Even as companies race to invest in IoT-enabled capabilities and offerings, many are still struggling to build a robust and profitable business case for them and one issue that looms large is that the tax aspects are generally not being included in the IoT value equation that drives decision-making – a potentially huge mistake.
Tax considerations can make or break the value proposition for IoT investments. At a basic level, moving into IoT generally involves a fundamental transformation from selling products to selling services. This alone brings major tax implications, especially when the services are being sold across state and/or national borders.
Meanwhile, the global tax system is in a state of flux – and struggling to keep pace with the evolution of the digital economy. Originally developed for a bricks-and-mortar world, legacy tax structures are outdated and inadequate for today’s IoT/digital business reality. Overlay this with new and emerging IoT capabilities, services and business models, and the complexities multiply.
When considering IoT investments, here are some of the factors that may indicate the presence of significant tax implications.
- Cross-border multi-country/multi-state eCommerce
- Technology innovation in platforms and apps, especially involving R&D tax credits and incentives
- Cross-border M&A activity related to IoT – how tax-friendly is the target’s local jurisdiction?
- The siting of IoT solution, development or control centers/hubs in o shore locations
- Switching from selling goods to services, with potential implications for withholding taxes, value added taxes and new digital taxes
- Development of a new customer base, especially across borders
- Questions over the tax value of data, including data analytics such as proprietary algorithms or apps
- New business models and supply chains that change intercompany transactions between entities in different countries