LINKS IN THIS SECTION

- Introduction
- ISP & Hosting Services
- Customer/Partner Communication and Management Systems
- Certification and Security Services

RELATED SECTIONS

- Taxation of Offshore E-commerce
- Regulation of Offshore E-commerce
- Offshore Professional and Financial Services
- Offshore E-commerce Applications

With an offshore location, the actual sale will traditionally have taken place on the local server to avoid any possibility that the transaction could occur in the buyer's tax jurisdiction. However, initiatives from high tax countries such as the US to counter terrorism and money laundering have increased the scrutiny of payment methods such as offshore credit cards, and may therefore compromise tax privacy for the customer.

The predominant payment method is, nevertheless, likely to be credit/debit cards, and the software employed to process the payments should:

• Establish contract terms and make a contract
• Perform the transaction in a secure environment such as SSL or SET
• Handle the credit card payment transaction including authorisation procedures
• Integrate the sales/payment process into order management
• Communicate with a customer database

In order to avoid the need to run complex payment processing systems on its own web-site, a company can outsource this function to a third party organisation, of which there are a number. The customer is transferred to the third party processor at the moment when sensitive details need to be entered (credit card numbers; other personal data).

Offshore vendors were aware that there could be tax risks in allowing payment to take place in a 'third party' jurisdiction, or possibly in an unknown jurisdiction. Perhaps partly for this reason, payment processing was one of the activities which offshore jurisdictions began to offer directly to users in the initial stages of offshore e-commerce.

However, this did not take off as initially anticipated, with offshore jurisdictions particularly hurt by the focus on securing and regulating international payments, since they were already in the public eye as a result of the work of the FATF and the OECD. Only the most advanced and respectable jurisdictions, such as the Isle of Man or Bermuda, have been able to welcome e-commerce business with any confidence that adequate payment mechanisms can be put into place.

The lack of adequate banking support for offshore e-commerce has been to some extent compensated by the emergence of the aforementioned third-party payment gateways, the best-known of which is Pay-Pal, but even these services are now being threatened by legislative attacks from tax authorities and law enforcement agencies, with the United States, as is often the case, leading the charge.

The two main US threats to the workings of the international payments system at the retail level are the Internal Revenue Service and the Patriot Act, which offers the US law enforcement authorities plenty of opportunity to prevent financial institutions from offering or participating in international payment systems - and since US institutions are all-pervasive in international payments, that means a major impact for offshore jurisdictions which are hoping to host tax-efficient retail e-commerce activity.

Under the Patriot Act, the Treasury Department introduced a new set of rules in April, 2002, that extended its provisions for banks and securities firms to credit-card companies, mutual funds and wire-transfer firms. The regulations required the firms to implement comprehensive money-laundering compliance programs. Among the provisions, companies were required to designate a special compliance officer, train employees to detect money laundering, commission independent audits, and establish policies and procedures to identify risks and minimize opportunities for abuse.

Patriot Act requirements are tough enough for domestic transactions, but are potentially much worse for overseas transactions.

In Autumn 2006, the US Congress created further international shockwaves when it approved legislation effectively banning all online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations.

OFFSHORE E-COMMERCE FACILITIES

- Introduction - A quick overview of the tools, solutions and facilities needed by companies locating e-commerce or e-business operations in an offshore jurisdiction.
- ISP and Hosting Services - The facilities you should look for in an offshore jurisdiction to support an Internet e-commerce or e-business presence.
- Customer/Partner Communication and Management Systems - The front-end systems you will need to communicate with your customers or trading partners including sales and exchange tools.
- Certification and Security Services - Supporting e-commerce and e-business services with certification and security facilities from an offshore jurisdiction.