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KPMG hosted a two day bank tax conference in Zurich in October 2000 on the central topic of e-banking. The highlights of the conference, which is held at different locations every 18 months, were as follows:

  • Iain Roche, Managing Director of Cisco Systems Inc., outlined his company's meteoric rise from nothingness to being a mainstay of the Dow Jones Index, described the factors contributing to this success, especially Cisco's corporate climate of modernity, efficiency, flexibility, and speed, and discussed two of Cisco's key e-banking customers: Citigroup (which is planning a new system to replace Citi f/i and Direct Access) and Princeton Financial Systems, which will handle trading, portfolio management, operations, and reporting through Internet networks. Mr. Roche estimated that the number of e-banking customers in Europe would rise from 4.5 million in 1999 to over 21 million in 2004, almost 14 million of which would use WAP-capable mobile telephones to transact e-banking business.
  • Graeme Ross and Jane McCormick of KPMG London discussed tax planning aspects of e-commerce. Noting that issues of the appropriate division of income between tax jurisdictions (transfer pricing) were becoming acute as globalisation progresses, they theorised that governments would respond to the decreasing need for geographic proximity between a business and its customers with a sort of "world tax police" and an attempt to use taxation as a regulatory instrument with regard to the global economy. Among the key tax issues discussed were the choice of jurisdiction for companies licensing Internet know-how and the avoidance of unnecessary realisation of gain in connection with global restructuring. Finally, Mr. Ross and Ms. McCormick stressed the importance of indirect taxation (VAT, customs duties, sales taxes) in a global economy.
  • Lukas Mühlemann, Chairman of the Board of Management of Crédit Suisse, gave a talk in which he focussed on three key factors driving e-banking: cost reduction, particularly in the personnel cost area, new delivery channels, and new business models.
  • Mark Leitch of VISA discussed how e-commerce was changing the relationship between customers, retailers, credit card companies, and banks.
  • Hanspeter Kurzmeyer of Crédit Suisse (Youtrade) described the handling of online securities transactions.
  • Michael Stemmler of Deutsche Bank (emaro) described emaro as an electronic marketplace for computer hardware, computer software, and office equipment. emaro is a joint venture of Deutsche Bank and SAP in the form of a stock corporation (AG). emaro's goal is to become the leading business-to-business marketplace for the purchase of the above goods. Mr. Stemmler estimated that purchasing costs in the electronic marketplace would be 30 % under those of conventional purchases. Processing times would drop from 7.3 days to 2 days, he said. Mr. Stemmler said that emaro would expand beyond Germany to Europe and other regions, whereby further joint ventures were a definite possibility.
  • The above three products (Visa, Youtrade, and emaro) were also the subject of break-out sessions.
    • Graeme Ross of KPMG London laid out the tax implications of Visa operations.
    • Martin Scherer of KPMG Zurich explored tax aspects of Youtrade, especially the Swiss securities transfer tax of 0.15 % for Swiss securities and 0.30 % for foreign securities. The Swiss VAT exemption for securities transactions rules out an input tax credit on input supplies, thus raising allocation issues, especially since securities safekeeping and investment counselling are subject to VAT. Various compliance issues are also raised by Internet banking transactions.
    • Thomas Welte and Jürgen Hartmann, of KPMG Munich and KPMG Düsseldorf respectively, covered legal issues posed by the emaro case study, including the EU e-commerce guideline of 18 November 1998 and the German electronic signature law of 22 July 1997 as amended on 22 June 2000. They also discussed the EU proposal of 7 June 2000 on the VAT treatment of e-commerce, the essence of which is to move the place of supply inside the EU where non-EU businesses sell to private persons, thus subjecting such transactions to VAT. There was also discussion of whether a server or a website can create an objective-presence permanent establishment and whether an Internet service provider (ISP) can create an agent-based permanent establishment.

The second day of the conference was devoted to workshops (run simultaneously):

  • Global transfer pricing and e-banking (Steven D. Felgran and Robert Clair, KPMG New York, and Sian Hill, KPMG London). The workshop noted the potential for erosion of the tax base as a result of the dispersal of e-banking operations around the world and the mobility and fungibility of the relevant know-how. The workshop sought to demonstrate how the U.S. global dealing regulations (and other supranational and national provisions) might serve as a basis for a transfer pricing system that would be recognised by all jurisdictions involved.
  • Indirect taxation (Gary Harley and Frank Sangster, KPMG London, and Gerry Stuurop, KPMG Zurich). The indirect taxation of e-banking was explored by means of a hypothetical newly organised Internet bank in Ireland that markets its products (some subject to VAT, some exempt) throughout Europe using the IT resources of a related-party Swiss bank.
  • Direct taxation (Thijs Brans of KPMG Amsterdam, Eva-Maria Perske of KPMG Frankfurt, and Paul Long of KPMG London) used a hypothetical multinational structure to probe the above mentioned permanent establishment questions (server, website, and ISP as permanent establishments). The hypothetical involved a U.S. seller, a German buyer, a European website, and a German database server.
  • Regulatory and legal issues (KPMG Banking Network). Various members of KPMG's international banking network analysed legal developments affecting e-commerce both within the EU and at the international level.

The conference closed with a case study presented by Peter Gale of KPMG London in which all conference participants grappled with the question of the optimal jurisdiction in which to locate an Internet bank. The participants responded enthusiastically to Mr. Gale's stimulating exposition, which was regarded by all as a strong finish to an informative and productive conference.

Editorial cut-off date: 01 June 2001

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