Tax Evasion and the Internet

Pages105-114
Date01 April 1998
Published date01 April 1998
DOIhttps://doi.org/10.1108/eb027176
AuthorMartyn J. Bridges,Peter Green
Subject MatterAccounting & finance
Journal of Money Laundering Control
Vol.
2 No. 2
ANALYSIS
Tax Evasion and the Internet
Martyn J. Bridges and Peter Green
The purpose of this article is to address the issue
of tax evasion and the internet. While the internet
has been the subject of growing media attention,
the concept of tax evasion and the internet has
only recently been considered.
While most readers will understand the concept
of tax evasion, the authors feel that it is worth
briefly considering what is meant by the internet.
The internet is a vast world-wide conglomera-
tion of computers, computer networks, telecom-
munications networks, communications links,
software and services. The internet
'... is not a physical or tangible entity, but
rather a giant network, which interconnects
innumerable smaller groups of linked computer
networks ... No single entity ... administers
the Internet ... There is no centralised storage
location, control point, or communications
channel ... and it would not be technically fea-
sible for a single entity to control all of the
information conveyed on the Internet.'1
Most private individuals are connected to the
internet via Internet Service Providers (ISPs) such
as America Online and MSN. The ISP provides
the user with access to the internet. The ISP's
services are provided by means of computers
known as servers which use specialist software.
The ISP also enables the individual to gain
access to the World Wide Web this is a subset
of the internet and provides access via 'websites' to
documents that include graphics, sound text and
sometimes video clips. Today, a wide range of
businesses offer information, goods and services
via the World Wide Web.
Electronic commerce occurs on the internet.
Electronic commerce is a phrase used to describe
the sale of goods or services by electronic means.
Some of the areas where electronic commerce is
already taking place are listed below:
Retailing and wholesaling of goods and services
Sale and delivery of computer software
Sale and delivery of digitised images
Provision of on-line information
Video conferencing
Gambling
Share dealing services
Off-shore incorporation services
Off-shore banking services.
With reference to the final category, off-shore
banking services, the European Union Bank,
which claimed to be the first off-shore bank to
offer services via the internet, recently collapsed.
The bank was set up in 1994 and operated from
Antigua. At the time of its launch, assets of $1bn
by 1997 were predicted by its founders the
actual capital base in early 1997 is estimated to
have been of the order of $10m. The liquidation
should reveal the actual position.
While most people would, at the moment, have
grave reservations about depositing money via the
internet with a bank based in an off-shore jurisdic-
tion, the attraction for a tax evader is obvious. It
will be interesting to see how many clients of the
European Union Bank come forward to establish
claims in the liquidation; one suspects that, as with
the Bank of Credit and Commerce International,
there may be a number of unclaimed deposits.
While it is impossible to obtain precise figures,
estimates suggest that, world-wide, some 86
million people have access to the internet. This
figure is expected to grow to 250 million by the
year 2000.2
In a recent report, Datamonitor forecast that 38
million European households will have internet
access by 2001. This would represent 25 per cent
of European households, compared to the present
estimate of
2
per cent.3
Despite the forecast growth in internet access, it
is currently only available to a relatively small pro-
portion of the world's population. At present, both
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