The quick development of e-commerce, especially the sale of merchandise and enterprises over the internet, has fuelled a debate about the tax assessment regimes to be used. The move from a physically oriented commercial environment to a knowledge-based electronic environment poses serious and considerable issues in relation to tax collection and tax assessment regimes. Duty organisations all through the world face the formidable assignment of protecting their revenue base without hindering either the development of new technologies or the involvement of the business group in the evolving and developing e-market place. Concerns of governments centre on the effect of e-commerce on the state and nearby revenue. Whereas states can impose a duty on residents purchases from out-of-state vendors, they can't impose a commitment on those vendors to collect the assessment unless the vendor has a significant presence, or nexus, in the state. This paper deals about the issues and problems in taxation, determination of economic attachment, the way business is transacted through E-commerce, permanent establishment of e-commerce situation and the determination of nature of income. These problems will be greater for developing countries. The shrinking of the tax base will have a disproportionate effect and further jeopardise the already fragile economy of the developing world. These problems will be greater for developing countries. The shrinking of the tax base will have a disproportionate effect and further jeopardise the already fragile economy of the developing world.