Avalara Tax Changes 2022

Global tax changes

Avalara Tax Changes 2022

Global tax changes

The explosion of growth for global ecommerce

Global ecommerce has exploded in recent years and shows no sign of abating. From approximately $1.672 trillion in 2015, global retail ecommerce sales are on track to reach $4.921 trillion in 2021 and could surpass $7 trillion by 2025. New markets and opportunities are opening to businesses at a rapid rate.

Yet the enormous volume of cross-border shipments is also straining a supply chain struggling due to factory closures, port backlogs, and labor shortages exacerbated by the ongoing COVID-19 pandemic. All of this adds to the burdens of international sellers already grappling with a raft of complicated cross-border compliance issues, particularly those related to indirect tax.

“Indirect taxation is one of the most complicated aspects of today’s business environment,” according to IDC MarketScape. In a report from October 2021, IDC stated “nearly every major economic region is undergoing some level of indirect tax reform and VAT/GST changes, which will add additional levels of frustration and complexity for businesses.”

There’s also a “massive shift toward digitalization” around the globe, both in products and services sold and in tax administration.

Let’s get to it.

Global ecommerce is booming but the supply chain is stretched thin

For the most part, all commerce is global today, because whether you’re selling socks to your neighbor or shoes to Slovenia, something somewhere probably crossed an international border along the way. So the fact that COVID-19 made humongous waves in the oceans of global commerce matters. It’s going to take a while for the ripples to fade.

On top of the difficulties created by COVID-19, companies of all sizes from all parts of the world must navigate geopolitical boundaries and trade barriers. And, of course, no two countries are the same.

The good news: Consumer demand is high and commerce, particularly ecommerce, is booming. The not-so-good news: Inventory is low, supply chains are strained, there’s a labor shortage, and costs for just about everything are up.

What the numbers tell us:

Source: eMarketer

Source: Deloitte

It’s hard to fathom just how quickly freight costs rose in response to a perfect storm of supply chain disruptions that began in the early days of the pandemic, increased when the Ever Given wedged itself into the Suez Canal in March of 2021, and continues to this day. The disruptions include closed and congested ports, increased demand, insufficient supplies (raw materials and finished goods), labor shortages, shuttered manufacturing facilities, and reduced airfreight space due to decline in commercial airlift.

Transatlantic shipping rates dipped a bit in October 2021 but as of October 30, 2021, were still 385% higher than a year ago, and more than seven times “above the pre-pandemic norm.” With all the world’s containers already in use, rates are unlikely to stabilize despite some shipping companies' promises to cap one-time shipping fees (aka, spot rates) and secure more long-term contracts.

Of course, favorable long-term shipping contracts are generally the purview of large corporations. As so often happens when competition is fierce, the odds are stacked against small and midsize companies.

Source: Freightos

SMALL AND MIDSIZE COMPANIES HARDEST HIT BY SUPPLY CHAIN ISSUES

Skyrocketing shipping costs and supply disruptions have put the squeeze on small and midsize companies. Small retailers reliant on the global shipping industry are losing sales because they don’t have inventory to sell. Prices for what inventory there is have increased. In fact, costs for everything are up, including packaging and wages.

Labor shortages are amplifying issues. During the summer of 2021, 50% of small business owners surveyed said they were having a harder time finding qualified employees than the previous year, and the struggle to fill vacant positions continues. With fewer resources at their disposal, smaller businesses struggle to offer benefits and raise wages.

Source: CNBC

Certainly, large companies also find today’s strained circumstances challenging. Yet they have more resources to solve these problems. For example, Costco, Dollar Tree, Home Depot, IKEA, and Walmart all chartered container ships and leased or purchased containers to ensure they’d have merchandise to sell. This is something small businesses simply cannot do.

“With all the concerns over constricted global supply chains, the last thing most companies want to deal with is increasing compliance complexity for their cross-border shipments,” says Craig Reed, general manager of cross-border at Avalara. “Unfortunately, that’s exactly what’s happening.”

