Over the next year governments around the world 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.
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 least taxes.
The big change:
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).
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, typically 5%-15%. The rules vary from state to state with even some cities and metropolitan areas charging these taxes – 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. Again, online platforms should collect the tax, when involved.
Many other countries with VAT or GST (Goods & Service Tax) are copying the EU.
OECD:
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 basically a global treaty which updates bilateral tax treaties e.g. regarding warehouses, commissionaires (“secret agents”) and companies with foreign sales subsidiaries.
Larger multinationals may soon have to pay a 15% minimum global tax if total sales exceed €750 million (“Pillar 2”). And if annual sales exceed EUR 20bn, some taxable profits may be re-allocated to countries where the consumers are (“Pillar 1”).
Digital Services Tax (DST):
DST is a second sales tax/VAT at rates of 2%-7.5% generally! It has been enacted in the UK, France, Spain. Turkey, India and elsewhere. The OECD hopes Pillar 1 will eventually replace DST….
Action to consider:
E-commerce companies should urgently consider actions A to F below, namely.
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.
Next Steps:
Please contact us for information, analysis, calculations and advice.
Ecommerce.tax – Better profit after all taxes!
(c) Leon Harris 18.5.2023