E-commerce is a commercial activity that uses the Internet as the transaction platform. According to China’s tax law, people and businesses need to pay income tax, value-added tax and/or corporate tax if they sell goods, software and/or pictures or act as information consultants on the Internet. Since e-commerce can be transnational, the tax law could face some tough problems. The first problem is erosion of the tax base. If buyers and sellers are based in different countries and if Customs duty and tax is not imposed on products flowing across national borders, a sovereign state could suffer the loss of tariff and value-added tax.