Sales tax has long since ceased to be a pure accountant’s tax, where one simply assumes 19% on everything. Online retailers must therefore deal with more than just German tax law if they want to operate successfully throughout the EU. Taxdoo therefore offers a cloud-based financial operating system that enables online retailers to automate their overseas EU VAT processes, financial accounting – and later this year, invoicing and other financial compliance functions – through a single platform. This leaves more time for what really counts – the core business.
Madeline Hirt is Partner Manager at Taxdoo, has been with the company herself since 2020 and has seen its rapid growth.
Find out how Taxdoo was able to develop from an idea to a steadily growing start-up and what the future holds in this exciting expert interview with Madeline Hirt.
What motivated you to start Taxdoo?
The founding of Taxdoo was actually almost a pure coincidence. Roger – our CEO and co-founder of Taxdoo – worked for many years for the state and federal tax authorities in the area of sales tax and then headed the tax department of a research institution in Hamburg. At some point, he wanted to get out of the tax world and rather do something with “finance”.
During his doctorate at the University of Hamburg, he finally met his two co-founders Matt and Christian. However, the idea to start a business came primarily from Matt.
Roger had been working as a tax consultant on the side, mainly writing expert opinions in e-commerce. Many online retailers approached him afterwards and asked for concrete solutions on how to file their VAT returns in other countries as automatically as possible. Such a solution simply did not exist before.
That’s how the idea for Taxdoo was finally born: with Matt’s knowledge of creating the software, Roger’s tax background and Christian as the link between IT & VAT. That is, with an understanding of both mindsets, they wanted to simplify the lives of online retailers and act as a voice between the agile world of e-commerce and tax compliance. Better said: translate complex regulations into simple processes. This is how Taxdoo’s journey finally began in 2016.
You raised $64 million in your latest round of funding, congratulations! So which area will benefit most from the fresh money?
Thanks first of all for the congratulations!
Naturally, a lot of capital goes into developing new products and making current processes more precise. But we are also investing in further internationalization in order to establish ourselves as a financial operating system for e-commerce.
We are also working on creating a dashboard just for tax firms that will make managing any number of clients even easier and clearer.
However, a large part also goes into the onboarding of new employees. We are constantly on the lookout for new talent who anticipate regulation, want to help shape it and work on new solutions, but also for people who see their strength in improving our services and products and “challenging” current structures.
Which customers benefit the most?
With Taxdoo, online traders who not only sell their goods in their country of domicile but also dare to sell cross-border in other EU countries will benefit the most.
In doing so, they are often faced with the challenge of maintaining an overview of the various transactions and sales channels. Especially customers who use warehouses abroad – often via different fulfillment providers – are for the most part not even aware of their VAT liability.
Our typical customers usually start by selling through Amazon and other marketplaces and eventually outgrow these platforms and then sell through their own store.
I also think that especially due to the sales tax reform that occurred last year and the accompanying introduction of the so-called one-stop store (OSS), online retailers are no longer the only focus of the tax authorities. Rather, the focus is now also on the marketplaces, which are now, under certain circumstances, themselves responsible for the VAT payment of their traders.
So who is the typical Taxdoo customer?
All online retailers. Our service adapts completely to the customer and even grows with him.
With our new pricing models, which have been on the market since March 15, we can now also support small online retailers with a gross merchandise volume (GMV) of less than €1,000.
In this way, our price adapts to the customer’s sales and desired add-ons and offers every online merchant the optimal and individual product package. So everyone finds the right thing for him!
You help your customers to always have an overview of their tax obligations, how do you do that?
This is actually quite easy. We have interfaces to the common marketplaces (e.g. Amazon or eBay), store and ERP systems, so that we can import and evaluate all transactions relevant for VAT purposes fully automatically.
That is, we designed a cloud-based customer dashboard where our customers can connect their sales channels and monitor their transactions. All sales, returns, credit notes and goods movements within the EU and GB are filtered – completely automatically!
In this way, our customers are shown all the relevant data in a simple way that helps them keep track of everything, even if they are not the biggest tax experts.
In addition, the collected data is processed and evaluated correctly for sales tax purposes. This results in various exports for accounting and also for VAT reporting, as for the OSS. Subsequently, the data is also transmitted to our partner law firms in other EU countries and the United Kingdom in order to carry out the local reporting of our customers here.
However, the best thing about our product is that you can also create a user account for your tax advisor. So the online retailer can actually sit back completely and let the experts do their job.
What would be the typical tax traps that an online retailer needs to be aware of?
Oh, there are quite a few! If you sell cross-border, then in most cases the country-specific sales tax rates apply to the sale. And this is where the problems start! Because to be honest, which online retailer knows how high the sales tax is in France or what percentage of books are taxed in Spain? However, when an online retailer uses the one-stop store, the IRS simply assumes that they can correctly determine all sales tax rates. Which, of course, is rarely the case.
As a result of the VAT reform in 2021, there are no longer any so-called national supply thresholds, but a uniform EU-wide threshold of €10,000 – but when do I know when this threshold has been exceeded?
For online retailers using warehouses abroad, it gets even more complicated, because here some transactions have to be reported locally again from a VAT perspective. So surely the biggest challenge is the correct classification of each transaction: when do I report locally? What do I report through the OSS? Do I need a local sales tax ID? What sales tax rate applies to the particular sale? And, and, and…
However, if you are a multichannel user, you also have to keep in mind that the merchant now has different transaction lists from which all transactions have to be classified correctly. Of course, with several thousand transactions, this cannot be error-free. If you now also trade outside the EU, it gets even more complicated.
So we see that on the path of internationalization there are many tax traps for online retailers that can lead to significant problems if they are not followed.
What can Taxdoo do better than other providers?
That’s easy: Taxdoo is innovative! For example, we have our own RegTech department that deals with the new sales tax challenges on the market on a daily basis, gathers information for our customers and also constantly puts the financial apparatus and the authorities to the test.
In addition, we are in constant exchange with online retailers, tax consultants techies, but also partners like you to improve our processes and programs. These insights are then used to create blog articles, mailings, webinars and much more, so that our customers are always informed about what is currently changing at the interface between e-commerce, sales tax and financial accounting.
A big plus is of course that we are centrally located in Hamburg and offer our customers personal and multilingual customer support – so we are not only transparent, but also approachable.
Another advantage is certainly the number of interfaces we can offer our customers. There are currently 14, and more will surely be added during 2022. We also offer our customers an open programming interface so that they can connect their individual system.
Where do you see Taxdoo in three years?
Taxdoo will definitely have established itself as the market leader in the European market through its steady internationalization, as the legal and technological foundations for this have simply already been created in recent years. In this context, collaborative partnerships are becoming increasingly important. In addition, we will have further expanded the product portfolio and offer our customers an “all-round worry-free package”.
Our goal is to be the first and only point of contact for online retailers and their tax advisors when it comes to simplifying and driving customers’ online commerce with our smart solutions. And I am convinced that we will succeed.