Is B(lockchain)-Commerce a Bonanza for Tax Authorities?

  • January 08, 2020

The outlook for blockchain-based businesses looks distinctly rosy. But there may be some tax turbulence ahead.

The Emergence of Stablecoins

With a growth rate of over 25% compared to less than 5% for all retail, e-commerce sales are expected to reach $3.5 billion globally this year. Cross border sales are the fastest growing segment, representing over $800 billion and growing. Coupled with this, regulators are struggling with how to come to grips with blockchain. And these two worlds may be about to collide thanks to the emergence of Stablecoins.

If estimates of the impact of Stablecoins prove true, the time may be ripe for blockchain-based commerce (b-commerce) to emerge. The parallels with the explosive growth of e-commerce in the past two decades are inescapable, but this time it may be cross-border commerce leveraging blockchain-based Stablecoin payments that lead the way. The challenges cross-border commerce will face from a transaction taxation perspective can’t be ignored, according to a new Vertex article B-Commerce Cometh, but During Taxing Times. The author is David Deputy, director of strategic development and emerging markets at Vertex. David is also president of the Accounting Blockchain Coalition.

Attention, B(lockchain)-Commerce Companies:

Transaction taxes are coming.

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Tax Liability on B-Comm Sales

Given the uncertainty across the sales tax landscape, David writes that “it is crucial for leaders of blockchain businesses and their investors to assess their organization’s potential tax liability on direct b-commerce sales and those conducted by other parties using their platforms.” David presents several reasons for b-commerce companies (as well as other companies developing this capability) to act now, including:

  • E-Commerce’s carefree (and sales-tax-free) days are over. For years, many e-commerce companies could get by without paying much attention to sales tax rules. That’s no longer the case in the U.S. In addition, global tax authorities have reached early agreement on taxation of e-commerce transactions – and by association b-commerce transactions – based on the jurisdiction in which the customer or consumer resides.
  • Wayfair is a game-changer. U.S. states are adjusting their sales tax regimes in light of the Supreme Court’s 2018 Wayfair decision, which allows states to require online sellers to collect sales tax on out-of-state transactions. The business models of many blockchain businesses may meet the definition of “marketplace facilitators” – and with it, the obligation to remit sales tax and file returns.
  • Tax authorities are writing new rules for blockchain-based businesses. Policy-makers around the world are working diligently to sort out the differences between various types of blockchain tokens for tax regulation purposes. Perhaps predictably, there’s a notable lack of uniformity in the rules that they’re coming up with.

David also offers some suggestions to help companies brace for the transaction tax impact. This is a must-read for tax directors at b-commerce businesses or organizations that expect to engage in blockchain-enabled commerce at some point in the future.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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