Due to the rapid growth of electronic commerce worldwide, the traditional approach of taxing business profits in Hong Kong, a source‐based common law jurisdiction, warrants a close review as to its compatibility with such a modern way of doing business. Although the Inland Revenue Department of Hong Kong has issued its views on the taxation of electronic commerce profits as Departmental Interpretation and Practice Note 39, much of the treatment of such profits follow the conventional wisdom of taxing business profits as set in the source‐based rules. This paper reviews the present situation of taxing profits arising from electronic commerce transactions in Hong Kong and compares it with the cases of the UK and the USA. Problems in formulating water‐tight tax law, accounting standards for intangible assets, and coping with cross‐border fraud, indicate that progress may not be straightforward. Issues as to fairness, and the difficulty of taxing such receipts are raised, followed by recommendations.