Alex Baulf, Senior Director, Global Indirect Tax at Avalara, discusses some of the new developments affecting businesses this year and the impact they could have
As we emerge from the pandemic and grapple with geopolitical turmoil and supply chain tensions, constant uncertainty and flux continue to impact businesses – with the domain of tax legislation standing as a prime example.
New tax compliance obstacles and regulations affect organisations of all sizes in vastly different ways. Whether it’s the latest developments such as the digitisation of invoicing and tax reporting or the government’s efforts to eliminate corporate tax advantages, businesses need to keep up and be adaptive.
Avalara has compiled a comprehensive guide that explains the most significant shifts set to happen in the global tax landscape this year, to help businesses navigate these complex changes. Here is a quick guide to the four major things you need to know:
The new ‘Harmonized System’
This year, a key challenge facing many companies is the seventh edition of the Harmonized System release from the World Customs Organization.
There are about 350 amendments in the 2022 edition that organisations will need to be fully or partially aware of, including specific provisions related to the classification of electrical and electronic waste (e-waste) and new requirements for novel tobacco and nicotine-based products, drones, and smartphones.
Assigning the proper HS code to cross-border shipments is critical because HS codes are tied to import tariff (duty) rates. Catching up with the update can be an arduous task but is one that must be completed, nonetheless.
Supply chain difficulties continue
Although ecommerce is booming, the pandemic and Brexit continue to be sources of disruption for supply chains – problems that are hitting small and midsize firms the hardest.
What’s more, a tidal wave of legislation post-Brexit has left many businesses feeling overwhelmed by the practicalities of selling online and internationally, including key issues arising from the Northern Ireland Protocol remaining unresolved.
Changes to cross-border ecommerce compliance
Meanwhile, companies also have to deal with a raft of changes, including the UK ecommerce package and new One-Stop-Shop (OSS) streamlined registration in the EU.
The latter came into effect in July 2021, but it’s not too late to act and align your business to become compliant.
OSS is an electronic registration and portal that businesses can use to simplify VAT reporting on ecommerce sales within the EU. Its counterpart for low-value goods imported into the EU is the Import One-Stop-Shop (IOSS), a new registration and electronic portal designed to simplify VAT compliance for ecommerce merchants and marketplace facilitators that opt to use it.
OSS and IOSS are two huge developments. 8,000 ecommerce sellers have now registered for IOSS, many registering for VAT for the first time due to the removal of the VAT exemption for low-value goods. There are thousands of additional businesses that could be using IOSS to streamline their sales to European consumers and offering a much improved customer experience. However, there is still a misconception around the complexity of the registration, compliance and logistical process.
The new global minimum tax deal
Equally significant is an additional development that somewhat went under the radar in October 2021.
More than 130 countries that account for 90% of global GDP agreed to a global minimum tax plan proposed by the Organisation for Economic Co-operation and Development (OECD).
The aim is to distribute taxation revenues fairly. Around 100 of the world’s largest and most profitable multinational firms will pay a minimum tax of 15% beginning in 2023, with more than $125 billion in profits being redistributed to countries around the globe. Importantly, the OECD’s plan requires the removal of national digital services taxes, policies that have become popular across Europe as nations seek to extract greater tax revenues from ecommerce giants. If the plan works, it could reduce competition between governments to attract foreign companies to their shores. One of the key takeaways from the “Pillar One” initiative is that revenue will be taxed through sourcing rules which allocate a transaction to a particular country, similar to rules already in place for determining where a transaction is subject to VAT. Businesses will need to obtain greater visibility over their transactions, with a focus on granular transactional data rather than summary accounts. The direction of travel for VAT compliance is also digital and transactional level data, with tax authorities across the globe mandating e-invoicing, with several new mandates announced in 2022 already.
As this roundup shows, there are many challenging albeit fascinating issues to contend with throughout 2022 and beyond – those that prepare now will be best placed to navigate them.