The new Harmonized System is in effect as of January 2022

Another big challenge facing many companies is the release of the seventh edition of the Harmonized System by the World Customs Organization (WCO) on January 1, 2022. As with every edition since the first was created in 1988, the newest edition of the Harmonized System (HS 2022) will affect all participating countries — currently more than 183.

The Harmonized System is organized into 21 sections, 96 chapters, and 5,000 headings covering millions of internationally traded finished articles and components, each of which is identified with an HS code. These codes are used to identify and track every product that crosses an international border.

Source: Avalara Tax Desk

Every product. Let that sink in.

A cotton shirt has a different code than a silk shirt, and the code for a button-down differs from the code for a pullover. A ceramic mug with a handle has one code, a glass mug with a handle another. And so on, and so on, and so on.

Six digits is the global standard and the starting point for HS codes, but each country typically adds two to four (or more) digits to further define and distinguish products. The United States has used a 10-digit system from the outset. Mexico used eight digits until December 28, 2020, when 10 digits became the new standard.

So, the first six digits of the HS code for that ceramic mug with a handle would generally be the same no matter where it’s being shipped, but the remaining digits would differ if it’s going to Pakistan, Paraguay, or Portugal.

HS codes are tough to get right no matter what you sell or where you sell it. When they change, getting them right gets even harder. And many changed January 1, 2022.

The WCO updates the Harmonized System every five years to account for new products and circumstances. There are about 350 amendments in the 2022 edition, including specific provisions related to the classification of electrical and electronic waste (e-waste), as well as new provisions for novel tobacco and nicotine-based products. There are also new provisions related to unmanned aerial vehicles (UAVs), more commonly known as drones, and a new subheading for smartphones. Many classifications for items with a low volume of trade have been deleted or substituted.

Source: Avalara Tax Desk

All 183+ member countries are supposed to adopt HS 2022 on January 1, 2022, but since it’s an enormous task and trade won’t stop if it doesn’t get done, complete adoption often ends up toward the bottom of the to-do list. In fact, it can take months or even years for a country to conform to the WCO’s most recent edition (i.e., adopt all changes). If the past offers any indication, about one-third of all WCO member countries won’t adopt HS 2022 by January 1, 2022 (Mexico used HS 2012 until implementing the 2017 version at the end of 2020).

Randy Rotchin, director of business development and global trade at Avalara, explains the impact delayed implementation can have on business: “For companies with extended global supply chains, the fact that not all countries will implement HS 2022 on January 1, 2022, means many companies will have to use different HS codes for the same part or finished article depending on where it’s being shipped to.” That means they’ll have to devote even more time to this onerous task, and they’re more likely to get codes wrong.

Assigning the proper HS code to cross-border shipments is critical because HS codes are tied to import tariff (duty) rates. Misclassified products may be assigned a rate of duty that’s too low, which could cause delays, fines, or other problems at the border. Alternatively, a rate that’s too high could lead to disgruntled customers and fewer sales.

HOW HS 2022 AFFECTS FREE TRADE AGREEMENTS AND RULES OF ORIGIN

HS codes are also integral to determining whether a product is eligible for reduced tariffs or duty-free status under a bilateral or multilateral free trade agreement (FTA). This is complicated stuff, as most countries participate in at least one preferential trade agreement. There are about 350 regional trade agreements in effect today.

FTAs generally provide preferential treatment only to products originating in the country of export, not to products passing through or composed largely of imported components. To determine whether imported products qualify for preferential treatment, FTAs rely on rules of origin (ROOs). These, in turn, rely on HS product classification numbers to identify the national source of components and final products.

According to the International Trade Administration, “Rules of origin can be very detailed and specific, and vary from agreement to agreement and from product to product.” Rotchin offers additional insight: “Rules of origin can combine tariff shift, value, and processing requirements in different ways across different products. For example, NAFTA uses more than 80 different permutations of these criteria across the 5,000 HS subheadings.”

