Digital Platforms: where tax and legal teams can provide strategic value

Digital platforms in a changing business landscape

Platforms are digital ecosystems that facilitate new ways of working ¹. They connect producers and consumers, buyers and sellers, all within a dynamic, interconnected network, breaking down traditional trade barriers and unlocking unprecedented value. At a high level, platforms help to improve the mutual accessibility of resources and participants on an as-needed basis. These platforms, unlike traditional business models, can take various forms, each with its own route to market and monetisation strategy. We can broadly classify them into four key types¹:

• Aggregation platforms such as marketplaces and broker platforms, connect users with relevant resources, product and services and facilitate transactions.
• Mobilisation platforms such as supply networks and distribution operations, incorporate standardised processes, ensuring consistency and efficiency across an entire network through collaborative action, task management and data sharing. They provide real-time visibility into the status of resources, processes, and progress towards a common goal, prioritising long-term relationships over isolated and short-term transactions.
• Learning platforms facilitate knowledge transfer and shared learning, fostering deep, trust-based relationships where participants realise greater potential through collaboration.
• Social platforms, including familiar social networking sites, focus on building communities and fostering long-term relationships around shared interests.

This shift to platforms is a fundamental change driven by compelling benefits and growing consumer demand. Deciding which customers to serve, what solutions to offer, and how to reach and monetise those offerings are all essential considerations in crafting a platform strategy.

These strategic choices, in turn, influence the platform's route to market - through direct sales, partnerships, or a combination of both - and its monetisation model, which might range from perpetual licenses to subscription-based or usage-based models. Unlike traditional businesses that often grapple with rising costs as they grow, platforms offer unparalleled scalability. They can grow rapidly without the burden of traditional overheads, making them efficient and adaptable. As more users join, the platform's value increases through network effects, fuelling a cycle of growth and innovation.

The use of platforms is widespread and impacts many different businesses across geographies and industry sectors, demonstrating its broad application and benefits. From e-Commerce giants to ride-sharing apps, platforms are reshaping how businesses operate and interact with their customers and each other.

How GenAI can amplify the power of platforms

The emergence of Generative AI (GenAI) adds another layer of opportunity, pushing the boundaries of what platforms can achieve. 

We are already seeing this future in action. Cloud computing providers are simplifying AI development through their platforms, allowing businesses of all sizes to create intelligent chatbots, automate tasks, and unlock the power of data analytics.

The platform revolution is not confined to the technology sector; it is sweeping across industries and transforming the way businesses operate in every corner of the economy. From financial institutions reimagining banking services through open banking platforms to travel companies aggregating services and personalising experiences, the influence of platforms is undeniable. Fund managers are leveraging platforms to streamline investment processes and enhance client engagement, while insurance providers are using them to create innovative, data-driven products and services. The reach of platforms is vast and growing, demonstrating their transformative potential across the entire business landscape.

Implications for tax and legal teams

The shift towards platform-based business models necessitates a corresponding shift in perspective for tax and legal teams. The very features that make platforms attractive – global reach, network effects, and the integration of external players – create complex tax and legal implications.

We see the following as the key tax and legal issues to be considered regarding the development and deployment of platforms in their businesses² :

The business imperative for tax and legal teams

Proactive engagement with tax and legal teams in the early design and planning stage of digital platforms allows tax to play a strategic role, ensuring compliance and other considerations are embedded from the start. For instance, there may be grants and incentives that can be applied, or other value chain considerations to maximise value for the business. 

By integrating tax and legal perspectives upfront, businesses can navigate the complexities of global operations, value attribution, and evolving regulatory landscapes with greater confidence. This approach helps to mitigate significant risks, such as potential regulatory penalties, the invalidity of contractual terms, and civil liabilities that can arise from non-compliance. Crucially, it enables the identification and capture of opportunities for tax optimisation and value creation that might otherwise be missed.

Moving forward: embracing digital platforms

Digital platforms are an every-day part of modern business. For tax and legal leaders, this means moving beyond traditional reactive roles. By embracing platform-based models, integrating GenAI applications, and being proactively involved, tax teams are well placed to help businesses unlock value in an increasingly interconnected business environment.

Tax teams should engage actively with business, legal, and technology teams to ensure tax implications are understood, addressed, and integrated into every stage of platform development and deployment. This proactive stance will empower your business to unlock unprecedented value and thrive in the increasingly interconnected global environment.

References

1. Adopting a digital platform strategy to drive growth | Deloitte Insights

2. Digitalisation of Supply Chains: The tax and legal talking points | Deloitte UK