The rapid growth in online sales around the world presents a major challenge for governments—how to ensure that taxes on the profitable sector are collected and sent to tax authorities.
Some countries, including the U.K., Germany, and India, are increasingly leaning on online marketplace platforms such as Amazon.com Inc. and eBay Inc. to take a role in collecting value-added tax (VAT) or goods and services tax (GST) from foreign sellers.
“There’s a significant amount of global sales activity occurring through these platforms,” said David Bradbury, head of the tax policy and statistics division at the Organization for Economic Cooperation and Development.
“If we don’t know all that much about the identity or circumstances of the sellers, we don’t necessarily have a lot of capacity to enforce the tax and make sure they’re collecting and remitting it”—which could mean lost revenue for tax authorities, Bradbury said. “So governments have been very concerned.”
E-commerce sales to consumers account for about $2 trillion per year, according to figures cited by the European Commission and the OECD.
When online marketplaces allow a buyer in one jurisdiction to purchase from a seller in another, the transaction should be subject to a sales or consumption tax, like VAT or GST, where the buyer is.
But sellers don’t always know what their tax obligations are in every jurisdiction they sell into, or they might just avoid them. That’s why many countries, as well as many U.S. states and the European Union, are considering or have already passed legislation that requires online marketplace platforms to enforce tax obligations.