The expert committee set up by the government on e-commerce taxation is likely to recommend changes in the double taxation avoidance treaty (DTAT) laws with various countries to facilitate taxation of business transactions done through the Internet.

Sources said the committee will submit its report by January 31, which is likely to be made public. The panel was in the process of finalising its recommendations, they said. The suggestions made by the expert committee would be considered while making die budget for 2001-2002.

Recommendations of the panel holds significance as international taxation principles like 'permanent establishment envisaged in the DTATs to assign tax jurisdiction have to be reviewed in the changing scenario in which e-commerce transaction is growing by the day.

It is difficult to identity 'permanent establishment' in e-commerce transactions as a server may be located in one country and the parties involved in the transaction may be the residents of two different countries.

Under e-commerce, there is no longer any commercial reason for a vendor to be based in the same territory as the customer. The tax authorities today are facing the prospect of permanent flows of taxable profits out of their jurisdiction.

No country till date has been able to formulate concrete guidelines for e-commerce taxation. Five technical advisory groups of OECD are currently engaged in the consultations on the subject to formulate guidelines for e-commerce transaction-related issues including payment and taxation.

Sources said the expert committee on e-commerce taxation is in regular touch with the developments taking place in this area and will suggest methods for e-commerce taxation keeping in mind these initiatives.

They said the companies involved in e-commerce transactions should be entitled to neutrality, and the business carried out through the Internet should be treated in the same manner as the conventional business is treated.

The committee is likely to suggest measures for minimising the compliance costs of the companies engaged in e-commerce transactions.

It is also studying how this mode of business could be taxed with the help of simple and clear rules so that the parties involved have an idea of where and how much is their tax liability.

Experts feel that the OECD guidelines on e-commerce taxation should be adopted as the common standard. Different sets of guidelines in different countries will create problems for companies in e-commerce and uncertainties in the tax treatment could constitute a barrier to growth of e-commerce.