KPMG report: Future of consumer and retail—tax perspective
Tax considerations of traditional consumer and retail companies evolving into e-commerce and direct-to-consumer businesses
Tax considerations of traditional consumer and retail companies
Transformative forces are urging consumer and retail businesses to adopt new strategies. Amidst the disruption of an evolving marketplace, consumer and retail businesses are forced to revisit their e-commerce strategies, and more broadly their business models, to keep consumers engaged and improve their experience—while controlling pricing and maintaining margins.
Tax implications
The emergence of new categories of assets and business processes critical for the success of e-commerce and direct-to-consumer strategies creates several tax considerations:
- Are new intangible assets being developed?
- Are these assets relying on different development, enhancement, maintenance, protection, and exploitation (DEMPE) functions?
- Is the value of legacy intangible assets (brands, customer and marketing intangibles, technology) being enhanced because of e-commerce initiatives?
- Are new high-value functions being performed (for example, digital marketing, advance data management and analytics, supply chain and e-commerce inventory management)?
- Ultimately, do all the above constitute new value drivers that increase existing revenue, generate new revenue streams, or create cost efficiencies?
Indirect tax implications
An increasing number of the 170+ countries that impose transaction taxes—e.g., value added tax (VAT) or goods and services tax (GST)—have introduced or are in the process of introducing VAT/GST rules aimed at the digital economy, thus creating global tax obligations for U.S.-based companies that earn revenue from various e-commerce models. This means that U.S. companies with no physical presence outside the United States may have VAT/GST compliance obligations in many countries.
These rules focus on three main aspects of the digital economy: (1) remote sales of digital services; (2) remote sales of so-called low-valued consignments; and (3) tax obligations of digital intermediaries, such as online platforms or marketplaces.
KPMG observation
All consumer and retail companies investing in e-commerce need to consider revisiting their operating models and structures to determine that they are properly addressing the relevant tax implications and potentially unlocking tax value.
From a tax perspective, companies need to consider a range of plans starting from defensive tax planning mostly focused on transfer pricing positions to a more comprehensive approach that looks at the entire operating model with the goal of unlocking operational and financial value in addition to addressing critical tax positions. A simple place to start is to ask:
- Where is the organization in its e-commerce and direct-to-consumer journey (for example, growing online sales, development or license of e-commerce platform, use of artificial intelligence, hiring data scientists/technology officers)?
- What implications do these initiatives have on the company’s overall value chain (for example, creation of new roles and responsibilities, or creation of new intangibles)?
- What is the maturity scale of e-commerce strategies and what are the company’s overall tax considerations?
Read a May 2022 report [PDF 3.7 MB] prepared by KPMG LLP that examines these questions and other issues
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.