A dot-com company, or simply a dot-com (alternatively rendered dot.com, dot com or .com), is a company that does most of its business on the Internet, usually through a website that uses the popular top-level domain “.com” (in turn derived from the word “commercial”). In the late 1990s many businesses were interested in investing in the Internet to expand their market. The Internet has the ability to reach out to consumers globally as well as providing more convenient shopping to the consumer. If planned and executed correctly, the Internet can greatly improve sales. However, there were many businesses in the early 2000s (decade) that did not plan correctly and that cost them their business. FAILURE REASONS 1) In the late 1990s many businesses were interested in investing in the Internet to expand their market. The Internet has the ability to reach out to consumers globally as well as providing more convenient shopping to the consumer. If planned and executed correctly, the Internet can greatly improve sales. However, there were many businesses in the early 2000s (decade) that did not plan correctly and that cost them their business. 2) One of the biggest mistakes early dot com businesses made was that they were more interested in attracting visitors to their website but not necessarily winning customers over. 3) Early e-commerce thought the most important factor was to have as many visitors as possible gather to their website and this would eventually translate into profits for their business. This was not necessarily the case and businesses failed. 4) Early dot com businesses also failed to take the time to properly research the situation before starting their businesses. There are many factors that come into play when starting a new business. Research needs to go into the product the business is actually trying to sell. The business also needs to research a price for their product. They need to be competitive with the cost of their product compared to their competitors. 5) Early businesses failed to research how they promoted their product. If they decided to advertise their product only through the cheapest avenues (i.e. banner ads, radio), then most likely they would not get the amount of consumers they would if they advertised through more popular means. TRANSACTION ENTERED THROUGH WEBSITES Transactions consummated through websites typically comprise of the following: On-line advertising – Where the advertisers pay websites/ portals to have their advertisements disseminated to its users. Information delivery – Where the provider electronically delivers data to subscribers in accordance with their preferences. Subscription based interactive website access – Provider makes available to the subscriber of a website, digital content, including information, for which subscribers pay a fixed or a period fee. Online shopping portals –Operator hosts a series of electronic catalogues of multiple merchants in its website.   Users can select products from these catalogues and place orders online. CHARACTERIZATION WHETHER ROYALTIES OR BUSINESS PROFIT The OECD was of the view that the aforesaid transactions would not be taxed as royalty but as business profits, as the payments do not fall within the definition of the term “for the use of or the right to use industrial, commercial or scientific equipment (or) for information concerning industrial, commercial or scientific knowledge”.  Interestingly, with respect to the above transactions, the HPC was also of the view that the same shall not fall within the ambit of royalty but would be taxable as business profits. Recent decisions of the Mumbai Tribunal in the case of Pinstorm Technologies  [54 SOT 78]/ TS-536-ITAT-2012(Mum), Yahoo India [140 TTJ 195]/ TS-290-ITAT-2011(Mum), have in the context of payments to search engines of online portals, held that the payments are not in the nature of royalties.  The Tribunal was of the view that the banner advertisement hosting services did not involve use of or right to use any industrial, commercial or scientific equipment by the payer and no such user rights were actually granted by the website owner.  In absence of any positive act of utilization of the website by the payer, it was held that such payments shall not be regarded as royalty. The Kolkata Tribunal has in a recent ruling of Right Florists [ITA 1336/Kol/2011]/ TS-137-ITAT-2013(Kol), in the context of taxability of amounts paid to search engines such as Google and Yahoo for online advertising services followed the principles enunciated by the Mumbai Tribunal.  It has further observed that such payments would also not constitute fee for technical services, given that the entire process is automated and there is no human touch involved. TAXATION ISSUES Taxation of E-Commerce, especially taxability of transactions undertaken through websites has been a subject matter of intense discussion internationally, as well as in India, since the early turn of the 21^st Century.  The OECD had set up a Technical Advisory Group (TAG) in 2001 to determine the characterization of E-Commerce transactions.  The Indian Government had subsequently constituted a High Powered Committee (HPC) to examine the positions in light of OECD’s recommendations.  Transactions that were consummated through the website also formed part of this analysis. Does your website construes as permanent establishment and taxed accordingly ? It is a well established principle under international taxation that for the source state to tax business profits, the non-resident income earner should have a PE in the source state.  The OECD had since clarified that an internet website, which is a combination of software and electronic data, does not in itself cannot constitute tangible property.  It therefore does not have a location that can constitute a “place of business”, as there is no facility such as premises or machinery or equipment.  One of the most important conditions to trigger a Fixed Place PE is the existence of the “fixed place of business”.  Given that the same would not be satisfied in the case of a website, impliedly, a website would not constitute a PE under Article 5 of tax treaties. The OECD also clarified that a website which is stored in a server and through which it is accessible, is a piece of equipment having a physical location and such a location may constitute a “fixed place of business”. Typically, fees are paid to Internet Service Provider (ISP) to allow websites to be hosted in the server of the ISPs.  Although the fees are typically based on the disk space used to store the software and the data required by the website, these contracts do not result in the server and its location being at the disposal of the payer.  In such circumstances, while there may exist a fixed place of business, the payer has not acquired the place of business by virtue of the hosting arrangement.  Accordingly, the “place of business” test would fail in such circumstances.  Where, however, the payer who carries on business through a website has the server at his disposal, the place where the server is located could constitute a Fixed Place PE. The above commentary in the OECD Model convention has been extensively relied by the Kolkata Tribunal in a recent ruling of Right Florists (Supra).  The Tribunal had held that a website shall per-se not be regarded as a fixed place PE by placing reliance on the OECD Model convention.  The relevance of India’s reservations in the OECD Model convention was also considered by the Tribunal while pronouncing its ruling. Online processing of transactions by Indian companies on behalf of overseas group companies in light of Indian regulatory constrains is another issue that is likely to face significant heat from the Indian tax authorities.  The issues could range from characterization of payout collected by Indian companies on behalf of its overseas parent, existence of a Dependent Agent PE in India, profit attribution to Indian operations etc.  It would be interesting to see how things unfold in this area. CONCLUSION As evident from the above, the Indian Courts have been warming up to the growing litigation around the taxability of e-commerce transactions, particularly those transactions consummated through websites.  The observations made in many of the Court rulings would certainly provide useful guidance to tax treaty interpretation and ease concerns of tax payers involved in similar e-commerce transactions.  These observations also solidify the international thinking on the taxability of e-commerce transactions. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.