This week New Zealand became the latest tax jurisdiction to reveal digital sales tax plans with a new 15% online GST on digital services.
NZ Prime Minister John Key pointed out that up to a dozen jurisdictions worldwide already have systems in place “that work” regarding the taxation of digital services such as the download of images, music, and films.
In this blog we take a look at the some of the features that Taxamo has developed as a result of expanding digital taxation rules and why just this week Taxamo was chosen by Silicon Republic as one of the top 30 Irish start-ups in the Fintech space.
1. It begins and ends with the best API
Taxamo’s elegant suite of APIs and comprehensive reporting dashboard enables digital merchants to easily comply with global regulatory requirements on tax calculation, evidence collection, tax return creation, and data storage.
Using our APIs, or pre-built integrations saves digital merchants time and money. Taxamo plugs directly into existing e-commerce systems and ready-to-use mechanisms are already available for PayPal, Braintree, and Stripe.
Learn more about ourintegration options.
2. Consumer location detection with evidence matching
Taxamo is built around the sales transactions that happen on a merchant’s e-commerce website. Taxamo can use up to 6 pieces of location evidence to avoid the risk of losing sales due to conflicting evidence. The ‘transaction’ represents the customer order and can contain the following information:
Customer data: the declared tax number, or the customer’s billing address.
Payment data: the currency and amount of the processed transaction.
Order data: the items ordered, the type, the quantity, and the cost.
Tax location evidence: IP address, credit card prefix, billing address, or declared country of residence.
Tax data: the tax rates applied and total tax amount(s).
Invoice data: the date and the billing address, this data is optional.
Additional data: the customer’s email address or other customer information. Again, this particular set of data is optional.
3. Real-time logic to handle non-matching evidence
The Organisation for Economic Co-operation and Development (OECD) has determined that the prefered method of digital service taxation is via the end-user. This is the destination principle of consumption taxation. Taxamo’s solution operates in real-time to collect the critical evidence required to determine the consumer’s location.
Once a customer comes to your checkout page, Taxamo requires a sequence of steps to take place:
Attempt to create a transaction upon loading the checkout page (creating transactions using two pieces of non-conflicting evidence).
Update the transaction with details from the checkout page as the customer enters them
Process the payment
Confirm the transaction
When the customer decides to proceed with the transaction, it’s time to store the transaction data in Taxamo. Creating the transaction requires making a call to our API to store the transaction. This method takes-in the products in the cart, and any evidence collected by your application.
This method calculates the relevant tax and returns it to your application, along with a unique key identifying that particular transaction.
All this occurs in real-time, ensuring that the correct evidence is collected, and the correct tax rate applied.
4. Invoicing that conforms to country-specific requirements
2015 EU VAT rules require merchants to comply with the invoicing requirements of the EU countries where the digital supply is being made i.e. the country with the digital asset is being purchased..
Taxamo’s customisable, compliant e-invoicing feature is fully integrated with our VAT calculation and reporting suite and meets all EU VAT compliance requirements, including:
Sequential invoicing numbered per EU Member State
Automatically showing VAT in customer’s currency
Conversions using the official ECB rate
Taxamo supports invoices by generating a HTML page and a PDF image from the transaction data.
5. Management of global digital sales tax rates
More tax jurisdictions worldwide implementing new rules on the supply of digital services means more tax rates to manage.
A core feature of Taxamo is that we manage global tax rates and automatically update the system as rates change.
This allows our merchants to rest assured that the correct rate of tax will be applied to their digital sales based on product type and customer location.
6. Validating B2B transactions
Recognising that merchants rarely sell exclusively B2C, validating and supporting B2B transactions is a key feature of the Taxamo solution.
Again, lets take the 2015 EU VAT rules as an example of how this validation functions. While these tax rules only apply to B2C supplies of digital services to customers in the EU, it’s obvious that some suppliers will also deal with businesses.
Taxamo applies the correct EU VAT treatment on EU B2B transactions if the customer provides a valid EU VAT number as evidence. Full integration with European VIES ensures that Taxamo has the latest available information for conducting these checks.
These validated EU B2B transactions are not included in the end-of-quarter MOSS report.
This validation occurs in real-time, so that a specific sales order can be split into B2C and B2B transactions, and the correct VAT rate applied to the B2C sales.
As you will see from our dashboard we provide the same level of reporting for B2B transactions as for B2C.
7. Securely storing required transaction data
Storing transaction data is another area where Taxamo leads the field.
It is important to remember, however, that this data is not sensitive and relates purely to transaction information such as: time and date; consumer location; tax rate applied; etc. Therefore there is no impact on PCI compliance.
The 2015 EU VAT rules dictate that these records must be kept for 10 years from the end of the year in which the transaction was made, regardless of whether a merchant stops using the MOSS scheme at any point.
Based on the new rules, any EU member state can request an audit of your files and this stored transaction information may be requested.
8. Tax settlement reports
The 2015 EU VAT rules require a digital service merchant to provide quarterly reports to their chosen tax jurisdiction. The Taxamo solution looks after this element of compliance.
The Taxamo solution provides these reports to our merchants in an array of downloadable options tailored to country-specific requirements. For example, some EU Member States require their end of quarter MOSS reports in .xml format while others require Excel spreadsheets. These reports are made available on each account as default when the MOSS country of filing is selected during business registration.
These requirements create another layer of complexity for merchants, one removed by Taxamo.
9. VAT exempt domestic sales
For domestic sales many tax jurisdictions apply thresholds. While merchants still have to register for VAT and apply it on cross-border sales, Taxamo has a setting that enables merchants NOT apply VAT to domestic sales.
10. Distinguishing between digital and physical goods
Again, recognising that merchants often sell a combination of physical and digital products, Taxamo’s solution is also able to differentiate between physical sales from digital sales, and apply the VAT rate in accordance with the EU country from which your customer is purchasing. This differentiation of products is done at the integration stage.
Note that we do NOT charge for non-digital transactions.
Future-proof your business
New rules on the taxation of the digital economy are being rolled out across the globe. Taxamo will expand our market-leading digital taxation solution to meet new requirements across the globe. We’ll also add some neat features to make tax compliance even easier for our merchants. Recently-enhanced features include:
Automatic (and manual) refunds & adjustments
Automatically apply FX rates for tax settlement
Apply rounding in accordance with local tax authority requirements
Audit information as per individual tax authority requirements
Displaying VAT amount in the local currency of the customer
Highlights coming down the line include::
Support for South Africa, Norway, Switzerland (introducing a zero threshold in 2017), Korea, & Japan. Taxamo also plans to support Australia when digital sales tax is due to be applied in early 2017, and, of course, the latest country to add to this growing list: New Zealand.
Taxamo will expand its global offering to cover the US Sales Tax and will offer a robust solution for merchants with digital sales in the US.
Increased functionality of Taxamo’s existing invoicing product, allowing for additional customisation.
Regional threshold monitoring and alerts available through the merchant dashboard.
Enhancements to Taxamo dashboard and additional reporting capabilities.
Note: Taxamo content is created for guidance only, please consult your local tax advisor for professional advice.