When selling products and/or services, you need to issue an invoice and send it to your customer. In it, you need to specify if your customer is a business customer or an end consumer. This is because transactions with business customers (B2B) typically have a different tax treatment compared to transactions with consumers (B2C). Some transactions, like cross-border services to business customers, often do not incur indirect taxes at all.
In order to determine if you need to charge indirect taxes (like VAT/GST/ST etc.) to your customers in cross-border situations, you need to check if you’re dealing with a business entity or with a private individual. For this, you need to check (“validate”) the tax identification number (TIN) of your customer.
Validation will help you to determine if you need to charge any tax on the transaction
The validation of your customer’s TIN is an important step, allowing you to determine if you need to charge any tax on the transaction. It also provides you with vital evidence (required by tax authorities) to support your decision to charge tax or not.
Sometimes, the tax number provided by the customer might be wrong, for example, if the customer accidentally entered a wrong value and thus provided a wrong tax number. Additionally, in order to purchase goods or services at a lower price, some customers intentionally enter a tax number that belongs to another entity to avoid taxes.
You will be liable to pay the taxes instead of your customer
Failing to charge tax in such situations will harm your business because you will be liable to pay the taxes instead of your customer.
We’ve designed Fonoa Lookup to help you prevent fraud or errors. Our solution allows you to check whether the entered tax number corresponds to the customer’s entity, and gives you all the necessary information on how to handle the transaction in terms of taxes.