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Tax Planning For Ecommerce Operations

BY: Natalie Aranda
Words: 418

There was a time in the not so distant past when the majority of companies had very clear cut tax options. They were guided by a set of local, State, and National tax laws. They owed their taxes and they had to pay them. There were creative ways to reduce their burden, but it still remained fairly simplistic compared to today’s global market situation. Ecommerce, or business over the internet, has led to the idea of onshore versus offshore tax implications. Onshore, in this case, refers to a business whose ownership is located in the same physical location as their operations. Offshore refers to the rest of the World.

The unavoidable fact here is that there are certain jurisdictions around the world that might tend to have a much more favorable tax structure than home. It is important to accept that this is the prime reason for going offshore to do business. The offshore locales might talk of other things, but it is the taxes that make or break an onshore/offshore decision every time. Since Ecommerce operates in this unreal electronic world, physical location has become less of an issue. The old adage of location, location, location, no longer means the same thing as it did a mere generation ago.

Some people seem to believe that the world of Ecommerce is a free and unregulated zone where anything goes and there are few or any consequences. This is not true, and each passing day makes it less true as internet regulation continues to increase. Tax planning from an Ecommerce point of view can not be seen as tax avoidance as much as it is tax reduction. This is why tax planning becomes such an important element of Ecommerce. It just is not so simple anymore. The possibilities to reduce tax burdens and increase profitability are staggering and enticing, but they are also a mine field of potential risk. The advice and guidance of professional tax experts is an absolute must to navigate this mine field properly.

The Credit Card Merchant Account that you use in your Ecommerce business is an example of how proper tax planning lays a foundation for prudent business decisions. The Offshore Merchant Account could very well be one of the first steps taken in an Ecommerce operation to move the business offshore. An understanding of the tax laws and reporting requirements of each offshore account as compared to local Merchant Service providers can be a determining factor in this decision making process.