How do you scale your e-commerce business internationally and remain tax compliant?
Gunjan Tripathi of Vertex analyses the implications of the increasing adoption of a ‘tax at destination’ approach and cites SurveyMonkey by Momentive as an example of the positive difference that automated solutions can make.
Any business looking to expand, particularly into new territories, needs to manage its tax liabilities accurately in each jurisdiction. The way in which global VAT, goods and services tax, or sales tax is calculated and collected is a complicated subject, not helped by the regulations being in a constant state of flux.
Jurisdictions are increasingly moving to tax models based on customer location rather than the physical location of the business establishment; there are more than 80 countries applying a ‘tax at destination’ rule to online sales into their jurisdiction. As a result of this shift, businesses must ensure their core business applications and the supporting indirect tax technology is capable of handling multi-country requirements as part of their global tax compliance strategy.
When businesses are selling digital services, both B2B (to trading organisations) and B2C (to private individuals) across borders, the challenges are compounded. Calculating tax incorrectly can have serious consequences; overpayment leads to waste, while underpayment can lead to penalties and possible interest payments. Doing this manually not only takes a significant amount of time, but it also leaves room for inaccuracies.
With growing pressures of inflation, interest rates, costs of resources, and talent scarcity, businesses must optimise their tax compliance activities as well.
A tax solution for rapid global growth
As the world metaphorically shrinks and e-commerce booms, businesses have had to learn quickly how to manage an increase in the burden of tax administration. Vertex customer SurveyMonkey by Momentive recently experienced this challenge as it went through a period of rapid growth.
SurveyMonkey by Momentive is a market leader in the survey software solution space, a service as a solution business helping individuals and businesses to transform feedback into actional insight and intelligence that can drive growth or innovation. The platform was launched over 20 years ago and has roughly 17 million active users around the world, with 909,000 paying customers. It is used by 344,000 organisations, including 200 charities, and the business is on a mission to increase its paid user base to over a million.
Yet increased success and business growth has brought its own set of challenges. Selling B2B and B2C digital services to over 200 jurisdictions, each with different tax treatment and liabilities, presented difficulties for the business. Changes to the international tax environment – specifically on digital services, driven by the G20 and OECD BEPS framework – meant that VAT/GST compliance became increasingly complex.
The business was hitherto handling its VAT/GST collection along with filing and remittance in-house, which was putting strain on its tax teams because they were spending considerable time validating business numbers and reporting in multiple systems. Additionally, at the point of checkout, business customers were being asked to add their VAT/GST number for the sale to be processed in accordance with the reverse charge mechanism. If the VAT/GST number was entered incorrectly, the team had to contact the customer directly to verify the details provided.
This approach was ultimately unsustainable. With more sales to track against tax thresholds, as well as the laborious task of VAT/GST number validation, SurveyMonkey by Momentive needed a scalable and flexible process that could streamline tax compliance across the sales process.
Automating indirect tax liabilities
Vertex delivered a robust tax solution that could be integrated into SurveyMonkey by Momentive’s existing systems and did not require reconfiguration. To help SurveyMonkey by Momentive to grow and scale quickly, Vertex’s tax specialists worked closely with the team to stay compliant with tax regulations and ensure that changes were reflected within the tax solution. This included the ability to automate customer location determination using a variety of data points, including billing and device IP address, bank details, and phone number area codes.
The calculation of foreign exchange rates for invoice creation and filing was also integrated into the solution, ensuring the tax authorities’ approved source exchange rate was established for each jurisdiction and applied, at the time of checkout, invoicing, or at the end of the reporting period.
As a result, SurveyMonkey by Momentive’s processes became more efficient, internal costs associated with indirect tax compliance were reduced, and the online survey provider has been able to expand seamlessly into new markets. Real-time customer location determination at point of sale, monitoring non-US sales against tax thresholds in each country, and alerting the tax team when it is reaching a tax threshold and needs to register are also significant benefits.
The lasting impact of the COVID pandemic has undoubtedly encouraged many e-commerce businesses to seek growth opportunities in new territories. Accurate application of indirect tax policies is a business-critical operation supporting cross-border growth initiatives. Overlooking these processes means missed opportunities and is often counter-productive to a business’s international growth aspirations.
Find out here how Vertex VAT and sales tax software for e-commerce helps businesses to manage tax confidently, no matter where they operate in the world.