Goods subject to preferential treatment under one FTA may not qualify for preferential treatment under another FTA, and preferential treatment can be jeopardized if an HS code is wrong. That many HS codes change with the launch of HS 2022 on January 1, 2022, is a big deal, as is the fact that many countries won’t perform technical corrections to the tariff reduction schedules of their free trade agreements to align with the HS 2022 update.

Source: Avalara Tax Desk

According to Rotchin, “When an FTA is implemented under a previous HS version and no technical correction is performed, there will be discrepancies between the national tariff schedule and the tariff reduction schedule(s). In some cases, like Japan, importers will be required to classify and submit two classification numbers if they want to claim tariff preference — one according to the national tariff regime and one under the specific FTA.”

Another wrinkle: Supply chain issues are forcing many companies to develop new supply channels. With COVID-19 outbreaks closing factories in Southeast Asia, many companies are looking to move operations back to China, which they left during the Trump administration. Such changes can affect rules of origin and may threaten status with FTAs.

“Proper tariff classification is essential in establishing origin under a particular FTA,” says Rotchin. “Together, classification and origin determination are essential in identifying selling and sourcing opportunities abroad.” In other words, getting HS codes right is critical.

The digitalization of global tax compliance

2022 will also bring a greater push toward digitalizing tax compliance via electronic invoices, real-time reporting, and similar technology. Countries worldwide are digitalizing compliance to help reduce errors, eliminate tax evasion, and improve auditing. This represents an enormous change for businesses and governments alike.

Tax requirements can be governed by the location of your customers, not just your business. So, a company based in Oregon that sells wool jerseys to Bavarian cyclists must comply with Germany’s tax reporting regulations, as must a British manufacturer selling bicycle seats to stores in Hamburg and Munich.

If you want to grow your customer base beyond your borders, you need to understand and play by the rules in effect in the destination countries (i.e., where your customers get the goods). Tax authorities are honing tools to ensure growing companies comply with local tax requirements.

GLOBAL ADVANCES IN DIGITALIZING COMPLIANCE

A growing number of countries want — and are gaining access to — underlying sales data.

Over the past 10 years, there’s been a shift from self-reporting VAT returns to a system in which tax authorities insert themselves into the compliance process by asking for live (or near-live) transactional data.

There are several different ways countries go about this, listed below from least invasive/digitized to most, along with a country using that system:

To elaborate: Spain requires large businesses to make an Immediate Supply of Information within four working days of the issuance or receipt of an invoice. That’s something, but less than what’s required by tax authorities in Hungary who want to be given transaction/VAT data as each invoice is created. And in Brazil and Italy, tax authorities must validate an invoice before it can be passed to the customer.

To meet these and other compliance mandates, ERP or billing systems must be able to send data without any intervention from the reporter. This is virtually impossible to do manually, thus the need for tax automation.

Where are these requirements taking hold? An ever-growing number of places.

Latin America is “quickly becoming a leader in VAT transformation,” according to IDC MarketScape. “Countries like Mexico, Colombia, and Brazil have all taken major steps to embrace digital tax transformation in the past 18 months.” Indeed, Argentina, Brazil, Chile, and Mexico were among the first nations to institute e-invoicing requirements.

On the other side of the globe, South Korea is also a digitalization pioneer, introducing electronic invoices in 2011 and mandating e-invoicing for most taxpayers in 2014. Elsewhere, Singapore launched a voluntary e-invoicing scheme in 2019, and the Philippines began a pilot project in 2021 to expand an e-invoicing mandate based on South Korea’s model. India has been gradually digitalizing compliance for business-to-business (B2B) transactions, while Vietnam delayed its electronic invoice mandate to July 1, 2022, because of the pandemic.

EVEN BRITAIN IS MAKING TAX DIGITAL

In the U.K., Her Majesty’s Revenue and Customs (HMRC) has been working to streamline value-added tax (VAT) compliance, minimize the VAT gap, and make tax digital since 2015. The next phase of the Making Tax Digital (MTD) program will go into effect April 1, 2022.

