ECommerce is an increasingly popular and ever-expanding business model. It enables businesses to reach customers across borders, and it's no surprise that most international companies are already navigating the intricacies of the international taxation framework.
A proper and global framework does not exist, but it's coming. This article explores some of the challenges that ECommerce businesses face when it comes to ascertaining their tax obligations:
1. The Non-Existence of a Global Framework for ECommerce
The Organisation for Economic Co-operation and Development (OECD) has been developing a global taxation framework for ECommerce for over a decade. However, its progress has been slow.
The OECD's proposed framework considers the presence of new business activity, Internet-enabled, and a new business location, anywhere where an ECommerce business operates. It weighs a business's new international fiscal responsibilities, such as reporting its tax obligations to a new jurisdiction.
However, the new digital economy is a loose term, and a lot of international tax legislation has been drafted around traditional, non-digital activities. Further, the OECD's unique approach to ECommerce has gained little impetus from major ECommerce countries, such as the U.S. and China, and significant tax havens, such as Switzerland.
2. The Loose Definition of ECommerce
Unlike the traditional business model, ECommerce activity is not always easy to define. It depends on the business sector, the product, and the business's methodology. It means that it's even more challenging to know if an ECommerce business is subject to tax obligations in a country. For example, it's difficult to tell if a pure-play marketplace should be considered a business or a facilitator and whether the platform is liable for the tax obligations of its sellers.
3. The Complexity of Global Tax Obligations
When it comes to tax obligations, things have become intricate. A company can now have a physical presence in multiple jurisdictions, but it does not necessarily have to file multiple tax returns in those countries. In some cases, a business may be taxed in a country where it does not have a physical presence, or a business may be required to pay tax in a country where it does not conduct business activities or a country where it has no physical presence.
4. The Lack of Tax Treaty Chapters Between Countries and Jurisdictions
Taxation treaties are crucial for ECommerce businesses to ensure a consistent approach to tax laws. It is also essential for the movement of goods across borders. However, there is a lack of tax treaties between ECommerce jurisdictions. This is mainly because many jurisdictions don't have tax treaties at all. ECommerce is also an increasingly dynamic sector with constantly changing business models.
5. The Absence of a Common Tax Definition for Digital Goods and Services
The OECD has not reached a consensus on the definition of digital products. The current conversation about defining a digital product or service is about whether or not it is the content or the platform for the content. Currently, ECommerce businesses are taxed anywhere where the customer is located. This, however, has created a grey area for taxing digital products and services.
Conclusion
While the progress for a global framework for taxing ECommerce has been slow, its eventual establishment is inevitable. In the meantime, businesses need to be ever-vigilant about their tax requirements and earn the trust of their customers.
The ECommerce Accountant is a business advisor for online stores and influencers in Australia. We are accountants and bookkeepers dedicated to helping online entrepreneurs minimise tax and increase profit. Your small business deserves exemplary accounting service, which we provide. If you need an accountant for an ECommerce business, we’ve got you covered! Get in touch with us today and let us know how we can help!