In doing so, they were also hastily introduced to state-by-state economic nexus laws resulting from the 2018 S. Dakota v Wayfair Supreme Court decision, requiring sales tax registration in each jurisdiction, and the collection, reporting and remittance of sales tax once sales or dollar amount thresholds were reached. Hence, the former mom and pop store entered a new world of compliance complexity that existing ecommerce merchants have been wrangling with for several years.
Wayfair also ushered in a wave of advisory work for accounting professionals, who’ve helped clients, often small businesses, untangle compliance scenarios previously reserved for larger companies. Clients who previously did business in just a small handful of states now have nexus wherever new customers buy their products online, and they need step-by-step guidance to get a handle on their new obligations.
Global aspirations meet cross-border compliance complexity
And what about those ambitious clients who look at the entire globe as their total addressable market? While many of us are hearing about trends related to ecommerce sellers going international, in lock step with more consumers shopping online around the world, and more sellers wanting to take advantage of a total addressable market, the data is still surprising. According to IDC, by 2022, cross-border ecommerce is expected to account for more than 15% of the world’s online retail market. eMarketer estimates that the global online retail market will grow to $5.7 trillion by 2022.
While demand for cross-border ecommerce has risen, so has the complexity surrounding country-level tax and customs regulations. For would-be international sellers, mastering cross-border compliance – the value-added tax (VAT), goods and services tax (GST), customs duties (also called tariffs), import fees, and the variations of each from country to country -- can mean the difference between success and failure, in addition to staying competitive, in the up-for-grabs ecommerce world market.
In addition to different tax systems, your clients will need to accurately assign Harmonized System (HS) codes to all their goods. The first six digits of the code are standardized across all participating countries; however, each country appends its own set of digits to classify a product based on specific parameters and regulations. Every country sets its own laws governing what can be sold by whom. For example, tax rates applied to imports from Canada to Brazil may be applied differently than those same products when coming from the United States.
Shipping and pricing transparency are key success factors
Your clients’ ultimate success in global sales will hinge on their ability to provide a good (or great) customer experience, regardless of where the customer is located. And shipping is an essential factor in the equation, in terms of how long it takes to reach the customer and how much it costs. The bar has already been raised high for shipping time, with ecommerce sellers racing to compete with tech giants who have defined and set customer expectations for delivery service. For international transactions, setting up an efficient fulfillment system and clearly communicating shipping times is mission critical to starting the experience on the right foot.
More complicated is setting expectations for price. Between assigning the correct HS code and properly applying the correct taxes, tariffs, shipping and import fees, transparency at the point of sale can be difficult. The customer in Ireland who purchased a sweater from your online seller client in Brooklyn expects a seamless drop-off delivery at their location. Some businesses are tempted to omit these fees at checkout, but surprising customers with costly fees upon delivery is never a good experience. Abandoned online shopping carts are one thing, but a rejected shipment at the destination doorstep results in an unhappy customer, and potential brand reputation damage via social media and other complaints, not to mention placing the cost of return on your client, if they decide it’s worth undertaking those costs.
Automation tames cross-border complexity
Automation solutions are a key ingredient for businesses entering the global retail space. For many international sellers, the task of manually assigning tariff codes and calculating customs duties and taxes is resource intensive, costly, prone to human error, and ultimately not a path to ongoing compliance. It’s only through modern technology that your clients can ensure that customs duties and import taxes are accurately calculated at the time of checkout to mitigate compliance risks and avoid negative customer experiences with surprise costs at the time of delivery.
Depending on the number of countries, breadth of products, and staff available to handle rates and regulations, an automated tax solution may be the most efficient, cost-effective way to manage tax compliance. Software programs such as Avalara Cross-Border are readily available for item classification, rate calculations, reporting, and returns filing. Make sure your client’s cross-border compliance system integrates with their other business applications, such as accounting/ERP, enterprise content management (ECM), and online retail platforms. Absent fully integrated technology solutions, 21st Century commerce expectations won’t be realized, from multi-channel commerce to selling internationally.
Advising for your clients’ (and your firm’s) growth
Cross-border compliance falls squarely within the ongoing demand for enhanced business advisory services as we wend collectively through a global pandemic. And keep in mind that clients of all sizes, including emerging small businesses, will require technology automation and advisory in this area. Learn the basic terminology associated with cross-border selling and compliance in preparation for client conversations. Determine whether you want to develop expertise internally around this practice area, or partner with a firm that focuses on compliance international sellers. Then vet the available technology automation solutions that automate the most complex aspects of cross-border compliance at the moment of transaction. The numbers tell the story—this is an ideal opportunity to demonstrate added value for clients embarking on a new path to global growth.