemed resident in two or more jurisdictions. For example, the UK deems a company resident there if it is incorporated in the UK or if its central management and control are based there. So the possibility exists that the UK could deem a company resident there on the basis of its management being located there, while the company's country of incorporation (assuming it is incorporated outside the UK) could seek to assert residence on the basis of incorporation. With both jurisdictions seeking to tax the entity on the basis of its residence (albeit determined on different criteria) the issue of double taxation arises. In order to prevent the double taxation of income of an entity that is deemed a "dual-resident", double taxation treaties based on the Organisation for Economic Co-operation and Development (OECD) apply a tiebreaker rule that is intended to ensure that the residence of such an entity is allocated to the country in which its "place of effective management" is situated. The OECD defines the "place of effective management" as the place where the key management and commercial decisions of an entity's business are made. This is a question of fact which focuses on determining the jurisdiction where corporate decisions are made by the controlling human minds --usually the directors.

However, consider for example a company incorporated in Jamaica which conducts e-commerce in various international markets via its website. Suppose further that the company's two directors are resident in St Lucia and Barbados respectively and have their board meetings online via online teleconferencing. In these circumstances, which country is entitled to tax the company's worldwide income on the basis of residence? St Lucia and/or Barbados may seek to assert such a right on the basis of the management and control being based in their jurisdictions. Jamaica may claim the right on the basis of residence by incorporation. In these circumstances the Caricom double taxation treaty's residence tiebreaker provision would apply granting residence based taxation rights to the country where the "place of effective management" is situated. But how is this tiebreaker to be applied in our example where each of the directors are based in different countries and make all or most management decisions online via teleconference?

The long and short of it is that the e-commerce revolution brings sharply into question the sustainability of the currently defined OECD "place of effective management" residence tiebreaker test. With national governments scrambling to maximise their tax revenues in the context of a contracting, increasingly digitised global economy, the incidence of double taxation disputes will only increase. The OECD's corporate residence tiebreaker test will need to adapt if it is to remain capable of achieving the purpose for which it was originally intended.

Randolph Cheeks is the founding principal of the boutique business law firm Cheeks & Co. He may contacted via email to clientsupport@cheeks-co.com