Modern AI-Agentic Commerce and Tax Compliance

With the rapid evolution of AI technologies, a new chapter of AI-centered commerce has emerged, and its fast pace of evolution hasn’t gone unnoticed. Autonomous shopping, facilitated by leveraging AI agents, is giving rise to a new type of commerce, commonly referred to as AI-agentic commerce. 

The modern commerce that relies heavily on the use of independent AI agents is a much more sophisticated solution compared to generative AI solutions, which are mainly a two-way street based on the ask-answer scenario. 

The Agentic AI commerce is founded on independent AI agents that are enabled to process the end-to-end purchase process, from online research that results in the discovery of a “desired” best-in-class option, to the delivery of the product to the identified address. 

How does agentic commerce function in simple words? This ultra-modern type of shopping is based on AI agents. AI-agents, sophisticated software programs, operate based on the stored and reviewed payment data of their users. 

Practically, shopper uses credit cards or digital wallet solutions for their online shopping, and the transaction-payment data is stored on some level by the payment processor. The AI-agent, which is integrated with the payment processor, reviews and stores the payment-transaction related data, to the “level or scope” that is predominantly used to identify the shopping behaviour of the user of the AI-agent. 

Leveraging the sophisticated pre-configured reviewed metrics, the AI-agent “gets to know” the shopping behaviour of its user, and based on this finding, develops a shopping “mentality” of its user. The AI-agent “assists” its user to the level that it replaces its user when it comes to purchases of X to Z products. 

The actual buyer customizes this AI-driven shopping experience, and later on, is enhanced by the AI program, which will, in the future, “react” autonomously, so it will ease the entire shopping process for its user. 

AI Agentic Commerce 

What is the secret benefit of using AI agents for the online shopping experience? When we think about the online shopping experience, that being the purchase of goods, the acquisition of different kinds of services, in many of those occasions, we are speaking about a tedious, repetitive payment experience. 

Let’s think about the terms of the continuous payments of electricity bills, monthly subscription fees for various digital platform services, grocery shopping, and many others. On many occasions, we discuss repetitive tasks that are performed on a predefined basis. 

For these types of payments or shopping, we can leverage the use of AI agents, which are pre-configured in our way, and they will take charge of the entire end-to-end process from the order to the payment and delivery of the service or good. 

The AI-agent will ultimately save time for the registered user, which can be used for “more” dynamic tasks, that aren’t mainly based on repetition or time-consuming research for the best shopping experience when it comes to discounts on your favourite sneakers or hats. 

What is the general workflow of the AI shopping agent? The shopper who wants to leverage the AI-shopping assistant can pre-define the scope of activities that the agent shall pursue. The details of the instructions that the actual buyer will transfer to the AI agent vary depending on the type of shopping experience and the buyer’s specific needs. 

AI-Agentic Commerce and VAT Compliance 

How many parties are involved in the transactions empowered by the usage of the AI-shopping agents? This is one of the fundamental questions that tax officials must answer to determine to whom the tax collection responsibility belongs. 

It was a similar situation more than a decade ago, with the rise of the e-commerce business models and the rise of the platform economy. These business ecosystems have introduced entirely new sales transaction models, leaving the traditional supplier-buyer relationship. 

The rollout of the electronic commerce and platform economy introduced complexity and new participants in the supply chain. The introduction of new participants in the transactions, such as e-commerce marketplace facilitators, platform operators, overseas vendors, and the deemed supplier rules, changed the retail landscape forever. 

The birth and inevitable rise of AI-agent-supported commerce in the years to come is reshaping the traditional norms of the supplier-buyer relationship. The agentic commerce is based on three key entities: the supplier, intermediaries (AI agents), and buyers. 

Most of us who navigate the waters of digital commerce are aware that, when it comes to online retail, there are many different tax rules and regulations compared to offline retail transactions. The requirements used for determining the place of supply, to whom the responsibility to collect and remit the tax belongs, too; how many transactions exist when the marketplace facilitates the supply, are some of them. 

