VAT in peer-to-peer content distribution : towards a tax proposal for decentralized networks

Peer-to-peer (P2P) is just the most prominent among a number of new technologies and social phenomena which allow easy searching, downloading, and sharing of files between users over a networked connection. P2P file-sharing networks are increasingly becoming an important medium for the exchange of digital information, in both legitimate and illegitimate scenarios. New business models are prefigured, pioneered, and fostered by early adopters and innovative companies, but the disruptive, personal, many-to-many model these networks enable has largely framed them also as a threat to the media and content industries as a whole. Especially in the U.S., the music industry has now a long standing legal history of responding to large- and small-scale digital file-sharing by aggressively pursuing compensation and taking legal action against those suspected of infringement. Nonetheless, P2P networks and technologies are going to play a critical role in the business models of all firms distributing digital content, either as challenges, convenient channels to distribute content legally or illegally, or as new distribution tools to be harnessed. These new ways of information delivery are frequently associate with copyright infringement, but the differences between legal and illegal sharing or illegal use are not always easily ascertained, and certainly not helped by the polarization brought on by campaign after campaign associating piracy and peer-to-peer technology per se. As of today, all digitizable media products, software, films and music in particular, are concerned with this new distribution business model and face a double-standard as far as legal sharing is concerned. The status quo for digital and media supplies using P2P technologies are analyzed in detail. Advantages and disadvantages of the current trend will be weighted as far as consumption taxation and copyright law are concerned. The focus of this research is the analysis of the P2P phenomenon from a VAT and GST point of view: do these transactions fall in the field of consumption taxation? Should they? Will they in the foreseeable future? What benefits the international community, the EU and national Tax Authorities might achieve by considering them fully integrated with the different VAT systems? In order to try and answer these questions, this research relies on an interdisciplinary tax research approach which considers the international legal framework on copyright law, as well as computer science and economic literature. The research uses the comparative method as well to highlight how the different national legal system may lead to different tax levies in matters of consumption taxation of on-line transactions subject to two of the main powers of a State, the power to apply taxation and the power to punish unlawful action, with the final goal of providing some insights on a question which will shape our future: what are the fiscal, and hence economic, consequences for the EU and the International community of classifying a file-sharing operation as liable of consumption taxation?