Luxury Brands and Global Taxes

11 July 2017

Technology is changing retail - fast.  It is great to see the interesting results in the latest report from Worldpay, which highlights many of the differences in luxury and mid-market retail.

One area that stands out for me is the importance placed on the payment process as part of the overall customer experience. This extends beyond the final amount, but covers the composition of item costs, delivery fees as well as including all the necessary duties and taxes. No one wants to be stung by additional costs by a courier or to be charged incorrect tax which could increase the overall cost.

The advent of eCommerce has made goods more accessible and, combined with cheaper, quicker shipping options, more luxury brands are shipping cross-border than ever before. Regardless of the product, the appeal of reaching international markets is a temptation most retailers can’t ignore.

While many merchants are eager to get their goods out the door, they often don’t understand the compliance implications for each country they’re shipping to. There are 193 UN member states, each with a different tax regime with varying complexity.

One element to evaluate first is the “de minimis” value for each country. The “de minimis” value refers to the minimum value of the goods which duties and taxes will be collected by the local customs agency. These values range from USD $0 in some countries, to as high as USD $1,302.

Many luxury and high-tech brands will reach this threshold with a single item. When the threshold is reached, duties, taxes and other applicable fees must be paid to the corresponding customs agency. Depending on the business, these will either be paid by the seller or by the customer upon delivery.

With 46% of luxury brands placing innovation as an essential part of their brand development, it’s no surprise that this extends to the slow-moving taxation world.

Tracking duty rates can be burdensome. The duty rate for each item varies based on the classification in the international Harmonized System (HS) code. For example, two garments may have a different duty rate depending on whether the material is silk or wool.

As we see from the results of the Worldpay report, many retailers now understand the benefits of technology in reducing the effort it takes to expand internationally. Rather than manually managing this information, an organisation should consider investing in automation technology for their tax obligations.

Using a product like Avalara’s LandedCost offering will automatically calculate the duties, taxes and fees for each order and provide a total landed cost of getting the shipment to the customer’s front door.This pays a large part in the customer experience where items are delivered with no additional duties or delays which would leave a customer disappointed.

Jake Estes has been with Avalara for three years helping businesses navigate the complex world of US sales tax. Prior to moving to Avalara's UK office Jake worked with ecommerce, ERP, POS and billing platforms to get integrations built to provide Avalara's best-of-breed AvaTax software to SMBs venturing into international markets. Jake is from Seattle, Washington and holds degrees from Washington State University and an MBA from the University of Buckingham.

Avalara helps businesses of all sizes achieve compliance with transactional taxes, including VAT, sales and use, excise, communications, and other tax types. We deliver comprehensive, automated, cloud-based solutions that are fast, accurate, and easy to use. Avalara’s Compliance Cloud ™ platform helps customers manage complicated and burdensome tax compliance obligations imposed by regional, and cross-border taxing authorities throughout the world.

For more information on Worldpay’s findings, please take a look at the report.

For further information on how Avalara can help retailers tackle the troubles of cross-border taxation, visit their website.