Law360 Quotes Peter Barnes on Early Test of Digital Tax

In 1942, the Fifth Circuit ruled that the Piedras Negras Broadcasting Co.'s income came from its physical broadcasting facility in Mexico and wasn't taxable by the Internal Revenue Service as U.S.-sourced income - even though a vast majority of the company's advertisers and listeners were from the U.S. The case set a precedent that is coming under increasing strain as the U.S. and the world grow skeptical of using physical presence as a proxy for taxation given that more and more business happens on the internet. But experts say that the case shows these issues aren't new, and that the logic behind the ruling shouldn't be tossed out cavalierly.

. . .

"I just think the world has changed; I think Piedras Negras is very conventional," said Peter Barnes, a professor of tax at Duke University School of Law and [former] senior international tax counsel at General Electric Co. "I think it would have been decided differently under today's view of things."

But Barnes also said he sees dangers as the world shifts to an online, user-focused outlook.

"I have serious doubts about the idea, under the digital tax, of just going to where the consumers are," Barnes said. "Because I think that conflates an income tax and a consumption tax. We already have consumption taxes that deal with the situation with the consumer."

Mr. Barnes is also Of Counsel at Caplin & Drysdale.

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Excerpt taken from the article “1940s Mexican Radio Case Stands As Early Test On Digital Tax” by Alex M. Parker for Law360 Tax Authority.