The digital transformation of our working world has been one of the major trend topics for some time now. Companies of all sizes and from all sectors are increasingly focusing on the digitalisation of their processes and business models. Digital business models (DTMs) come in many different forms - from the in-house development of new software to the creation of a platform for collaboration with various external partners. The following graphic provides an overview:
Chart (in German only)
Kristin Meyer
Director, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
Digital business models, whether purely national or cross-border, occur in individual companies, groups and as part of partnerships with other companies (e.g. suppliers and logistics service providers), and are also part of the interaction with buyers and customers. Examples of digital business models include
- the development of an app that allows buyers of a hardware product to utilise additional digital services
- the distribution of hardware products via platforms that are only accessible within one country
- the development of software with a partner company with the aim of providing a joint range of services
- the cross-border development of software within a group or with a partner
- the cross-border use of software (proprietary software, freeware, open source software, inner source software, etc.) and/or data in the form of apps and licences as well as for downloading from servers, marketplaces and databases
- the cross-border development, use and provision of digital services that require an internet connection to be used - also in combination with hardware (Internet of Things, IoT)
- the independent or joint cross-border provision of technical platforms as a development environment within a group or with a partner as a marketplace in the reseller or broker model, both for the sale of own products and services and for the sale of third-party products and services
- the shared use of data by several legal entities in a group, cross-border or national
- the shared use of data acquired from external third parties for the integration and further development of products and services within a group or with a partner company
- the development and application of Industry 4.0 solutions with suppliers and customers to optimise own business processes
The challenge of digital business models
Chart (in German only)
Early involvement of the tax department
Whether it's a digital business model or process digitalisation - many of these changes can have tax consequences. This makes it all the more important that those responsible for tax are involved right from the start. The first challenge is therefore to sensitise the project managers in the business units to ensure that tax experts are involved at an early stage in the development of digital business models and business processes.
The tax department itself should also prepare itself and appoint a contact person as a so-called "business interface" at an early stage. This person should have the expertise to analyse the ideas for new digital business models or processes together with the project managers in relevant areas of the company, such as development, purchasing, logistics, marketing, sales, legal and HR, and to identify tax-related points of contact. Only then is it possible to develop the necessary tax solutions in good time and implement them in the company's systems and processes.
Why digital business models are often complex from a tax perspective
It is not only the diversity of digital business models and processes that creates a high level of complexity, many other aspects also contribute to this, among other things:
- A variety of different issues in tax and customs law must be taken into account, including transfer prices, permanent establishments, VAT, withholding tax, export control and customs clearance.
- Digital products such as data or software are subject to inconsistent and often complex tax assessments in different countries.
- In contrast to hardware, it may be possible to standardise the settlement processes for digital business models at a national level, but rarely across borders.
- The roll-out across national borders (internationally, sometimes even within a country, as in the case of the US states) is complex due to frequently differing tax assessments and usually requires a further tax assessment.
- It is also necessary to assess whether the roll-out of a digital business model is possible and economically viable in individual countries.
Digital business models require specialised tax advice and interdisciplinary teams
The idea for a new digital business model or the digitalisation of a business process raises tax issues that are similar to those of traditional business models. These include the four most fundamental questions: "Where" should "What" be offered by "Which legal entity" "To whom". As simple as these questions sound, it is often difficult to derive the tax issues from the purely "technical" business model idea. In addition to tax expertise and industry knowledge, this requires a great deal of practical experience, ideally from regular dialogue with project managers.
The implementation of a digital business model is accompanied by tax and foreign trade law requirements, the management of which is complex and demanding. Tax requirements include the identification of individual tax types such as sales and income taxes (withholding taxes) as well as the resolution of conflicting tax structures. International tax aspects also play a role, which generally have to be assessed by an international network of tax experts. However, teamwork is not only required within the tax department. A project team with experts from various departments, including development, production, purchasing, sales and legal, is required to optimise the handling of foreign trade requirements.
What we can do for you
We have been supporting developments in the field of digital business models for many years, have project experience from many different consulting projects and speak the language of the project managers - from IT to marketing. With our interdisciplinary team of tax and foreign trade law experts and, if required, from our international network, we support you in managing the tasks and developing the right solutions for your company. We analyse which tax and customs areas are affected and support you in national and international tax and customs audits.
We focus on the end-to-end assessment of your business model with regard to the tax and customs law aspects to be observed. We also identify possible alternative courses of action, define the legal compliance requirements and support you in fulfilling them.
Readiness and health check
If you have already carried out the tax and/or foreign trade law assessment in corresponding projects, we will be happy to check these for completeness as part of a readiness check and thus ensure compliance in individual cases.
If you have already implemented digital business models and want to check whether they fulfil all compliance requirements, we will carry out a health check to determine whether any compliance gaps still exist.
Get in touch with us.
