Craig Reed, General Manager of Cross-Border at Avalara, discusses some of the ways cross-border tax compliance could impact customer experience over the festive period and how retailers can avoid it happening.
According to eMarketer, global e-commerce had a record year in 2020 by growing 26% to $4.2 trillion. For most retailers, online revenues peak during the festive period were up more than 45% from the previous year. Moreover, the increase in cross-border e-commerce also shows no signs of slowing down.
With the 2021 holiday season rapidly approaching, many international retailers are finalising their marketing plans, locking in seasonal promotions, and focusing on optimising the international customer experience. However, while ongoing global supply chain issues already pose clear challenges this year for those engaging in cross-border transactions, tax obligations could end up presenting an even greater risk.
Unlike domestic transactions, cross-border sales come with a host of compliance complexities. From varying tax types and rules, to import taxes and customs duties regulations, cross-border compliance is a multi-stage journey for retailers. Failure to get every step of the cross-border compliance journey right can lead to complications for retailers, none of which are good for business at this crucial time of year.
Preventing customs delays
There are few things more frustrating for customers than delivery delays. Failure to declare goods correctly at customs or getting the codes wrong on international shipments could cause serious hold-ups – and also land you with hefty import tax bills.
While this can be frustrating for customers at any time of year, if the item in question is a much sought-after holiday gift, having it arrive after the big day due to customs delays can be an absolute disaster.
For retailers, calculating international customs fees and taxes manually for a few items can be difficult and time-consuming, but when that number climbs into the hundreds or thousands, it quickly becomes impossible.
One of the ways to solve this issue is, implementing a technology-based cross-border tax solution can greatly simplify the process. It enables businesses to unify customs duty, import tax, and sales calculations in a single platform and can support ongoing global needs with continually researched tax content across hundreds of international jurisdictions.
‘Nasty surprises’ on delivery
All cross-border retailers have two options when it comes to tax and duties owed on goods sold internationally. The first, known as Delivered At Place (DAP), is when the customer pays international import charges and import duties before receiving the goods.
In this scenario, an international customer will see the product price and shipping costs when purchasing an item online, but the extra fees are not included. When the item arrives at customs, officials will calculate the outstanding costs, and the carrier will notify the customer that their shipment is available upon payment. This is often the first time many customers are aware that additional payments are required, which usually comes as a nasty surprise.
If they refuse to pay, the goods are shipped back to the retailer at their own expense. So, while this option can lower costs and simplify retailers’ international tax/compliance obligations, it does so at the detriment of customer experience and can potentially jeopardise the entire sale.
Looking for alternative technology solutions
An alternative, more customer-friendly option is Delivered Duty Paid (DDP), whereby the buyer sees all charges, including the product price, sales tax, delivery fee, and duty rates, at the point of purchase. While this results in a higher on-screen price, customers see exactly how much the item will cost them and can make a fully informed purchasing decision at that point. If bought via the DDP model, customs officials need to verify all taxes and duties have been paid on an item before releasing the package for delivery to the customer.
Online shopping has made the retail world smaller than ever before. From a customer’s point of view, a click is a click, whether shopping domestically or internationally. But for an online seller, expanding into global markets means a host of new considerations and inherent complexities.