The MTD program strives to remove opportunities for “certain types of mistakes in preparing and submitting tax returns,” thereby reducing the tax gap. During the first phase of MTD, which launched in April 2019, the U.K. required VAT-registered businesses with taxable turnover above a certain VAT threshold (currently £85,000) to file returns with HMRC online, via a new API interface. This applies to non-U.K. businesses registered for U.K. VAT as well as U.K. businesses.

Effective April 1, 2021, the second phase of MTD added new digital record-keeping requirements and the tracking of digital journeys for those businesses, plus penalties for infringement and late filings.

Source: Gov.uk

In the next phase, beginning April 1, 2022, VAT-registered businesses (including businesses registered for VAT on a voluntary basis) not already required to operate MTD must comply with digital record-keeping requirements and provide VAT return information to HMRC through MTD-compatible software.

HMRC anticipates these requirements will affect approximately 1.1 million VAT-registered businesses with taxable turnover below the £85,000 VAT threshold. 

Companies selling into the U.K. and other countries that are digitalizing compliance must be able to pull necessary data in a specific format, ensure it’s technically correct, then submit it to the tax authorities as required. Read more about e-invoicing, real-time reporting, and similar mandates.

Lingering effects of Brexit

On top of the compliance digitalization changes, which are considerable, companies with business dealings in the U.K. are still dealing with the fallout from Brexit. According to Alex Baulf, senior director of global indirect tax at Avalara, “Despite the pandemic-fueled boom in online shopping driving huge growth, a tidal wave of legislation post-Brexit has left many businesses feeling overwhelmed by the practicalities of selling online and internationally.”

BREXIT AND THE GREAT SAUSAGE ROW

Though the U.K. left the European Union Customs Union and VAT regime on January 1, 2021, there’s still unfinished business. One of the most contentious issues involves the Northern Ireland Protocol. The EU and U.K. are still struggling to resolve ongoing disagreements.

Under the terms of the protocol, Northern Ireland agreed to follow EU rules on product standards, so goods moving from Northern Ireland to the EU don’t need to be checked at the border. The EU has strict requirements for certain goods, such as milk and eggs, and it prohibits others (e.g., chilled meats) from entry.

The U.K. also agreed to align with “around 300 pieces of EU legislation” related to agriculture, customs, and product standards to allow goods to flow into Northern Ireland from Great Britain. But this would require the U.K. to prove compliance with EU law through “new checks and paperwork” — including customs declarations and physical inspections on most agrifoods.

Although the Protocol on Ireland/Northern Ireland was signed by both parties, from the outset there’s been no consensus on how it should be implemented. The EU wants EU law to be fully applied; the U.K. wants the EU to be more flexible to minimize trade barriers between Great Britain and Northern Ireland. To allow the parties time to work through these and other issues, a grace period was established then extended. It ended October 1, 2021: Unless the EU and U.K. can come to another agreement, new customs reporting obligations will be imposed on many goods flowing from the U.K. into Northern Ireland.

Britain’s Brexit minister David Frost has said the U.K. would continue to operate the Protocol on the current basis, honoring the grace periods and easements in force “to provide space for potential further discussions, and to give certainty and stability to businesses.” Though on October 4, 2021, Frost reportedly said the U.K. will react in a “robust” manner if the EU launches a retaliatory trade war in the event of Brexit talks on Northern Ireland breaking down. And Jeffrey Donaldson, leader of the Northern Ireland Democratic Unionist Party (DUP) said they would “block any additional steps taken at ports to police the Brexit trade restrictions.”

For its part, the EU maintains “both sides are legally bound to fulfil their obligations under the Agreement.”

It's a mess, and as of this writing, there’s no clear path to resolution. Despite Frost’s desire to “give certainty and stability to businesses,” businesses selling into Northern Ireland from Great Britain are facing a great deal of uncertainty.

