Death and Taxes — Why You Won’t be Able to Escape One in the Metaverse

By: Julie Rea
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This article was originally published on Retail TouchPoints.

The metaverse — a parallel digital reality where users can navigate virtual worlds and engage with others — is the hottest topic in ecommerce right now. Some think it will revolutionize the way we shop forever, marrying the advantages of in-person and online shopping and unlocking new possibilities for how we buy and sell products (both physical and digital).

All commerce is regulated, and it’s still unclear what that looks like in this ethereal space. How will purchases be taxed in a world with no borders? What kind of information will be collected and how will it be secured? How will we pay for goods and services? What novel questions have yet to be considered?

It’s unclear how regulations will evolve in the metaverse, but current frameworks may very well hold some clues to the rules that will define this new virtual environment. If Mark Zuckerberg’s vision for digital life becomes a reality, here are a few things you’ll need to know about doing business in the metaverse.

Taxes will still be tied to a physical location

Purchases are going to be taxed, and it’s likely that physical location is still going to dictate which taxing jurisdiction to apply to transactions. While fully virtual transactions may not tie directly to the physical world, a user’s physical location is the easiest way for governments to ensure that no purchase goes untaxed.

Current regulations stipulate that the taxation of services is based on the location or habitual residence of the buyer, while the taxation of physical goods is based on the ship-to location or jurisdiction.

No matter how tax regulations evolve, brands selling in the metaverse will need a way to ensure that appropriate taxes are collected. This means gathering sufficient information from the end consumer purchase and applying the right tax decision, so brands will need to be sure that they’re receiving accurate location information from customers. In the event of an audit, brands would be wise to keep a record of the baseline information used in the tax decision, as regulatory agencies will certainly be watching the metaverse with a keen eye.

Brands will need to invest in compliance

Regulatory compliance is complex and challenging in the physical world, and it will be a critically important consideration for businesses entering the metaverse. New forms of customer interaction in the digital world are going to bring new categories of complexities, and businesses will need to be ready to comply with rapidly evolving requirements.

For many companies, this likely means further investment in compliance as a part of their everyday operations. Whether that involves building up the internal staff, incorporating new technology or outsourcing to ensure proper compliance and risk protection, most companies will need to expand how they manage regulatory compliance.

With the added complexities and security concerns that come from selling in an uncharted digital environment, brands need to be sure that they fully understand their compliance obligations and are positioned to take the necessary steps to manage them. Businesses looking to outsource these responsibilities should consider a partner that enables secure transactions while ensuring that compliance and tax regulations are appropriately fulfilled.

Payments could look very different

Those expecting the transactions in the metaverse to look like today’s online transactions could be in for a surprise. Payment methods will evolve, and things like tokens or cryptocurrencies could become preferred payment options. Brands will need to have the infrastructure to adapt quickly and accept the rapidly evolving payment types and virtual currencies customers will come to expect.

Physical borders are still going to matter

The metaverse could open new doors to sell globally, and companies need to make sure they are ready for the increased opportunities that doing business in the metaverse could generate. One thing that is certain: participation in the metaverse will expose global consumers to brands, products and services they may never have encountered in the physical world. No matter how expansive or realistic the metaverse will turn out to be, life is still lived in the physical world, and physical boundaries will continue to be a consideration for the cross-border sale of goods.

Businesses without experience selling across international borders may not be prepared to comply with the requirements for cross-border trade, including export, taxes, duties and tariffs. That means they’ll need support navigating complex regulations and ensuring that they can get the product to the end consumer as efficiently as possible.

Businesses need to decide on a cross-border trade and tax strategy and understand the regulations, taxes and duties that apply to their products in the import country. Customers will need to know whether there is an option to pre-pay import taxes or whether they will have to settle all taxes on delivery. They also appreciate transparency, so having no added surprises in the purchase journey is the best way to give them a good experience.

Constant data collection raises new questions

The metaverse will be an environment rife with personal and payment data, and that will inevitably capture the attention of cybercriminals as existing security protocols may be rendered useless in this new frontier. This problem will require investment in security protocols and the experts who can implement them to keep personal data safe.

Personal privacy is another issue that arises from data collection. Interaction in a fully digital world will allow new categories of user data to be collected ubiquitously, opening new avenues for brands and marketers to reach customers. Physiological and behavioral data could be compiled, such as tracking where consumers’ eyes move, how long they linger in certain areas and the digital spaces they visit. This could be unsettling for privacy-savvy consumers, and new regulations for consumer and data protection are likely to arise.

The solution is transparency, although perhaps to a greater degree than what we often see in the current ecommerce realm. With more forms of personal data being collected in ways that consumers may not expect, metaverse companies will need to create appropriate customer disclosures, terms of service, and privacy policies to ensure users understand the terms related to any transaction they make in the virtual world.

Putting it all Together

It’s hard to say definitively what commerce in the metaverse will look like, but regulation in the physical world could be a sort of fossil evidence that points to future evolution. The metaverse will be secondary to the real world with novel legal questions, but regulations that have evolved from centuries of buying and selling won’t suddenly be ignored. While it may be the biggest leap to date in the continued evolution of ecommerce, even a fully digital world’s new rules will likely remain tethered to existing regulatory frameworks.