Identification of the parties to a transaction is a necessary first step in determining what the tax liability is for the transaction and who is liable for any tax payable. In relation to e-commerce, special difficulties are encountered. Where any business transaction is done through an e-page, the tax authorities must be technological capable enough to link the website with the "real world" physical parties behind it.

An e-page can easily conceal the true identity of the person benefiting from any business it does. On the Internet it is too easy to use a false identity and it is not currently feasible for tax authorities to independently verify a party's identity. This raises a number of legal issues because the identity of counterparty is important for numerous tax provisions . Similarly, unless tax administrations actively look for signs that existing businesses are involved in e-commerce the existence of a website and parties to transaction could remain undetected.

Furthermore, websites can quite easily be set up offshore or offshore websites can "front" onshore business. It is imperative for CBR to encourage voluntary disclosure of websites used as part of the selling and, possibly, distribution functions of a business. As a modest first step, tax forms will need to be changed to ask about e-commerce and to get information about browsing address of e-page of any business selling on the internet.

Finally, how the tax returns and other documents are to be attached as provided in tax provisions, I have disclosed this issue in chapter on e-record and booking keeping. 7.2.3. Electronic cash and bank secrecy The developments in electronic payment systems have the potential to create "electronic money."

Electronic money is a broad term, and just as electronic money systems differ in their technical features and it is also differ in the extent to which they create legal issues for tax returns. Depending on the type of system used, electronic money can caused various obstacles in way of compliance and it has an advantage or a disadvantage for collection of taxation. The use of electronic cash as a means of transacting internet business has been legalized by various state as an acceptable alternative to credit card payments.

The use of digital or electronic cash in e-commerce transactions could lead to difficulties for Revenue auditors. Revenue auditors have traditionally had to grapple with the lack of controls associated with the cash economy. The increasing sophistication of business transactions and the development of a variety of payment methods have meant that cash payments have become a diminishing feature of business transactions.

The electronic money poses serious threat to a tax evasion potential comparative to that created by paper money. This raises the issue of whether the evasion potential is manageable and what must be done to manage it. It is possible that the techniques that have been developed over time to combat tax evasion using paper money may not be workable combat evasion through electronic money.

The Electronic money has made easy to deposit unreported income in a bank or other financial institution with fraction of time. As a result of electronic money's facility in transmitting large amounts of money with relative ease across the border, combined with the continued use of e-cash, the legal issues of an underground and unaccounted economy is likely to be exacerbated.

Electronic money and the Internet substantially has increased the opportunities to open bank accounts, letterbox companies and trust accounts can be established abroad with relative ease and safety, and money can be transmitted anonymously. Such accounts are, of course, causing providing opportunity for tax evasion of home state by taking harbor in zero tax states.

2.4. Verification of identity and attached documents Verification of identity is also a problem for tax authorities, who want to be assured that the persons with whom they do business are who they claim to be.

As a result, companies engaged in electronic commerce are developing "digital certificates" or "digital IDs" that can be used to verify a person's identity over the Internet ; and Digital certificates" are issued by a trusted legal intermediary authorities who verifies the identity and documents of a tax payer and performs appropriate background checks, depending on the level of assurance to be granted.

The simplest level verification granted by these is that an e-mail message was sent from an indicated address. The next level verifies the digital ID holder through online identity verification against a consumer database when time and place of e-transaction conducted by purchasers.

The highest level verification is that the holder personally appears before a notary public to have a digital ID application notarized of digital document evidence after converting into paper base form. Once a person's identity has been verified, the certificate is created using public key encryption techniques, which makes it independently verifiable by the recipient and Immune from tampering it.