Consumers tend to think of taxes in terms of federal and state income taxes, state sales taxes, and the like. Businesses have to think in much broader terms, especially if they deal in cross-border transactions. Global trade involves a litany of tax issues that companies cannot afford to get wrong.
For the record, the taxes imposed on imports and exports are known as duties and tariffs. A duty is an indirect tax paid by consumers on imported goods. Governments impose duties in order to raise revenue. On the other hand, a tariff is a tax assessed on imports or exports for the express purpose of limiting demand for them.
It is important to note that importers and exporters must follow a strict set of regulations that enable government jurisdictions to assess duties and tariffs. Trying to get around duties and tariffs by breaking the rules is not looked on kindly. Importers and exporters can face stiff penalties for doing so.
With all that said, here are two common tax issues that can cause trade compliance headaches:
1. Ignoring Differences Between Jurisdictions
Here in the U.S., we have a bad habit of viewing the world through an American-centric lens. We are often blinded by our own narrow tunnel vision to the extent that we fail to consider that life might be different elsewhere. This certainly holds true in the world of global trade compliance.
The fact is that duties and tariffs are not identical around the world. Every legally recognized jurisdiction has the authority to set its own tax rates. Each one has the authority to regulate imports and exports as it sees fit. Assuming tax consistency across the board is a good way to find yourself in violation of global trade rules.
An effective way to avoid this problem is to contract with a third party that offers import and export classification services. Ohio-based Vigilant Global Trade Services is one such company. Their services guarantee that importers and exporters at least have the correct information they need to pay all taxes due. It is up to them to make sure they comply.
2. Failing to Regularly Update
The other big mistake importers and exporters make is failing to regularly update their systems. A typical scenario would involve a company deploying new trade service software that doesn’t update duty and tariff rates automatically. The rates are current when the software is deployed, but then they are forgotten.
This is actually a pretty common problem among e-commerce businesses that sell in multiple jurisdictions. Their shopping carts apply the same taxes year after year, despite the fact that rates have been updated multiple times since their software was first deployed.
What is the solution to this sort of thing? Global trade technology. For example, modern trade service software developed with tax issues in mind should be able to automatically update duties and tariffs on demand. Companies should not have to worry about updating the numbers manually.
Outsourcing Global Trade Management
The two tax mistakes mentioned in this post barely scratch the surface in terms of global trade compliance. There are just so many things that importers and exporters have to worry about that a single blog post couldn’t do them all justice. Dozens of posts couldn’t. Companies providing global trade management services exist for that very reason.
A company like Vigilant specializes in global trade management. Their team consists of experts in every aspect of compliance, trade technology, logistics, etc. Working with them, or another third-party provider is the most effective way to avoid the types of issues that can cause big compliance headaches.
