ADDRESSING TAX COMPLIANCE ISSUES FOR LOAN-BASED PAYMENT TYPES: DEVELOPMENT OF THE TAX BUFFER MECHANISM AND ITS USE IN THE FINTECH INDUSTRY

Аннотация

INTRODUCTION role of fintech companies in the global economy The modern fintech industry is rapidly evolving, and the need for effective tax risk management. In facing numerous challenges related to tax this context, the development of mechanisms like regulation and shifting economic conditions. One the Tax Buffer becomes a key element in ensuring of the most complex tasks is managing tax the stability and reliability of financial operations. obligations in the context of fixed loan amounts, particularly in situations where tax rates fluctuate The purpose of this paper is to explore the across different jurisdictions. This creates development and application of the Tax Buffer significant difficulties for both financial mechanism in the fintech industry and to analyze institutions and their clients, necessitating its impact on optimizing tax obligations and innovative solutions that can ensure flexibility and minimizing risks associated with changes in tax accuracy in tax calculations. legislation. The relevance of this topic is driven by the growing https://www.theamericanjournals.com/index.php/tajet 9 THE USA JOURNALS THE AMERICAN JOURNAL OF ENGINEERING AND TECHNOLOGY (ISSN – 2689-0984) VOLUME 06 ISSUE10 1. Operation Principle and Structure of the Tax legislation, driven by the varying approaches Buffer Mechanism states take in determining sales tax amounts. Taxation differs not only in rates but also in the To begin the discussion on this topic, it is rules of their application, which can significantly important to first explore the theoretical aspects affect the final prices of goods and services related to the activities of fintech companies. The depending on the state where the order is term "financial technology," or "fintech," refers to processed and delivered. As a result, organizations the use of modern technologies to optimize are forced to recalculate costs because goods may financial operations and improve the accessibility be ordered in one state, where the tax approach of financial services. Fintech products and differs from another. For example, if a customer solutions are aimed at simplifying financial places an order in one state but later changes the management for both businesses and individuals, delivery address to a state with a different tax rate, made possible by integrating specialized software the total order amount must be recalculated. In and algorithms that operate on various devices, most cases, this does not pose a problem, as including computers and mobile phones. platforms can automatically update the invoice One of the key characteristics of most fintech and provide the customer with the correct amount. companies is their drive to compete with However, the complexity arises when it comes to traditional financial institutions by offering more loans [2]. flexible and accessible services. These companies The situation with taxes becomes more typically target audiences underserved by complicated when a loan agreement is involved. conventional financial organizations. For example, Upon signing a loan agreement, the payment Affirm provides quick loans for online purchases, amounts are fixed and cannot be altered. However, eliminating the need for customers to use credit if the product is delivered to a different state with cards. Although interest rates on such loans can be a different sales tax rate, a legal and financial issue high, the company offers credit options to people arises. The tax amount should, in theory, change, with limited credit history. requiring a revision of the agreement terms, but Other examples of fintech include companies like since they are already established, this is not Better Mortgage, which offers online mortgage possible. services, and Tala, which provides microloans in Such nuances in state-specific legislation become a developing countries based on data analysis from critical problem for fintech companies that offer users' mobile devices. These companies aim to loans on goods or services, as well as for e- offer more convenient and accessible financial commerce platforms operating across multiple products compared to traditional banking states. Companies are forced to adapt their tax and solutions. The fintech sector plays a significant role financial strategies to account for potential sales in accelerating the digitization of financial services tax changes when delivery locations shift [3]. For a and transforming traditional approaches to clearer understanding of this issue, Figure 1 below managing financial operations [1]. presents a map illustrating differences in sales tax Currently, there are significant challenges in tax rates by state [4]. https://www.theamericanjournals.com/index.php/tajet 10 THE USA JOURNALS THE AMERICAN JOURNAL OF ENGINEERING AND TECHNOLOGY (ISSN – 2689-0984) VOLUME 06 ISSUE10 Fig.1. Sales Tax by State 2024. pricing platforms to ensure that the correct tax Providing a map showing varying tax rates is rate is applied bas