Why Navigating Cross-Border Tax Compliance Is A Must for Indian Startups

Tax and compliance are the main heroes now, not the sidekicks. The complexity of regulations and the futuristic fulcrum of compliance are cautionary tales for sellers selling across borders.

Tax And Compliance: An Undying Challenge

Benjamin Franklin (a distinguished scientist and statesman) famously said, “Nothing in this world can be said to be certain, except for death and taxes”, and today is no exception. Tax compliance and its challenges are pervasive and embedded in all business decisions and debates. In the world of startups, this certainly holds true. A lot of their fundraising capabilities are dependent on how compliant they are in addition to their growth, and hence compliance and taxation drive decisions and strategy at a level one could not fathom a few years ago. 

Hurried technological advancements, geopolitical shifts, improved consumer confidence and a pandemic later, tax compliance stays put on its throne, monopolising strategic decisions and more. 

Considering its volatile nature, playing catch up with taxation rules is like herding cats.

Economic Nexus: Redefined

The ruling in South Dakota v. Wayfair Inc., was a victory for brick-and-mortar stores, which had complained they were disadvantaged by having to collect sales taxes while many online competitors did not. Since the court’s ruling, many US states have enacted laws requiring sellers to collect and remit sales tax on digital products and services sold, even if they have no physical presence in the state.

Jurisdictional Taxation Is More Important Than Ever

Some states in the USA tax ringtones on digital products, and some don’t. In the US, the taxation regime over digital goods is still a partially chartered territory, and the understanding is complex. There are many ways a download is taxed in the US. While some states use the existing legal framework applicable to tangible goods, some other states have specifically laid down a mechanism to define and tax digital goods.

Tax: Now An Inter-Disciplinary Function

Taxes can no longer be played in silos as a sub-function but have to be factored in as a key element of cost-benefit analysis, strategic business decisions, the roadmap and the overall business context. Tax obligations play a pivotal role, as potential tax computation and/or filing errors can now cause reputational damage alongside financial damage. 

It is crucial for an evolutionary business to learn early on, tax and technology are allies for the long haul for both legacy businesses and startups looking to expand their footprint not only at a regional level but on a global platform.

Marketplace Laws Vis A Vis Multichannel Ecommerce

Digital services and ecommerce via marketplace facilitators have permeated global trade rapidly, and all nations, like the US, have embraced this change. Consumers purchase more goods online for ease, convenience, and wider choices. As the ecommerce industry continues to grow and evolve, it is important for Indian exporters to keep pace with these changes and adapt their strategies accordingly. 

By leveraging multichannel ecommerce opportunities and complying with the laws, Indian exporters can position themselves for success in the digital marketplace and thrive in the global economy. Indian exporters need to be armed and braced to tide off the uncertain headwinds in the form of new regulations when selling to other countries. 

The Momentum Of Technology

As technology advances, more and more goods and services are being sold online. This will have an impact on tax compliance as all the transactions are being recorded digitally. And as ecommerce continues to grow, there is an increasing need for automated tax solutions that can help sellers stay in compliance with tax laws. 

Startups selling abroad must invest in automated software to stay abreast of compliance. Adaptation to technology and surpassing the friction of change are the needs of the race.

Increased Tax Regulations

As commercial boundaries blur, countries across the globe are becoming more tax compliant and paying their fair share of taxes. The investigative probe into multilateral transactions has increased. Indian startups that sell abroad must be more informed and aware of the various tax regulations in the countries where they do business and ensure that they comply with these regulations.

Holistically speaking, the upcoming times of tax compliance for Indian sellers selling abroad are likely to be moulded by several factors, including changes in international tax regulations, technological advancements, and the evolving nature of ecommerce.

As coming-of-age startups become more technologically adept, it will not be an adversary for them to adapt and leverage. It is safe to say that Indian startups that can cushion the changes well, will hold a strong footing in the moving waters of the global and intercontinental marketplace.