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When it comes to taxes, let’s be honest—most people’s eyes glaze over. Yet around the world, governments are increasingly eager to levy taxes and impose more obligations on foreign tech companies. At the heart of these efforts lies a story of fairness and balance—fairness in taxation by leveling the playing field with local sellers, and striking the right equilibrium to encourage global commerce.
The Push for Fairness in Taxation
Why focus on fairness? Aligning tax policies with the principle of “taxation at the place of consumption” removes market distortions that can favor non-resident sellers over local ones. In the early 1990s, when landmark cases like Quill were decided, and when many countries first introduced VAT/GST regimes, cross-border e-commerce was negligible, hence taxation was not at the place of consumption. Today, however, it’s a different world. Global retail e-commerce sales alone are projected to reach $7.4 trillion by 2025—and that figure does not include B2B transactions and digital services sales.
Striking the Right Balance
While these booming online sales represent an enormous opportunity, they also present a challenge. Governments do not want to stifle innovation and market entry, so they have attempted to take a measured approach. Registration thresholds were introduced to exclude micro-merchants from onerous obligations. Furthermore, platform-specific rules were created to shift the tax burden to entities considered more capable of handling compliance—often referred to as the “large,” well-resourced marketplaces.
Still, these compromises have their limits. Thresholds have sometimes been removed, and even where thresholds remain in place, a merchant selling globally could face tax obligations in 100 or more jurisdictions, in addition to potential obligations in each U.S. state. For VAT/GST alone, compliance at the place of consumption means calculating, collecting, filing, and remitting tax in local currency—often monthly or quarterly, and frequently within just 20 days. That’s before considering a host of other levies, such as eco-taxes or streaming taxes.
Finally, this approach does not account for the exponential growth of marketplaces that are not all large and well-resourced.
The High Cost of Compliance
These obligations go far beyond filing a few returns. They demand substantial resources: software development teams to manage calculation and reporting, advisors to interpret complex rules, finance specialists to handle treasury and foreign exchange, and auditors to ensure accuracy. The cost, both financial and operational, can be immense—even before considering audits and inquiries from tax authorities.
One seemingly simple solution is to sell exclusively on large marketplaces that handle these complexities. However, that approach carries its own risks. First, it risks strengthening the market dominance of a few large players, making it even harder for smaller marketplaces to compete or emerge. Second, it inhibits sellers from establishing their own communities and brand identities, stifling direct engagement with their customers. Third, it can diminish innovation and offer less service and choice to end customers, ultimately resulting in a poorer experience for consumers.
Broad Rules, Broad Consequences
The rules were designed with large marketplaces in mind because, at the time of introduction of those legislations, by some estimates, two-thirds of sales occured through these platforms. Policymakers assumed that the biggest players had the capacity to shoulder the compliance burden. However, the regulations are deliberately broad, as recommended in a 2019 OECD report on the role of platform to collect VAT/GST on online sale, to ensure that any party capable of collecting tax does so. This means many more marketplaces—beyond just the giants—now face complex compliance obligations.
Meanwhile, the marketplace landscape is evolving. Post-pandemic, merchants are diversifying their sales channels, looking beyond traditional marketplaces to achieve global reach and sustainable growth. The rise of “social commerce”—sales through social media and community engagement—is, for example, a major trend, expected to reach $1 trillion by 2028. Similarly, niche marketplaces or those focused on circular economies are flourishing, adding complexity to the tax landscape.
A Growing Need for Tailored Solutions
Tax authorities, seeking new revenue sources, will continue to enforce existing rules and explore new ones. Smaller and foreign merchants, increasingly on the tax authorities’ radar, must now navigate a more complicated web of requirements. The central question: How do we promote compliance without stifling growth, community-building, and creativity?
John Collison, co-founder of Stripe, noted in a 2022 podcast that expanding into new markets has become far harder than it was a decade ago, largely due to the explosive increase in obligations and regulations. For tech businesses, the challenge is even greater because their services are accessible globally from day one.
Charting a Path Forward
Our goal is to encourage creativity, foster communities, and support global sales—while smoothing out the compliance journey. We’re developing systems to streamline tax obligations, lowering the barriers to market access and ensuring that merchants can reach their customers wherever they are, all without being crushed by the weight of compliance.
In this evolving global economy, the intersection of tax and technology can spark both complexity and opportunity. By striking the right balance and providing better tools, we can ensure that innovation and fair taxation go hand in hand—empowering businesses and communities worldwide.
Disclaimer: The views, statements or opinions expressed in this article are solely those of the author and do not represent tax advice and are not to be designated to be the views, statements or opinions of any other person, group, association or company.
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