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Revitalising retail – but at what cost to tax compliance?

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As omnichannel shopping grows, retailers are dealing with the knock-on effects on tax compliance

Oliver Froehlich, European e-commerce and marketplace channel lead at Vertex, explains the indirect tax obligations that are on the horizon as retailers transition to omnichannel operating.

Recent store closures enforced by lockdowns saw a boom in online shopping sales. Riding this wave, we saw many retailers invest heavily in e-commerce and invite international shoppers to buy from them directly. While this online growth fuels success for the business, customers buying from many different locations globally means that cross-territory indirect tax compliance becomes a big challenge.

It is safe to say that consumer shopping habits have changed significantly, and despite the success and rise of ecommerce, many retailers recognise that their customers still want choice. To give consumers what they want, retailers are turning their attention to omnichannel strategies to give customers a seamless shopping experience across all physical and digital brand channels.

As retailers interact with their customers through an increasingly complex network of routes and platforms, frictionless commerce becomes essential. This entails integrating customer data to deliver seamless buying opportunities for customers, from the initial product search through to purchase, delivery, and returns.

In turn, as the transactional processes and the supply chains needed to support this omnichannel and frictionless approach become more complex, so too do the indirect tax implications.

There is a lot to consider from a transactional and logistical perspective, but as retailers look to create or build on their omnichannel strategies, it is easy to overlook the impact on their tax and compliance obligations. Indirect tax compliance forms an integral part of delivering frictionless commerce. While planning omnichannel strategies, retailers must also plan for meeting international indirect tax rules and regulations.

Managing indirect tax compliance

Managing indirect tax for retailers with complex selling channels and a global supply and customer base is incredibly complex. Keeping track of all the touch points where tax comes into play can also cause difficulties when situations are complicated, for example where a product is bought online and then returned to store, or where it is purchased from one country, and then shipped from another.

The omnichannel experience requires retailers to give customers options – and lots of them! Providing this array of choice to customers seamlessly is the dream for retailers, but trying to achieve it can create a whole host of additional pressures for the supply chain.

The supply chains of retailers selling to customers both in store and online need to simultaneously fulfil multiple orders, both to stores and to the homes of individual customers. Customers also expect fast and flexible delivery options within specific time slots. These pressures intensify significantly for those retailers who are looking expand their overseas trade.

Having customers and stock distribution points in all the territories in which the business operates means that retailers must ensure they meet the tax obligations of all those countries. Unfortunately, international tax compliance can quickly become a barrier to growth for any retailer that does not have an effective strategy in place to manage it.

For the process to become truly frictionless, retailers need to ensure they are up to speed with the indirect tax liabilities that come with growing online international sales. Retailers have a lot of responsibilities, including identifying where a customer is during the point of transaction so that tax can be calculated with speed and accuracy, and ensuring that exchange rates are correctly used for tax filing. In addition, sellers must ensure that tax regulations for different territories are adhered to, and that sales invoices are in line with local indirect tax jurisdictions.

With tax rules and regulations frequently evolving in different countries, retailers need a system in place that can stay up-to-date with any required changes. Those that do not ensure this could find that their growth ambitions can quickly stall. These retailers also risk hefty non-compliance fines or the threat of an audit.

Investing in tax automation technology can help retailers to address these challenges seamlessly by automating the indirect tax process, reducing the burden on the back-end process, and giving the business the freedom to trade globally.

Exciting times lie ahead for consumers as the retail sector rallies to their demands for choice, convenience, and speedy deliveries. However, behind the scenes there is a lot of work ahead to deliver true frictionless commerce. It is those retailers that adopt effective tax compliance processes and achieve true frictionless commerce, that will be best placed to expand quickly and gain a competitive advantage.

Find out how Vertex can help you manage your VAT / GST sales from the shopping cart through to compliance here:

Oliver Froehlich

European e-commerce and marketplace channel lead, Vertex


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