What is meant by Digital economy? What are the taxation issues in E-Commerce? List out the OECD recommendations under Action Plan 1 which deals with…

In digital economy transactions like sale, purchase, payment, rendering services are performed through digital or virtual mode. In the digital domain, business does not actually occur in any physical location but instead takes place in "cyberspace." Taxation issues in e-commerce The typical taxation issues relating to e-commerce are: (i) the difficulty in characterizing the nature of payment and establishing a nexus or link between taxable transaction, activity and a taxing jurisdiction, (ii) the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. The following are OECD recommendations under Action Plan 1 dealing with digital economy: (1) Modifying the existing permanent establishment rule to provide for whether an enterprise engaged in fully dematerialized digital activities would constitute a PE, if it maintained a significant digital presence in another country's economy. (2) a virtual fixed place of business in the concept of permanent establishments i.e., creation of a PE when the enterprise maintains a website on a server of another enterprise located in a jurisdiction and carries on business through that website. (3) Imposition of a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of equalisation levy on consideration for certain digital transactions received by a non-resident from a resident or from a non-resident having permanent establishment in other contracting state.