Alex Baulf says the European Commission wants to protect the EU single market while at the same time giving Northern Ireland a special status within the EU. He explains, “The Protocol arrangement has led to several layers of added complexity — what was previously a purely domestic delivery with just logistical and commercial considerations is now complicated by complex customs formalities to differing degrees, and confusion and conflicting guidance. It is now arguably more difficult for British businesses to ship to Northern Ireland than the rest of the world."

Source: BBC

Ecommerce tax reform

Internet sellers with customers in numerous countries are also sorting through the U.K. ecommerce package — which is unrelated to Brexit — as well as new One-Stop Shop (OSS) streamlined registration in the EU. 

Additionally, online marketplace platforms (OMPs) and businesses that sell through them are coming to grips with the fact that marketplaces are now the deemed supplier liable for tax in the EU and the U.K.

ECOMMERCE IMPORTS INTO THE U.K.

The ecommerce package implemented by the U.K. at the start of 2021 seems to be chugging along as planned. As of January 1, 2021:

  • All imports into the U.K. are subject to VAT (eliminating the Low-Value Consignment relief for goods valued beneath £15)
  • All imports valued at or below £135 and subject to VAT at the point of sale (supply VAT); sellers must collect VAT at checkout and remit it to HMRC
  • Online marketplaces are the deemed supplier responsible for charging and reporting the VAT due on imports valued at or below £135

There’s no change in process for imports valued above £135: Sellers with a U.K. VAT number can pay import VAT and duties upon clearance at customs rather than collect it from customers at checkout, or require the customer to pay VAT to customs or the delivery agent.

Source: Avalara Tax Desk

Given the high volume of global ecommerce transactions today, Craig Reed thinks sellers interested in growing into lucrative markets like the U.K. are now “saddled with increased complexity and regulatory requirements at the border.” He adds, “Solving for these challenges is key to being successful, but many companies aren’t equipped to solve it on their own.”

Adding to the complexity is the fact that tax requirements for businesses are subject to change. In fact, HM Treasury is currently examining the pros and cons of a U.K.-wide online sales tax. HM Treasury’s Autumn Budget and Spending Review from October 2021 states that revenue from an online sales tax “would be used to reduce business rates for retailers with properties in England.” If eventually adopted, the proposed tax would help level the playing field for brick-and-mortar and online sellers.

ONE-STOP SHOPPING IN THE EU

Meanwhile, cross-border businesses are still familiarizing themselves with the sweeping VAT reform package that came into force in the EU on July 1, 2021. These reforms affect EU and non-EU businesses in different ways.

The One-Stop Shop (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 the ecommerce merchants and marketplace facilitators that opt to use it.

For commercial shipments with a total shipment value under €150, sellers using IOSS must collect VAT at the point of sale (i.e., at checkout), not upon import into the EU. This allows them to benefit from a fast track, “green channel” for quick and easy customs clearance. Read more about how non-EU sellers can benefit from IOSS.

The impact on business is enormous, particularly for British companies feeling the effects of Brexit. Avalara estimates 7,500 ecommerce sellers will likely register for VAT for the first time under the EU’s new IOSS system due to the removal of the low-value goods import VAT exemption. This is a seismic change for a huge number of British businesses that now need to get this right ahead of future filings.

“The adjustment is not going to be easy, and it certainly won’t be cheap,” says Alex Baulf. “To prepare for the changes, U.K. ecommerce sellers are facing £180m in additional red tape costs to navigate these new tax reforms. That’s a tough bill to swallow — particularly in the current volatile economic climate.”

Yet he adds, “If sellers can get the right solutions and support in place now, there’s real potential to open up cross-border trading and empower British businesses to become major exporters. Though the upfront investment will hurt, if sellers can successfully embrace the benefits presented by IOSS, the U.K. is in a strong position to lead the world in ecommerce — unhampered by its third country status.”

CAN CROSS-BORDER TAX REFORMS PLUG THE TAX GAP?

