The company runs a large online auction platform and shopping website that connects buyers and sellers in over 190 countries. Their website has millions of sellers with 1.9 billion global listings and over 132 million active buyers.
THE CHALLENGES
All sellers on the ecommerce platform that are based out of the United States of America, have to pay federal taxes on their transactions and file their returns. The Internal Revenue Service (IRS) is the government department that uses the unique Taxpayer Identification Numbers (TIN) of each seller, to track the taxes that are due. When American sellers register on the company’s ecommerce platform, some of them might leave the TIN field blank, while others can enter an incorrect number, and a few might make mistakes while filling the details. Occasionally, sellers change their TIN but forget to update their details on the company’s platform before filing their returns.
To ensure that there are no discrepancies in the tax filings and sellers correctly maintain their TIN, the IRS mandates that the respective ecommerce platforms must withhold a percentage of the final Gross Merchandise Volume (GMV) for all sellers with invalid TIN details, if they meet certain criteria. Every year, the total amount which is withheld from all the sellers who meet these respective parameters, is then filed directly by the company with the IRS. For some previous years, the IRS stipulated that ecommerce platforms withhold taxes on sellers that made over 200 transactions and had a GMV of over $ 20,000, if they provided invalid TIN details.
The company needed an analytics partner to prepare a detailed report on the total withholding tax amount that was filed in an earlier year, as part of their regulatory reporting to the IRS.
THE SOLUTION
The team of business analysts from Prescience Decision Solutions identified all the sellers that were active on the ecommerce platform in that corresponding year. Using a combination of multiple validation rules and a 3rd party platform, they analysed which sellers had invalid TIN details on their platform registration and filings. This group of sellers was then split into different categories to provide the breakup of the total tax that was withheld and submitted to the IRS in that year.
For the first category, the team identified all the sellers that had received a Backup Withholding Notice or B notice (CP2100/CP2100A) from the IRS which required them to update the TIN on their filings. Our team further separated these sellers into those that had subsequently correctly responded and updated their TIN, and hence were not eligible for the withholding tax, and those that had not updated their details with the IRS.
For the second category, we identified all the sellers with invalid TIN details that had completed over 200 transactions for the year. For the third category, the team listed the sellers that were eligible for withholding tax but received complete payouts for the year. For these two categories, the withholding tax would only be applicable from the 201st transaction onwards. The team calculated the cumulative withholding tax for the sellers in these two categories only on the GMV of the applicable transactions for that year.
By consolidating all these tax details, the team prepared a comprehensive annual withholding tax report to be submitted to the IRS.
The technology used for this engagement was,
1.SQL
THE IMPACT
Using this end-to-end withholding tax report, the company was able to provide all the required tax details to the IRS for their regulatory reporting. The report template also provided the baseline for the company to prepare similar regulatory reports on withholding tax for other years.
Prescience Team
Prescience Team
