Last year, e-commerce businesses and marketplaces doing business in the European Union (EU) were given access to an innovative indirect tax regime that introduces new value-added tax (VAT) rules on goods being sold to EU customers. The One-Stop-Shop (OSS) and Import One-Stop-Shop (IOSS) regimes are optional, and companies must register through an online portal to take advantage of them, but taken together they represent yet another step by the EU toward digitizing and simplifying various aspects of tax and trade.
Though OSS and IOSS are both intended to simplify VAT regimes across the EU, a significant amount of confusion still exists about rates and payment responsibilities, as well as requirements specific to individual EU countries. As a result, many companies have been slow to operationalize the systems and processes necessary to manage OSS/IOSS rule changes, and some are starting to pay the price. The seller is responsible for VAT charges, after all, so missing or incorrect charges can impact profitability, attract the attention of tax authorities, and create confusion up and down the supply chain.
Tax automation software: more than just a tax engine
The simple fix for managing OSS/IOSS rules is tax automation software. A key component of this solution – a tax engine – can help companies navigate the changes needed to comply with these new tax regimes by automating and ensuring taxes are paid accurately, so that liabilities reported and paid are correct However, once companies have automated their OSS/IOSS processes, tax automation software offers other advantages as well—ones that can open up new opportunities and enable companies to work smarter and more strategically.
It’s important to understand that OSS, IOSS, and many other recent tax initiatives (e.g., the DAC6 EU Directive) are the result of a global shift towards Making Tax Digital (MTD) and digital tax reporting, a transformation in government that strongly encourages companies to adopt digital technologies that facilitate a more transparent, efficient tax experience all around. .
That’s the goal, at least. But until the systems and processes that governments and companies use to for taxation are more uniform and integrated, there will be plenty of hiccups. Tax automation software is of course designed to solve most of the issues associated with OSS/IOSS compliance, but this type of software can also be used to do much more than simply automate tax calculations.
To understand more about the OSS and ISS, read this blog to keep you in the know about your VAT compliance obligations
For example, one of the biggest problems e-commerce companies are encountering is that EU tax authorities in different countries have been implementing OSS/IOSS requirements at different speeds, with different technologies, and with different VAT reporting requirements. This situation will continue for some time, so e-commerce companies that have a tax engine capable of automatically keeping up with frequent system and rule changes in different countries will have a competitive advantage over those who don’t.
Simply put, companies with tax automation and compliance software working for them will be able to report and pay accurate VATs no matter what individual EU countries decide, because the software is regularly updated to accommodate the latest regulatory changes. Companies without these software capabilities will have to spend a great deal of time and effort trying to keep up with changes to make sure they are in compliance, knowing all the while that authorities in different countries may not agree with their calculations.
What are the business advantages for VAT?
One consequence of these new tax regimes is that tax must be calculated at a much more granular level, and companies must have a much more detailed understanding of their supply chain. The result of all this granularity is a treasure trove of data that companies can use to analyze their supply chains and find inefficiencies that would otherwise go unnoticed.
For example, the new OSS rules for e-commerce allow registered companies to pay VAT to a single tax authority in an EU Member State of their choosing, and that the tax authority is responsible for distributing the VAT to other Member States where the company is operating. In some instances, however, it may be advantageous for multinational e-commerce companies to register in one country rather than another, depending on which countries the company serves, the goods they provide, and how their supply chain is organized. Being able to collect all of this data and plug it into a scenario modeling tool can help e-commerce companies make more informed, cost-effective decisions of all kinds.
VAT Cost Savings
In a similar vein, indirect tax software gives companies more definitive control over their tax compliance, which means companies don’t have to worry about it as much. Not having to worry about tax compliance gives businesses of all kinds more freedom and flexibility to explore other options and strategies.
For example, e-commerce companies with a better understanding of their supply chain can use that information to review supplier relationships and contracts. When onboarding suppliers, it can also help improve the quality of the relationship with the supplier—by understanding more about them—or help the company locate a better or more convenient supplier. In some instances, the data can even be used to negotiate more favorable terms with suppliers—with ones that operate across multiple business units, for example, or suppliers that are in expansion (and therefore negotiating) mode.
In short, though e-commerce companies have been beset by a myriad of new VAT regulations in the EU, the same tax determination and compliance technologies that help companies manage those VAT obligations can also benefit the larger organisation—by providing data and tools for more strategic analysis and decision-making, which can lower costs, prevent penalties, and make companies more competitive.
For further insight on what your business needs to consider to become a strategic enabler by using the right tax automation software, download the special report, Considerations for a Tax Determination Solution