Tax in the ecommerce space is complex, to say the least. Calculating, collecting, reporting and remitting tax for your global business is complicated and time-consuming. Rules change constantly, vary country by country and mistakes can be costly. As your business enters new markets, are you set up to handle nuances like value-added tax (VAT), exemptions and digital taxation? It can be overwhelming to consider, but there’s good news: you’re not alone and you have options.
As part of our Commerce Passport series, we brought together a panel of experts to discuss how businesses can take the complexity out of international tax management. The live virtual event was sponsored by Silk Software and speakers included:
- Dong Xu, CEO | Silk Software
- Sean Brodie, Partner, Indirect Tax | PwC Ireland
- Troy Peck, Principal Product Manager | Digital River
- Jason Nyhus, Senior VP Sales and Partnerships | Digital River
Here are top insights on managing taxes in the ecommerce space when selling in global markets:
Pace of change presents challenges
Perhaps the biggest challenge taxes pose for brands looking to break into new markets is simply how quickly things are changing. As ecommerce has exploded around the world, governments have struggled to keep up, scrambling to devise both tax policies and mechanisms for collecting tax that keep local companies competitive while capturing critical revenue. But even that is changing.
“Technology is enabling tax authorities to better grapple with the pace of change,” said Sean Brodie. “It’s given them the ability to demand transaction-level information and to demand that information on a real-time basis.”
Brodie predicts that in the next 10 years, nearly every tax authority will have some form of real-time reporting requirement and will likely have a way to plug into your financial system and collect information on a real-time basis. Tax leaders need to be prepared to integrate with local tax systems to accommodate real-time reporting standards as they emerge.
The problem at the moment is that nothing is standardized, and every tax authority has their own system and is moving in their own direction. It will be incumbent on brands to find a way to stay on top of these kinds of changes in every market they operate in or risk potentially serious consequences.
Planning ahead is crucial
Some of the most attractive global markets (such as Brazil, Russia, and others) are also the most complicated when it comes to taxes in the ecommerce space. So, given the current complexity and the fact that tax laws are constantly changing, brands looking to devise a successful cross border ecommerce strategy need to make tax a priority in their go-to-market plan.
Dong Xu from Silk Software said he has seen a number of companies whose new market initiatives had to be delayed because they didn’t put enough focus on taxes at the outset.
“From day one, there has to be a clear strategy of how you want to handle tax. It can’t be an afterthought,” Xu said. “As long as you have dedicated people or outside expertise and a plan early on, the chance you can get it done right is much higher.”
Xu said he advises many of Silk’s clients to start investigating tax issues as soon as they identify the market they want to move into. He said the complexity of global tax means devising a successful strategy can’t be left to mid-level managers. It will take buy-in from multiple stakeholders at all levels to ensure your tax systems, pricing strategy and even product development are all aligned with tax ramifications in mind.
Partnerships mitigate risk
Our panel of experts generally agreed that unless you have an extremely strong and experienced in-house tax team, international tax laws are simply too complex to warrant an internal investment for most businesses. In other words, leaders should consider looking outside their company to find a partner that can provide guidance on these issues.
Partnerships with experienced firms take the burden off your team of having to understand, interpret and keep up with changing tax laws so you can put those resources to better use elsewhere. Not only that, but partnerships can also mitigate risk for brands selling into new markets.
As countries develop more mature tax systems, they will be able to interrogate tax data and reconcile that information against another country’s data in accordance with international treaties and data sharing agreements. For example, if you’re selling into one E.U. country and they reconcile that data against your records in another E.U. member country and find a discrepancy, you could face significant penalties.
To protect your business from impending tax burdens, our experts suggest finding a partner that has a large tax footprint across multiple geographies so you can feel confident your company is compliant across all markets.
Want to continue the discussion?
Our tax experts had more insights to share than we could fit into one event. So, we recorded a podcast immediately following our panel to continue the discussion on this important topic. Listen to the podcast below and then subscribe to our Commerce Connect Podcast to hear more ecommerce leaders discuss their tips and tools for success.
To learn more about how to navigate the nuances of global ecommerce, be sure to join us for the next live episode in our Commerce Passport virtual event series on August 26 titled Is Your Business Safe? Navigating New Compliance Trends.