Taxamo is going global. Our digital tax solution is now needed worldwide – in Q1 2015 Taxamo’s digital merchants had sales in 108 countries – so the natural next step for us was to expand the number of jurisdictions which our solution supports.
Over the coming year Taxamo will be rolling out our service for tax management on digital goods and services to multiple new jurisdictions.
This new expanded offering follows our flagship EU VAT solution that handles all aspects of consumer location detection and tax reporting on digital sales in line with new EU regulations.
Our global approach means that we will be expanding our solution to cover new jurisdictions that are adopting OECD recommended ways of taxing digital services. These jurisdictions include Norway; South Africa (already implemented similar rules on the taxation of digital services); the U.S. (where many states apply sales and use tax to digital goods and SaaS products); Switzerland (VAT threshold for digital services to be abolished on January 2016); Japan (an 8% e-commerce consumption tax kicks in on October 1); Australia (new GST on digital services to be introduced in July 2017); and Korea (new digital taxation on July 1).
This means that all of Taxamo’s existing, or future, digital service merchants will have the option to support any territory they wish through their Taxamo settings page.
Here’s our roll-out plan for 2015:
- US Sales Tax
Our global digital tax solution approach
The recommended approach to taxation on digital goods, according to the OECD, is to tax based on where the consumer is located rather than where the business is based.
As already illustrated a number of countries have implemented this approach and more are actively discussing potential rules at government level.
In order to enable merchants to manage and survive in this new global digital tax landscape, Taxamo will be making the following product enhancements:
Multi-jurisdictional tax calculation
- Consumer location detection to standards required by legislation of any supported jurisdiction
- Calculate appropriate tax for consumers in any supported jurisdiction
- Management of tax rates changes per jurisdiction
- Transaction reports available for each enabled jurisdiction
- Easily move between tabs to view each jurisdiction
Tax settlement reports
- Tax settlement reports available for each enabled jurisdiction
- Report format and data on a per jurisdiction basis
- Easily move between tabs to view each jurisdiction’s obligations
Evidence collection and storage
- Evidence collection and evidence storage as required by the different tax authorities
- Add transactions via our API
- Add transaction manually through the Taxamo portal if required
- Bulk upload transactions via CSV file
Enhanced invoicing functionality
- Use the Taxamo invoice facility for enabled jurisdictions to comply with local invoice requirements
- Information and FAQ on a per-jurisdiction basis
Why we’re expanding our offering
The taxation of the digital economy has been under the microscope worldwide since the introduction of new EU VAT rules on digital services at the turn of the year. Tax jurisdictions across the globe have assessed the effectiveness of the EU VAT rules and are now moving from the planning to implementation phase with legislation of their own. These tax jurisdictions are turning to this OECD-recommended place of consumption VAT model in an effort to level the playing field for domestic online retailers, but also to expand their tax base.
Increased revenue for tax jurisdictions
For tax jurisdictions the chief consideration is revenue generation and, in that respect, these various new rules are a windfall.
In the United Kingdom, for example, the Treasurer George Osborne has estimated that they will recoup £1.2 billion over four years in extra tax revenue. In a much smaller market, Ireland, its Department of Finance have made budget provisions for an intake of some €600m over the five years (2015-2019). Meanwhile, in Australia, where a new 10% GST was announced in their May 2015 budget they are aiming for a figure of AU$350m over a four-year period from when the rules comes into play in July 2017.
Territories with existing rules
The reason why so many tax jurisdictions worldwide are contemplating the introduction of new rules governing the supply of digital services is down to the fact that they have noted the comparative success of such rules elsewhere. Here’s a taste of how existing rules operate in other jurisdictions:
- US sales and use tax: Currently 45 US States, plus the District of Columbia, impose a general sales tax. The five states without general sales taxes are: Alaska, Delaware, Montana, New Hampshire and Oregon. Most states also impose a variety of local sales taxes including county, city, and transit taxes. The sales tax is imposed on retail transactions. It applies to all retail sales of tangible personal property, and in some states services, in the state. Use tax is defined as a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is a complimentary tax to the sales tax and does not apply if sales tax was charged. Many states apply sales and use tax to digital goods and SaaS products.
- European Union: The 2015 EU VAT rules require digital service merchants to identify where in the EU their end consumer is located. Not just that but the new rules heralded the introduction of the Mini One-Stop Shop (MOSS) registration system, whereby a digital service provider can account for all EU VAT collected via one EU Member State. Taxamo is the trusted market-leader in the EU when it comes to comprehensive digital tax compliance solutions.
- Norway: One of the early adopters when it comes to the taxation of the digital economy, Norway introduced their rules back in July 2011. These regulations dictate that digital services supplied by non-established vendors to consumers in Norway (B2C) are subject to Norwegian VAT and the vendor must calculate, collect, and pay the VAT. As an alternative to ordinary VAT registration, vendors may opt to use a simplified registration scheme. More information here. The Norwegian Tax Administration has its own web page for the simplified scheme for non-established vendors supplying electronic services to consumers in Norway.
- South Africa: New rules on the taxation of B2C eCommerce have been in place since June 2014. Indeed, South Africa were one of the pioneers when it came to introducing new taxation rules to apply to the digital economy, based on OECD recommendations. As of March 2015 some 80 foreign businesses had registered as part of the new regulations – this number was deemed to be a success. More on the South African approach here.
Changes on the horizon
Switzerland is abolishing its existing threshold of CHF100,000 (circa €95,000) as of January 1, 2016. And as Liechtenstein follows Swiss VAT legislation that means the rules in the principality also change on this date. The issue that arises here for non-Swiss and non-Liechtenstein digital service providers is that there is no possibility of a MOSS-like registration system.
In July 2015 a 10% VAT is due to come into force. The Korean Government submitted a revision bill in December 2014 which enables levying corporate taxes on global ICT giants for digital goods they sell in Korea. This new tax is specifically aimed at apps sold from Google Play and Apple’s App Store. Recent reports have suggested that the Korean approach will broaden its scope to take in the supply of foreign digital services to Korean consumers.
A new 8% consumption tax on B2C eCommerce supplies by foreign companies to Japanese consumers kicks in on October 1, 2015. The Japanese government has also created a registration system whereby the foreign eCommerce suppliers must designate a tax agent in Japan for the purpose of remitting the tax collected. Registrations begin on July 1.
In Australia, the Federal Treasurer Joe Hockey unveiled plans for a new 10% goods and services tax (GST) on foreign digital service providers in his Budget 2015. The new rules are due to come into effect in July 2017.
The proposed Australian budget amendments for the 10% digital GST include:
- Make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
- Provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
- Allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.
The Australian approach has been dubbed the ‘Netflix tax’, but the Federal Government have framed it as a ‘levelling of the playing field’ between domestic and international digital service providers. This is the same type of language used by the EU during the introductory phase of the 2015 VAT rules in Europe.
Just nine days after the Australian budget, the New Zealand government were expected to follow suit with a digital tax of their own. They didn’t, despite calls from domestic New Zealand digital service suppliers to do so. The New Zealand government, however, are well down the road to introducing some type of digital services tax the only unknown being when.
Not forgetting Canada, Russia, Turkey, Israel, and India, whose governments are all in the planning phase of introducing potential legislation specifically aimed at taxing the digital economy.
Keeping pace with digital taxation changes
With this announcement, Taxamo delivers on its commitment to enable merchants to compliantly make digital sales anywhere in the world. Support for additional jurisdictions will be rolled out in 2016, and as new jurisdictions announce new rules..
Note: Taxamo content is created for guidance only, please consult your local tax advisor.