New obligations for digital platforms: according to the OECD and the European Union

Introduction

In the digital economy, virtual platforms are fundamental pieces and should be considered key contributors to the tax compliance of users and others intervening in them.

The OECD has issued very interesting technical documents on the tax use of such platforms and, for its part, the European Council has adopted regulations obliging operators of digital platforms to provide, from 2023, information on relevant operations of the participating traders, which will be the subject of this publication.

The market for these platforms, which make possible a wide and varied range of transactions of the increasingly widespread “sharing economy[1]” and “gig economy”[2], is growing progressively[3].

They are digital infrastructures that allow two or more people to interact and carry out transactions (clients or consumers, suppliers of goods and services, producers, facilitators, owners of goods, advertisers, etc.), positioning themselves as intermediaries or facilitators of said businesses.

For this, these platforms make available to users, information and tools to be able to carry out their transactions.

 

Tax risks and opportunities of the development of digital platforms

Given these new circumstances, the Tax Administrations should review their strategies to devote greater attention to a growing number of taxpayers who are obtaining income through such spaces, not only in control actions but also in the necessary tax facilitation and assistance.

The activities carried out through these platforms are not easily detectable by the Tax Administrations, therefore, there is not a sufficient feeling of risk to deter breaches. This is because these new forms of economy are more informal, with tight deadlines, and do not require official records.

Being indifferent to the advance of these new economies based on such platforms can lead to distortions of competition with traditional companies and affect pre-existing rights, and this with implications that go beyond tax matters[4].

On the other hand, these platforms also bring opportunities for the TAs, in the sense of attracting to their scope certain activities previously carried out in the informal economy (for example, technical, professional, repair services, etc.), where transactions and payments are now recorded electronically. It is necessary to propose a clear set of rewards and penalties that lead to a minimization of compliance costs for both the TAs and the taxpayers.

 

The obligation of platforms to report information to tax authorities

In this context, some countries have introduced – or plan to introduce – measures that empower the Tax Administrations to collect information from these platforms, regarding income received by the participating vendors.

Given that the platforms are facilitating these transactions without national limits, there are risks regarding effective compliance with the national regulations on information reporting, in particular, when the platform operator is not in the respective country.

At the same time, platforms that facilitate transactions to users based in different jurisdictions may face a wide variety of formats and requirements for the various national reports, which can lead to increased costs and the imposition of barriers potentially harmful for the future development of their businesses, the OECD warns (2019 and 2020).

 

The OECD model of reporting rules for digital platform operators

It is in this context that the OECD (2020) has developed a model of rules for reporting, which could be adopted by interested jurisdictions on a uniform basis, to collect information on transactions and revenue earned by vendors participating in these platforms, in order to contain the proliferation of national reports with different requirements and formats and thus facilitate the automatic exchange of information.

The general architecture of the rules has three dimensions:

  • A specific scope of transactions to be reported to the respective TAs, focused on accommodation, transportation, and other personal services.
  • Broad scope of platform operators and vendors, to ensure that as many relevant transactions as possible are being reported.
  • Due diligence and reporting rules ensuring that accurate information is obtained without imposing unduly costly procedures on platform operators.

 

New European reporting standards applicable to digital platforms.

For its part, the European Council approved last March the Seventh Directive on Administrative Cooperation (“DAC7”), establishing new common rules for the entire European Union (EU), which require that digital platforms report the income obtained by sellers in their platforms to the respective tax authorities. The new rules also extend the scope of the automatic exchange of information between EU tax officials to information reported by digital platform operators, so that this data is shared with the EU tax authorities who need them.

The new rules, which are largely inspired by the OECD Model Rules, will apply from January 2023, and cover platforms located inside and outside the EU. They include “any software, including a website or part thereof and applications, including mobile applications, accessible by users and that allows sellers to connect with other users for the purpose of carrying out the relevant activity, direct or indirect, for such users”.

Liable platform operators are those who have a direct connection with a Member State (for example, the platform is tax resident, is incorporated in accordance with the law, has its headquarters, or has a permanent establishment in a Member State); that facilitate the relevant activities of reportable sellers (residing in a Member State); or they facilitate the rental of real estate located in a Member State. Non-EU members may be exempted from the reporting obligation to the extent that “equivalent information” has been exchanged under an agreement.

The relevant activities that carry the obligation to inform are the rental of real estate, personal services that involve time or task-based work and that were facilitated by a platform, the sale of goods, that is, any tangible property, and the rental of any means of transport.

The obligation to report refers to people, companies, and legal entities that carry out a relevant activity and are residents in the EU or who rent real estate in an EU Member State through a digital platform. Sellers who have had less than 30 relevant activities for the sale of goods with a consideration lower than 2000 euros during the reporting period are excluded from the report, among others.

The information that must be reported includes the identity of the seller (name and address), the payment received or credited, and the tax identification data.

Platform operators will need to close the user account of any reportable seller who has received a reminder twice to provide the relevant information and has not done so.

 

Importance of virtual platforms in VAT collection

Digital platforms must play an important role in the collection of VAT or similar tax, according to OECD (2021), especially with regard to digital goods and services provided by foreign companies.

Some key steps are recommended for tax authorities:

  • Study and understand these new economies, including their main actors and economic sectors involved.
  • Evaluar la necesidad de una decisión política tributaria en el IVA para proteger o ampliar la base impositiva y minimizar cualquier distorsión económica.
  • Determine the best implementation approach, which could probably involve the responsibility of digital platform operators in data reporting and tax collection

The taxability of these operations will probably generate new obligations for providers and digital platforms, as well as new management challenges for the TAs.

Tax simplification may include thresholds for registration and/or collection; accounting records and reporting simplifications; withholding mechanisms and, without doubt, the necessary awareness, education, and outreach activities.

 

Bibliography

  • OECD (2019). “The Sharing and Gig Economy: Effective Taxation of Platform Sellers. Forum on Tax Administration”.
  • OECD (2020). “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy”.
  • OECD (2021). “Digital platforms have an important role to play in value added tax policy in the sharing and gig economy”.

[1]It is an economic system in which goods and services are shared and exchanged through digital platforms. The idea is that each user is a consumer and provider, offering something they have to someone who needs it. Everything can be shared if you have the correct information and the secure means to carry out the transaction, say those who promote this economic model.
[2] It is a model of temporary work economy, of short duration, in which there is not an employment dependency relationship as between employers and workers, but between independent parties who agree on a specific job.[3] According to OECD (2020), the gig economy alone will grow from US $ 15 trillion in 2014 (5% of the income of all sectors) to $ 335 trillion in 2025 (50% of the income of all sectors).
[4]As an example, it is important to bring up the legal precedents of the United Kingdom (2021) considering the drivers of UBER vehicles as workers and of Spain, concluding that the “riders” of GLOBO (2019) and DELIVEROO (2021) are employed workers and those platform companies are not simple intermediaries.

 

Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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