The EU and U.K. implemented these and other changes to deal with the massive influx of ecommerce imports and to plug the VAT gap: Too many imports were being undervalued to avoid the duty and tax. The EU lost approximately €140 billion in VAT revenues to fraud in 2018, and expects the 2020 VAT gap to reach €164 billion. According to EU Commissioner for Economy Paolo Gentiloni, these figures “show that efforts to shut down opportunities for VAT fraud and evasion have been making gradual progress — but also that much more work is needed.”

Other countries are taking similar steps to increase tax collections on cross-border transactions. For example, on July 1, 2021, Canada imposed new tax requirements on nonresident vendors supplying digital products and services to consumers in Canada. The IDC MarketScape finds that, overall, “tax authorities around the world are becoming more aggressive — actively modernizing their infrastructure to close the VAT gap. Nearly every region is going through a level of indirect tax reform — including Canada, Malaysia, China, India and LATAM.”

Craig Reed elaborates: “As cross-border ecommerce has grown globally, governments have taken notice. Systems that were built to manage traditional trade patterns were turned on their head by the influx of ecommerce goods. As governments scramble to adjust to the changing trade patterns, their first concern will be making sure they collect the duty and tax they are due. The secondary concern is the significant compliance burden this places on companies shipping into those jurisdictions. To make matters worse, each country will choose its own method to implement these rules making global compliance ever more difficult.”

MARKETPLACE FACILITATORS ARE NOW THE DEEMED SELLER

As noted above, as of January 1, 2021, Britain made online marketplaces the deemed supplier responsible for charging and reporting the VAT due on imports valued at or below £135.

Similar requirements took effect in the EU July 1, 2021: Online marketplace platforms (OMPs) that control the terms and conditions of the sale, authorize the charge to the customer, and order or deliver the goods are liable for VAT on all transactions made through the platform. Such marketplaces must collect, report, and remit the VAT due on two types of cross-border transactions:

Source: Avalara Tax Desk

Once a marketplace is named the deemed supplier, each sale becomes two separate transactions for VAT:

Source: Avalara Tax Desk

While this facilitates compliance for individual sellers, it makes it considerably more complex for OMPs. In addition to collection, remittance, and reporting requirements, OMPs must keep detailed records of all transactions to prove VAT was correctly accounted for. These records must be kept, in electronic form, for 10 years.

These are important changes that have a real impact on most international sellers. Yet for the biggest players, they’ve got nothing on the new global minimum tax deal.

The new global minimum tax deal

This is big. 

In October 2021, 136 countries representing more than 90% of global GDP agreed to a global minimum tax plan proposed by the Organisation for Economic Co-operation and Development (OECD). This will subject approximately 100 of the world’s largest and most profitable multinational enterprises to a minimum tax of 15% beginning in 2023, and redistribute more than $125 billion in profits to countries around the globe.

The OECD has come up with a two-pillar solution to address the tax challenges arising from the digitalization of the economy:

Source: OECD

The OECD plan also requires the repeal of national digital services taxes, which have become increasingly popular throughout the EU in recent years. Roughly half of all European OECD countries have either already implemented a digital services tax or have them in the making, including Austria, France, Italy, and Spain. Even Canada and Mexico have joined the digital services tax party.

If the global minimum tax plan succeeds, it should reduce competition among governments. Currently, many countries reduce taxes on foreign companies so they’ll set up shop on their shores.

USMCA and Section 301

On July 1, 2020, Canada, Mexico, and the United States entered a new trade agreement, the United States-Mexico-Canada Agreement (USMCA). What does it mean for goods subject to punitive tariffs under Section 301?

USMCA

There’s a lot to unpack in USMCA, and we can only take a superficial look here. Worth noting, USMCA:

Overall, USMCA provides preferential duty treatment for goods that qualify as USMCA originating and exempts certain shipments from merchandise processing fees.

SECTION 301

Section 301 of the Trade Act of 1974 is an enforcement tool that allows the Office of the United States Trade Representative (USTR) “to address a wide variety of unfair acts, policies, and practices of U.S. trading partners.” The Trump Administration used Section 301 to impose punitive tariffs of up to 25% on imports from China, which remain in effect today. 

