Why Tax and Compliance are Critical for Global Ecommerce Success
By: Natalie Wires
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Too often, back-office processes like tax and compliance take somewhat of a backseat when brands are looking to break into new global markets. Localizing sales strategies, managing logistics and supply chain issues can all seem like more pressing matters. But when you consider the complexity of these issues and the impact they can have on your bottom line, it’s clear that getting tax and compliance right is absolutely crucial to achieve ecommerce success in global markets. Unfortunately, that’s easier said than done. To truly excel in these areas, you need to gather the right internal stakeholders, seek out experienced partners and even change your company culture to align with your new market goals.
Making taxes less taxing
Part of what makes tax such a challenging aspect of cross-border ecommerce is just the sheer complexity of it all. Taxes are handled differently in every country, and changes in the tax code can happen relatively quickly. In fact, in just the past year, there’s been tremendous growth in countries imposing new taxes that are designed to level the playing field between smaller domestic companies and large multinationals. Tax experts at Digital River estimate that one or two new countries have been imposing such regulations every month. So, your brand will inevitably face an uphill battle just trying to keep up with new tax requirements.
But getting tax right is about more than just ensuring accurate remittance. You also need to understand how tax-related issues will impact all areas of your operation. For example, many countries have different sets of rules for physical goods and digital services, and some countries require you to submit invoices for government approval. These kinds of issues could impact pricing strategies, how and when you get paid and even determine which products you introduce in the market.
To avoid any serious issues, you need a coordinated response from your accounting, procurement, compliance, tax teams and other personnel as input from one group can affect the others. You should also consider partnering with a tax expert that has a strong footprint in your target geography so you can eliminate the burden on your personnel. By bringing people together early in the process and leveraging outside experts, you can develop a comprehensive process and hit the ground running in your target market.
Ensuring compliance is cultural
Changes in the regulatory environment don’t happen as quickly as the tax space, so you will likely have plenty of time to prepare for any new laws and requirements. But putting the right processes in place will still be critical because compliance encapsulates issues beyond the obvious risk of fines or other legal action from regulators. You also have to think about compliance in terms of how it can affect your relationships with customers.
People want to know they can trust you with their payment information and other personal data, and consumers in the E.U. feel very differently about data privacy compared to people in the United States. The stricter data privacy laws in the E.U. can then be viewed as merely a reflection of the established cultural norm. Instead of thinking about these laws as cumbersome governmental edicts, treat compliance as an opportunity to be a caretaker for your end users and demonstrate that your brand embodies their values.
Other times, understanding compliance issues can have a more immediate impact on your operations. For example, Sweden’s central bank issued a warning that household debt was rising to a level that was not good for the economy or individual consumers. So, the state passed a new law that when you’re shopping online and checking out, non-credit based payments should be first in the payment options list. This could affect your checkout process or messaging when it comes to payments.
In other words, there’s a good reason why regulations developed the way they did. It’s your job to understand that local nuance and adapt accordingly. If you’re not shifting your brand culture and established processes to reflect the culture of where you’re trying to sell, it’s always going to be a problem.
So, to manage compliance successfully, you need to simultaneously be involved in specific regulatory details but also pull back and understand the greater cultural context and market conditions that led to the current regulatory environment. To accomplish this, you will likely need to partner with an outside firm that understands issues like export compliance intimately and has established experts already working in your target geography. Also, similar to the team-first approach you took to taxes, be sure to bring stakeholders together from various departments to create a holistic plan for successfully managing compliance concerns.
The bottom line
The best way to manage the complexity of global tax and compliance requirements is to bring the right people to the table early in your go-to-market strategy development process. Leveraging tax and compliance experts while creating alignment among your internal business segments to reflect local cultural expectations will help you position your brand for success in your new market.
To learn more about how you can successfully manage back-office operations for global ecommerce, join Digital River for one of our upcoming live virtual events. On July 29, we’ll bring together tax experts for a panel titled Taxes Don’t Need to be Taxing: Take the Complexity Out of Global Commerce. Then, on Aug. 26, join compliance leaders for Is Your Business Safe? Navigating New Compliance Trends.
