Tax comes charging IN

Tax comes charging IN The EU lawmakers are at it again with a new set of tax rules aimed at providers of telecommunications, broadcasting and other digital services. Richard Doughty, Senior Consultant at Cerillion, looks at the impact of these changes on CSP’s charging systems.
Tax. Often complex, never sexy and rarely a showstopper as a blog topic.  Nonetheless, it’s something that’s cropped-up in several seemingly unrelated conversations in the last week, so the mental hamster has been turning his wheel.
For those of you still reading, who haven’t been driven to drink or a window ledge by the mere mention of the word, then tax is possibly a topic that’s also impinged upon your mind, probably supplanting more stimulating thoughts you were having.
The big news is that governments are cracking down on companies that (let’s put this politely) minimise their exposure to tax. From 1st January 2015, new laws come into force across the European Union (EU) stipulating that telecommunications, broadcasting and digital services will always be taxed in the country where the customer belongs, and not based on the location of the supplier as is the case today.
All of these will have an impact on the consumer, usually in higher prices. But they will also have a direct impact on CSPs and their revenue management systems and processes, particularly in the prepaid arena. Until now, VAT on prepaid services has been charged at the point of purchase and not at the point of consumption, for example when you top-up your account. When and where this purchase is then used has been of little interest to the platforms managing the balance or decrementing the ‘purse’. Now that’s all changing.
Charging engines will not only need to consider the location where the customer belongs (a minor change, another charging parameter/AVP to be accommodated) but also be able to apply an appropriate rate of consumption tax. And this second point is the more problematic. Most, if not all, of the older online charging engines (the ‘INs' of the world) don’t know or care about tax. They apply a tariff to a piece of usage and then deduct that value from a balance. This has been done for good reasons; speed is everything, and doing nasty tax calculations ‘in-flight’ wasn’t something that was needed when all prepaid customers were taxed in the same way. However, from the beginning of next year, the new EU VAT rules will require a large change in the charging systems used by many CSPs.
The new law also raises some questions about how anonymous customers using prepaid services will have their home location identified. A recent discussion on BillingViews indicates that this could be done through the country code of the ICCID, and that seems likes a sound technical approach. But surely that opens up another tax loophole whereby CSPs can ‘issue’ their SIM cards from a country with more forgiving tax treatments? If this seems rather far-fetched, then just consider how many companies register in places such as Delaware (more than 50% of all U.S. publicly traded companies and 63% of the Fortune 500 are incorporated in Delaware) or Luxembourg for tax reasons. Anything that gives them a competitive edge on pricing or a better bottom line may well be tried.
Is there a silver lining to this cloud? Well possibly. The latest generation of convergent charging systems developed by those vendors with a strong background in postpaid billing (where taxation has always been a consideration) provide a solution to this problem. CSPs who have found reasons to move to standardised network-to-charging integration protocols (such as 3GPP) have been given an additional reason to look at the flexibility and control these systems offer. The ability to identify the taxable components of online usage not only allows them to clearly present these to their customers (laying the blame for that portion of the charge squarely at the feet of the local tax man) but also clearly calls out at the point of consumption the taxable components of their revenue for presentation to their accounting systems; removing the need for the reverse engineering of taxable values from charged records extracted from the older IN systems.
So it’s another step on the road to convergence; combining multiple tax schemes, for multiple service types, for multiple countries in to an online charging and billing platform that can support these variable rates based on product, customer and location.