As the U.S. Government Accountability Office (GAO) notes, “U.S. firms affected by the tariffs could ask to be excluded from them. The Office of the U.S. Trade Representative received requests for over 53,000 exclusions.” Most were denied.

Harmonized Tariff Schedule of the United States (HTSUS) codes are used to identify products subject to the tariffs under Section 301, just as they’re used to determine customs duty and import tariffs for all cross-border shipments. The USTR provides a search engine to help businesses obtain information about proposed or ongoing Section 301 tariffs; to use it, you must have the HTSUS codes in hand.

Source: GAO

HOW SECTION 301 AFFECTS USMCA

Are tariffs on goods that originate in China but pass through Mexico or Canada on their way to the U.S. governed by Section 301 or USMCA?

It depends. 

Contributing factors include the classification of the products (i.e., HTSUS codes) and what happens to them once they land in Canada or Mexico. If they merely pass through, without being changed in any way, applicable Section 301 tariffs are likely still in force. However, if they’re significantly altered in Canada or Mexico, they may be eligible for preferential treatment under USMCA.

When in doubt, it may be best to consult with the USTR. One company sought guidance on goods it shipped from China to a logistics center in Mexico and then on to the U.S.; it was told that “because no processing occurs in Mexico other than sorting, picking, packing, and shipping services, the goods remain products of China. The additional duties under Section 301 are applicable on all the goods at issue, except those classified under subheading 8517.62.00, HTSUS, which is not currently listed in U.S. Note 20 of Subchapter III, Chapter 99, HTSUS.”

Of course, every situation is different, and over time, trade agreements and tariffs can change. These factors contribute to the complexity of cross-border trade and compliance.

Other issues that could impact global tax compliance in 2022

All this just scratches the surface of global commerce which, by definition, is vast. There’s a lot more. For example:

There will likely be more focus on Latin American countries (LATAM), which are becoming a “leader in VAT transformation” according to the 2021 IDC MarketScape.

Countries will likely continue to grapple with the best way to respond to (and tax) the gig economy, which has transformed industries such as food delivery (e.g., DoorDash and Grubhub) and transportation (e.g., Lyft and Uber). 

More cross-border sellers could respond to consumer (and stockholder) demand for carbon-neutral delivery. Danish container-shipping company Maersk has already ordered eight ships that will be powered by carbon-neutral green methanol, though it’s also interested in exploring additional alternative fuels. The ships will likely be 10% to 15% more costly to operate than traditionally fueled ships, and those price increases will undoubtedly trickle down to retailers and consumers.  

Supply chain troubles will probably persist, which could cause cross-border sellers to develop new supply lines closer to their markets. Those that do must keep FTAs and ROOs in mind. According to Matt Earish, senior director of customs at Avalara, “The need to implement dynamic supply chains to meet customer needs is becoming a priority for companies of all sizes. With large cross-border importers such as Walmart and Costco chartering their own vessels to markets in North America, small to midsize businesses will have to be creative to continue to meet customer demand.”

With more consumers buying from online shops based in other countries in 2020 than in previous years, and more expected to do so in the future, countries may work to ensure customs duty and import tax are collected as required on all imports. Businesses should expect more movement in this area in 2022 and beyond, as well as stricter enforcement efforts. 

From a customer’s point of view, a click is a click whether shopping domestically or internationally. For online sellers, expanding into global markets creates a host of new compliance considerations and inherent complexity. Avalara can help businesses of all sizes handle these tax and duty scenarios.

Visit the Avalara VATlive blog to keep your finger on the pulse of ongoing global tax changes.

Explore tax changes affecting the retail, manufacturing, software, beverage alcohol, communications, hospitality, tobacco, and energy sectors in 2022, in the industry tax changes section.

Source: Marketplace


Avalara Tax Changes 2022

A tax compliance guide for businesses

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