An example of the AI agentic transaction 

VAT compliance
Nick, who is living in Italy, instructs the AI agent to search the market for digital product X online. The AI agent locates the digital product under the settings previously defined by Nick and orchestrates the payment using Nick’s credit card.
The supplier of the digital product is a company based in the Netherlands, and it is the direct seller. (offering the supply through its website) One question we could ask is this: Can we approach this type of transaction as if it were the supply of a digital product directly to the end-user? 
Making a review of the situation in a purely logical manner, we can assume that there are three parties involved: an original supplier, an intermediary in the form of an instructed AI agent, and a customer (a natural person). Without an in-depth analysis, this business model is quite similar to a supply model, where we have an original supplier, a facilitating platform (when the sale is facilitated by it), an operator, and a customer. 
However, considering the concept of intermediaries as defined by EU VAT legislation, UK VAT legislation, and Sales Tax regulations in US states, it is safe to say that the intermediary should be a legal entity. The AI agent, following the nature of today’s provisions in these regions or states, isn’t a legal entity, and by nature cannot be seen by the eyes of tax law as an intermediary. 
Taking these facts into consideration, we have before us a direct type of supply, direct sale from the online digital service provider and end customer Nick, who lives in Italy. This now sounds pretty straightforward, right, and it looks not so difficult to validate the location of the customer, using the approach instructed by the EU VAT Directive, UK VAT notice, or the US state’s sales tax framework for remote sellers. 
However, with the participation of an AI agent/agents in the supply of digital services, the situation gets a bit more complicated, and it can very easily lead to wrongful tax calculation, and probably to wrong reporting. 
The AI agent that intermediates in these types of transactions could have a different IP address of the original buyer; could “use” or have a different billing address of the customer, if the service is received via mobile phone, it could have a different country code, and other differences. 

International VAT Rules for AI shopping bots 

When it comes to AI-driven commerce, the proper validation of customer data becomes even more critical than in cases where supplies are facilitated by a digital platform. The “levels” of unknown for this new, modern but rapidly evolving type of commerce are very high. 

Let’s take into very possible situation the facts that the AI agent IP address is in country X, and the IP address of the customer is in country Z. If the suppliers tax validation system, is only driven by validating one element to define where the customer is based, it has significant chance to perform wrongful calculation, following the IP address of AI agent(as an intermediary) who “looks” as the entity performing end-to end purchase of the service. (even if the service is acquired and used by the customer in country Z). 

One of the most practical advice when it comes to defining the place of the supply when it comes to AI-driven agentic commerce, is to use at least two(better three) validation points to determine who the actual buyer of the service is. 

Incorrect tax calculation will result in erroneous reports, leading to underpayments and fines. Cross-border sales tax for AI agent transactions is simply a work in progress. There are currently no specific tax frameworks developed to address the intricacies of AI-agentic commerce. 

As was the case with the birth and development of the e-commerce business model and platform economy, many years need to pass until the developed countries develop a proper and practical tax regime that will be aligned with the realities of the cross-border sales tax for AI agent transactions.

The tax officials, tax managers, accountants, providers of AI-supported digital products and services are to a large extent in the same boat when it comes to understanding the International VAT rules for AI shopping bots. The mutual understanding is lacking a tax framework. It is essential to consider that the VAT rules for the mere purchase of “AI” supported digital products or services are still a concept under development for the proper imposition of VAT rates or a trigger for mandatory registration for income tax in some countries. 

VAT consultancy for agentic commerce 

We at 1stopVAT are closely following the development of tax frameworks for the AI-supported agentic commerce. We are well aware of the scope of challenges that suppliers of digital products or services may face when the AI agent participates in order orchestration and delivery of the digital product to the actual buyer. 

This is why we have customized our approach when it comes to VAT consultancy for agentic commerce. 

AI shopping agent VAT compliance services 

Our team of tax advisors continuously monitors the development of sales tax regulations regarding the tax responsibility of software companies that provide access or develop AI shopping assistants. We are on track when it comes to understanding of these rules in different countries, which is why we have prepared a specific AI shopping agent VAT compliance services. 

AI agent intermediary tax compliance solutions