E-Commerce Tax Challenges Ahead
E-commerce means using the internet to sell easily to customers around the world from your chair. The world is our oyster. However, governments know this. Over the next year or so, governments hope to dig up treasure for their tax coffers—not buried underground but hidden in the internet cloud. The USA, EU and OECD are behind this, and the UN wants to tighten it further.
But double taxation and other risks may be around the corner. Preparation and compliance are necessary to help avoid criminal sanctions and reputational damage. The potential reward is international expansion with the least taxes.
The Big Change: Paying Tax Where You Aren’t
Until now, nobody expected you to pay tax in a country if you and your products aren’t physically there. Soon, E-commerce suppliers may find themselves owing multiple taxes wherever they have customers or users, regardless of where those suppliers are located. The taxes include VAT/sales tax/GST, income tax and digital service tax (DST).
Large multinational groups are not the only ones affected. Businesses of all sizes face additional new tax challenges.
A Tour of Global E-Commerce Taxes
- US Sales Tax: The US offers a large, affluent market. But in 2018 the US Supreme Court allowed US states to collect sales tax from out-of-state suppliers and nearly all US states now do so. The “nexus” (taxable connection) rules vary from state to state—resulting in around 20,000 US sales tax rates! Online platforms often serve as reluctant tax collectors.
- VAT/GST: EU countries now impose VAT on B2C (business to consumer) supplies at rates typically ranging up to 25%. If you don’t want to register for VAT in more than one EU country (there are 27), you can register on a One-Stop-Shop basis in one country, but then you forfeit input VAT on your expenses.
- OECD Rules: The OECD has made recommendations to around 140 countries on how to impose income tax on e-commerce. Businesses of all sizes should check out the OECD Multilateral Instrument (“MLI”). The MLI is a global treaty which updates the taxable nexus rules in bilateral tax treaties e.g. regarding warehouses and commissionaires. Its effect is often under-estimated by taxpayers.
- Digital Services Tax (DST): DST is basically a second sales tax/VAT at rates of 2%-7.5%! It has been enacted in the UK, France, Spain, Turkey, India and elsewhere. The OECD hopes Pillar 1 will eventually replace DST….
Six-Step Action Plan
E-commerce companies should urgently consider the following actions to get ahead of these challenges:
A = Automated reporting.
B = Business nexus review.
C = Comprehensive structural planning.
D = Double tax avoidance (an absolute must).
E = Evaluating it all.
F = Further implementation points.
Don’t Let Taxes Sink Your Global Ambition
We at Advisors.biz want to help your business expand internationally. The internet is a great way of doing so. But double or triple taxation must be prevented. We can advise on new nexus rules so that you can plan accordingly to address e-commerce taxation.
Contact HQ@Advisors.Biz