Tax implications of Affiliate programs

Affiliate programs are having a profound impact on driving online sales. There are many tax implications concerning such programs. This is an important and fast developing area.

Internet based retailing is increasing exponentially due to the availability of cheap connectivity such as broadband services. This development has spawned entire new methods of web based advertising such as Affiliate programs. Affiliates or intermediary webmasters drive business to commercial websites. Retail websites pay commissions to such Affiliates based on performance or sales generation. Sales tracking and payment processing may be evaluated by a range of methods such as:

· CPM – Cost per Impression
· CPC – Cost per Click/Search
· CPA – Cost per Action
· CPL – Cost per Lead
· CPS – Cost per Sale (Flat fee or percentage total based)

There are many tax implications concerning Affiliate programs for online retailers particularly in a cross-border context. The tax authorities may view the presence of Affiliates as sales agents of the e-Tailer in their jurisdiction. This could lead to undesirable direct tax consequences for the e-Tailer. There could be VAT implications also if the VAT authorities view the “point of sale” being in the tax jurisdiction of the Affiliate. Therefore, it is critical to structure the Affiliate Agreements in a tax-friendly manner. We will be pleased to assist in structuring new Agreements or performing a tax-healthcheck on existing ones. We can also advise on other important tax issues surrounding Affiliate programs.