How E-Commerce’s Influence Is Reshaping Global Supply Chains

E-commerce’s growing influence is reshaping the global supply chain, driven by developing countries with increasing online access in “mobile-first” communities.

While e-commerce businesses are thriving—global e-commerce revenue is expected to reach $4.32 trillion this year—the rapid emergence of online marketplaces as a primary channel to market has attracted new regulatory sensitivities. Market players are increasingly conscious of tax-driven changes as they shift their gaze to global expansion.

Represented by dominant market players such as Alibaba.com, Pinduoduo and JD.com, China has adopted a leading role in the global industry’s development, by connecting popular social media platforms with homegrown e-commerce giants.

A 20% US tariff on China imported goods, and the introduction of a 25% tariff on Mexico (an increasingly popular destination for relocating supply chains out of China), are prompting the industry to redefine traditional supply chain operating models.

Global E-commerce Expansion

E-commerce fosters high levels of cross-border trade by directly connecting global manufacturers to local consumers. This has helped expand global supply chains and transfer pricing models capable of navigating logistics, tariffs, and international tax regulations.

To remain competitive in a crowded and price-driven market, businesses are optimizing costs by diversifying into local sourcing and implementing flexible supply chain designs that balance cost efficiency, resilience, and tax policy effectiveness.

Cross-border supply chains must also adapt to varying regional preferences, regulations and customer expectations, while balancing their transfer pricing models between the efficiency and consistency of a centrally organized operation with the responsiveness and customizable market response of a substantial local presence.

Adapting Models

E-commerce supply chains are facing several new tax challenges, particularly as the cross-border tax regulatory landscape undergoes rapid change and uncertainty.

Rerouting supply chains. While technology has supported the growth of cross-border e-commerce distribution channels, changing de minimis rules—the exemption of import taxes on low-value goods—and trade tariffs have resulted in increasingly localized supply chains.

Localized supply chains—where products are sourced, warehoused, and distributed locally—have driven e-commerce businesses to set up local entities and functions that facilitate procurement, storage, and logistics in-country. Localization also helps manage changing de minimis rules and trade tariffs as goods are procured without needing to be imported.

Global trends are seeing de minimis rules revoked while trade tariffs are being applied and even increased. The US application of a 20% tariff on Chinese manufactured goods—and the intended removal of the de minimis application to goods subject to such tariffs—follows other examples such as Vietnam, which removed de minimis duty exemptions from Feb. 18.

Shifting to local-for-local transfer pricing operating models allows e-commerce businesses to mitigate these additional taxes and maintain competitive pricing points. Localization may also mean lower logistics costs and reduced foreign exchange risks because goods aren’t being imported or paid for in a foreign currency.

Decentralizing transfer pricing models. With tightening de minimis rules and tariffs increasing the viability of local-for-local operations, the role of centralized procurement hub models is simultaneously adapting. In our experience, e-commerce businesses are now considering decentralizing functions and risks to reflect the increased demand for locally sourced goods.

Central sourcing and pricing advantages from key supplier markets such as China remain foundational pillars of e-commerce strategy. But hybrid transfer pricing models—combining aspects of central sourcing functions and local-for-local operations—are viewed as potential solutions to the evolving cross-border commercial and tax environment. Such models retain the pricing advantages of central sourcing, while catering to local consumer product preferences and streamlining product mobility so that excessive related party transactions aren’t created until an actual customer sale.

Strategic supply chain planning around low-cost purchasing, managing the title transfer of goods, and efficient warehousing is critical to ensuring that transfer pricing models are adaptable without disrupting the business or causing transfer pricing policy inconsistencies.

Navigating BEPS, Uncertainty

Taxing online businesses. E-commerce is sensitive to the potential impact of Pillar One of the OECD/G20 global tax project—especially the uncertainty around the transitional nature of digital services taxes and the lack of clarity on their role alongside the faltering implementation of Pillar One regulations.

Businesses may be concerned about managing new Pillar One or digital services tax-related compliance requirements, particularly if the adoption of digital services taxes is purely at local country level without any international framework to standardize how the new taxes are administered or guidance on the prevention of double taxation between liabilities levied by digital services taxes versus local corporate taxes.

Pillar One aims to reallocate taxing rights away from the traditional international tax model reliant on a local taxable presence, toward revenue-generating markets. This shift in taxing rights could have a significant impact on the location of tax liabilities and ultimately the global effective tax rate of cross-border transfer pricing models.

Monitoring the rollout of minimum tax regulations. Pillar Two also represents a challenge to e-commerce businesses. This includes those that are “intangible” in nature—that operate without traditional brick-and-mortar setups. Factors including heavy reliance on high-risk intangible elements such as software platforms, algorithms, brand names, and local customer lists, as well as how to account for their tax impact under Pillar Two calculations, ensure that e-commerce businesses remain vigilant on early Pillar Two disputes and outcomes.

Pricing advantages and thin margins from low-operating cost distribution models enable e-commerce viability. The introduction of minimum taxes and the impact of substance-related carveouts could dramatically affect the tax efficiencies of existing commissionaires and low-substance distribution entities.

The implication for tax incentives is also unclear, with an expectation that tax regulators may start restructuring tax incentive programs to emphasize local economic substance.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Eu-Kim Chan and Andy Winthrop are senior directors with Alvarez & Marsal Hong Kong.

Beilu Ge is a director, performance improvement, with Alvarez & Marsal Shanghai.

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