Tradeshift announced Tuesday a partnership with Baiwang, a Chinese provider of tax-related services and one of the two government-approved companies to provide tax control hardware and software to implement China value-added tax (VAT) reform. This shift represents an important transition from business tax (BT) to VAT in China, which means the country will increasingly be aligned to international tax practices and is likely to further facilitate cross-border trade with greater transparency than before.
New Requirements, New Needs
With the new VAT requirements, China will have one of the most complex sets of business tax codes and compliance requirements on a global basis — its complexity rivals that of Brazil — which is why this partnership is important. As Tradeshift co-founder and CEO Christian Lanng explained, “Tradeshift’s platform will deliver billing, e-invoicing and procurement services to Chinese businesses.” Further, “It will create a smooth and seamless transition to VAT, and make cross-border trade easier for global companies, including those in the U.S.”
China’s VAT reforms and new requirements are planned to be completed and implemented during calendar year 2016. Yet not all industries will be affected by this new tax reform. Those that will have to comply with this new tax reform include construction, real estate, financial services and consumer services.
Baiwang and Tradeshift
Baiwang is playing a key role in this transition, adding value to the invoicing process by helping companies to issue, deliver and archive invoices in a single solution and portal. In addition, it is transforming invoices from paper to electronic documents — another material benefit for participants in the program.
In working with Tradeshift, Baiwang will embed additional capabilities as part of its solution, including helping businesses meet cloud-driven tax compliance and reporting requirements, enabling tax-related financing needs and helping drive corporate liquidity/credit through ecosystem participants and enabling transactional visibility and transparency.
“By partnering with Tradeshift, we’re aligning with the government’s goal to modernize its business technology infrastructure, which will play a major part in supporting China’s five-year plan,” said Jessie Chen, CEO of Baiwang.
A Big Announcement — But One That Raises Additional Questions
Our initial analysis suggests this is an important partnership and the entire industry should pay close attention. Our research team believes that once implemented, it will likely accelerate the pace of adoption of e-invoicing globally, given the size of the Chinese economy and the industries that are impacted by new VAT requirements.
However, the announcement also raises a number of questions.
For example, will Tradeshift become embedded and accessed within the Baiwang platform, or will it serve as the core platform itself for Baiwang? How will it be integrated into Tradeshift Pay? What will the economics of system usage look like for users? How will the platform assure invoicing compliance for multinationals with operations or subsidiaries in China? Will it include supplier management capability? Will the platform offer comprehensive tax compliance and reporting?
We look forward to covering the Baiwang-Tradeshift partnership as more details become available and as the relationship transitions from concept to execution.