Defining your digital strategy

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Embedding tax and legal considerations in the heart of your business planning

Traditionally, businesses viewed the tax and legal consequences of a digital strategy as a pure compliance matter to be addressed after a new business model has been implemented. But that approach carries risks. What if you have overlooked crucial tax or legal issues that could ruin your entire strategy or spoil your return on investment? We are convinced that embedding indirect tax issues early on in planning your digital strategy is the best route to avoiding unexpected and unwanted surprises that could hurt your business. It could even turn constraints into opportunities.

Let’s consider the establishment of an online sales platform whereby the operator will sell goods and services to other businesses (B2B) and individuals (B2C) worldwide. This new way of conducting business has a huge impact on indirect taxes, particularly value-added tax (VAT). However, traditional billing systems do not have standard settings that secure and automate the VAT treatment in this environment, so IT settings will need to be customized and various issues, such as how to collect and store customer data, will need to be resolved. Key questions you will need to address include:

EY - What is the key to a successful digital transformation?

Embedding indirect taxes into your digital strategy

Digital transformation affects business functions that create value externally, such as innovation, manufacturing, supply chain, marketing and sales. We have analyzed each of these topics from a tax perspective to indicate which factors should be considered at the planning stage as part of the transformation.

  • Innovation
    • Digital intellectual property (IP): what is the impact of the location of IP-creating functions (permanent establishment, transfer pricing)?
    • Influence of big data on the innovative process: do you need to allocate a portion of this value to the collaborative platform’s operation (research tax credit, transfer pricing)?
    • What are the tax consequences of cooperative business models (VAT, corporate income tax)?
    • What are the tax issues from the acquisition of start-ups (restructuring, valuation of IP)?
    • Can you benefit from tax incentives for innovation?
  • Manufacturing
    • 3-D printing: when you make a product using a 3-D printer, are you selling goods
      or a service or both (VAT)?
    • How can you divide value between the central functions needed to develop and operate the IP involved in 3-D printing and a permanent local establishment (corporate income tax, Base Erosion and Profit Shifting — BEPS — and transfer pricing)?
  • Supply chain
    • What are the VAT/GST and customs impacts of changes to supply chains: implementing VAT settings to enable security and automation?
    • What value should you allocate to the exploitation of big data by a central entity (corporate income tax, BEPS and transfer pricing)?
    • Is the global trend to reduce or abolish customs duties and VAT exemptions for the importation of low-value consignments affecting you?
    • What are the tax consequences of new marketing options, such as agent, commissionaire and buy-sell (VAT and corporate tax)?
    • What are the customs obligations arising from dual-use goods (global trade aspects, securing and simplifying customs declarations)?
    • What are the VAT consequences from international and multichannel customer reward programs (VAT)?
  • Marketing
    • What are the consequences for creating permanent and fixed establishments (corporate income tax vs. VAT) considering the location of logistics platforms and e-clients?
    • Are economies of scale achieved through an automated inventory and supply management system open to appropriations (VAT and corporate income tax)?
    • What are the implications of automated processing of VAT, customs duties and ancillary taxes on sales made on platforms and marketplaces (VAT, global trade)?
  • Sales
    • What are the tax consequences of e-commerce: territoriality and VAT processing for the sale of goods and services (electronic or otherwise) via websites (automation of compliant VAT treatment)?
    • What is the best way to incorporate the tax obligations (such as multinational filings) and opportunities (Mini One Stop Shop, electronic billing, etc.) linked to B2B and B2C sales (VAT, tax compliance, tax reporting)?
    • Should you adopt a centralized or decentralized e-commerce model? How does it affect your ROI (corporate income tax, BEPS and VAT/customs)?

The digital transformation also influences business functions that create value internally because they form the skeleton of the organization, such as leadership, finance and accounting, human resources and technology resources. We have analyzed each of these functions from a tax perspective and determined which optimization factors can be implemented as part of the transformation.

  • Leadership
    • What is the impact of paperless order management resources on tax residency (personal income tax)?
    • Could the management style required by matrix organizations and facilitated by digital communication tools engender a tax risk, such as having multiple permanent establishments (corporate income tax, BEPS)?
    • How will you manage permanent and fixed establishment issues for corporate income tax and VAT?
    • What are the tax consequences of executives’ tax residencies (impact on personal income tax and permanent and fixed establishment issues)?
  • Finance and accounting
    • What are the implications of creating shared-services and cash-pooling centers using advanced technological tools to permit the secure and automated management of taxes worldwide arising from the multiple local tax (compliance, tax audits) and accounting regulations that must be applied?
    • What steps are needed to prepare for local electronic tax audits and electronic data-reporting obligations (compliance with obligations to issue standardized account entry files, such as SAF-T)?
    • Do existing processes provide a reliable audit trail of sale and purchase invoices in a digital environment (to secure remittance of output VAT and deductibility of input VAT)?
  • Human resources
    • What are the tax consequences of tasks generated by remote administrative centers that could generate risks related to permanent establishments and multiple employers (permanent and fixed establishment from a direct and indirect tax perspective)?
    • Can we develop e-learning tools for ongoing education to manage upper level of compliance?
    • Are there ways to improve employee mobility schemes (personal income tax)?
  • Technology resources
    • What are the implications of the choice of computer infrastructure for servers or cloud computing affects permanent establishments (corporate income tax) and data-archiving obligations concerning taxes and billing (VAT)?
    • Will a switch to electronic billing generate savings but also require security mechanisms from a tax (VAT) perspective?
    • What do we need to meet our tax compliance obligations for archiving and retention and production of account, tax and management data?

Contact

For support or information to define your digital strategy contact Gwenaëlle Bernier, the Indirect Tax leadership team listed, or your usual EY contact.

 

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EY - Defining your digital strategy

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