Global consumption of OTT content is rising remarkably. Statista estimates that broadcasters' revenue should touch $275.30bn in 2022.
Promising sentiments like these are fuelling the ambitions of VoD providers to expand globally and capture a slice of the pie. However, as broadcasters extend sales across state and national borders, complex and evolving streaming tax dimensions are emerging. These can be concerning when they attract penalties and interest for non-compliance.
This blog outlines the complexities of the global streaming tax landscape. It will also suggest an actionable solution for video broadcasters, to ensure smooth compliance, operations, and growth.
An uneven global streaming tax landscape
OTT tax can vary beyond borders, within countries and even across states.
For example, there may be variations in applicable taxes, like sales tax, depending on where a customer is based and whether they're an individual or a business entity. Moreover, the OTT tax rates themselves can vary, along with the thresholds from which different taxes are applicable. Research by Deloitte brings to light some of the global tax variations:
- South Africa requires companies to account for VAT on sales to businesses and consumers.
- Japan, in contrast, only requires payment of the Japanese Consumption Tax on business-to-consumer sales. However, they define "consumer" not by the nature of the recipient but by whether or not the service supplied is contractually designated for business purposes. If it is, no tax is due even when the purchaser of the service is not a "business" customer.
- The European Union member states have no threshold below which businesses can avoid the requirement to register. In Switzerland, however, the threshold is 100,000 CHF (approximately $100,000 at today's exchange rates).
Such differences in tax rules make it critical for media and broadcasting businesses to confirm the exact tax requirements for any region they cater to. A lack of caution here leads to compliance errors, fines, and negative publicity, as has happened before, even to the most prominent industry players.
The core functional area of broadcasting businesses revolves around content planning and distribution. Therefore, focusing on the minute yet essential details like taxation can become cumbersome and distract from top priorities. The solution to achieving smooth compliance and hassle-free focus on OTT growth lies in sourcing a strong Merchant of Record (MoR).
What is a Merchant of Record (MoR)?
In the simplest terms, a Merchant of Record (MoR) is the legal entity a buyer pays in return for a good or service. The name of the same merchant appears in an individual's credit card statement when they purchase. Please note that this entity may or may not be the original seller of goods.
Many sellers choose to be their own MoR. However, a rising segment of broadcasters prefers to delegate their payment handling to a third-party MoR.
Why do OTT companies onboard a Merchant of Record?
OTT broadcasters choose to onboard Merchants of Record for ease in handling payments and taking on liabilities concerning transactions. This helps them focus on their core expertise around planning content choices for their viewers, devising pricing plans, and working on ways to acquire and retain subscribers.
Depending on the OTT platform's monetization model, financial transactions can vary geographically. As a result, several dimensions come into play concerning sales tax and payments card industry (PCI) compliance. For example:
- Taxation could differ in case promotions are applied and need to be accounted for
- There may also be instances of consumer conflicts over transactions. This could results in a request for refund or filing of credit card chargebacks.
- Security issues out of fraud or card security may also arise.
A Merchant of Record service provider assumes complete responsibility for managing these payment and tax-related complexities. They help put their client’s mind at ease, and focus on what they do best.
How does a Merchant of Record operate?
A Merchant of Record operates in the background. When you transact with your OTT channel viewers through them, your paying customers still go to your website and pay on it. However, the MoR acts as a reseller of your services at the backend.
Essentially, with every sale, two transactions take place.
- The first is when the end customer pays the MoR (through your streaming website).
- The second is when the MoR pays you (the seller) for that transaction.
The customer's bank statements reflect the MoR's details, as mentioned earlier. Thus, any recourse or dispute concerning the transaction is routed to them, keeping you away from any liability.
Is a Merchant of Record different from a Payment Service Provider (PSP)?
A Merchant of Record differs from a Payment Services Provider (PSP).
PSPs form a piece of your payment infrastructure. They typically handle only the routing of a transaction from the buyer's account to the seller's account. Examples include gateways like PayPal, Stripe, and so on.
When working with a PSP, you must manage and integrate other tools to ensure a comprehensive billing stack. Further, the responsibilities such as monitoring tax thresholds, applying for sales tax registrations, reporting, documentation, compliance, and so on also still rest with you. On the other hand, MoRs assume complete responsibility for the payment and the liabilities associated, restricting your role to only ensure they pay you.
Is Cleeng a Merchant of Record? What does Cleeng do for you?
Cleeng acts as a Merchant of Record for broadcasters, handling the entire spectrum of financial and legal complexity of payment processes.
Cleeng's billing solution: Merchant is a specialized subscriber billing and tax management solution for media and broadcasting companies. It is equipped with features to automatically calculate regional tax rates based on your subscriber's location.
If your customer applies any promotions or coupons, the backend is intelligently designed to ensure that the tax fee automatically updates. It also clarifies to subscribers how their purchase fees meet regional digital sales tax obligations.
Additionally, Merchant doubles as your compliance coordinator by contracting directly with your PSP to fulfill all compliance requests.
Finally, it also reduces the tedious process of sorting through fees—taxes, revenues, refunds, and surcharges—by consolidating reports from different payment service providers.
Thus, with Cleeng as your Merchant of Record, you can effectively simplify payments and taxes and focus on what matters most: creating the best content experience and growing your platform.
Eliminate painful fees and penalties from OTT payments
with Cleeng as your Merchant of Record
