Executive Summary
The rise of the sharing and gig economy has fundamentally transformed a number of industries within just a few short years. Digital platforms have been at the centre of this (r)evolution. Continuous technological advancements, not least the ability to collect and analyse vast amounts of data, have allowed digital platforms to successfully implement innovative business models that have created “new ways of doing things”, based on the sharing of assets (goods and services) rather than on traditional ownership-based concepts. This transformation reflects consumers’ growing preference for more flexible on-demand access to assets and services, particularly among younger people, and the interest of private individuals and businesses in the opportunities this creates to monetize (under)utilized assets and labour.
Digital platforms’ success in facilitating the growth of the sharing/gig economy and in further stimulating and diversifying it, has already disrupted the sectors of transportation, tourism and hospitality, professional services and finance. New sharing/gig economy entrants have fundamentally challenged the position of long-established traditional players. And this is expected to be only the beginning. Traditional players are entering the platforms economy, benefitting from the potential it offers to restore and/or generate demand at relatively low cost. Meanwhile, any other industry can potentially face change from the emergence of sharing models.
This transformative change creates challenges for regulatory frameworks across a range of areas, including for Value Added Taxes/Goods and Services Taxes (VAT/GST). Sharing/gig economy growth has triggered the entry into the market of considerable, and still growing, numbers of new economic actors carrying out activities in often new ways and with a non-standard employment or work status.
This has raised questions whether existing VAT/GST frameworks are sufficiently equipped to capture this new economic reality efficiently, notably to protect VAT/GST revenue and minimise economic distortions. It also raises the question whether this “new way of doing things”, not least the role of sharing/gig economy platforms, creates new opportunities to enhance compliance and administration.
This Report shows that there is no single, definitive, one-size-fits-all response to these questions. Policy responses are likely to differ across sectors and jurisdictions, notably in light of existing VAT/GST policy and administration frameworks. Sharing/gig economy growth is also still in its early stages, although it has already fundamentally transformed a number of industries, and it is still continuously changing and evolving.
Against this background, this Report sets out the core components of a comprehensive strategy for tax authorities to consider in designing and implementing their VAT/GST policy and administration response to sharing/gig economy growth. It reflects consensus among representatives from VAT/GST authorities worldwide and from key industry stakeholders, based on intense and inclusive analysis, consultation and experience sharing. In summary, these core components are as follows:
Acquiring the necessary understanding of sharing/gig economy activity, its main actors and business models, its main sectors, its size and growth potential. To support this assessment, a unique analysis of the currently dominant sharing/gig economy sectors of accommodation and transportation is included in this Report;
Assessing the need for VAT/GST policy action, if any, and its objectives (the “why” question). These are likely to include the protection of VAT/GST revenues and/or the potential to broadening the VAT/GST base, and minimising risks of competitive distortion;
Determining and implementing the appropriate VAT/GST policy and administration responses (the “how” question). These are likely to involve a role for sharing/gig economy platforms in sharing data and/or collecting the VAT/GST. In addition, a range of policy and administration measures can be considered to facilitate and simplify compliance for sharing/gig economy providers.
In discussing these components for a VAT/GST strategy in response to sharing/gig economy growth, and in providing guidance for their design and implementation, this Report notably presents the following findings and observations:
Jurisdictions’ main objective may not necessarily be to bring all sharing/gig economy activities within the VAT/GST net. A jurisdiction may for instance wish to first monitor evolutions across sharing/gig economy sectors so as to allow fast and targeted policy action when needed.
Jurisdictions may opt for a sequenced strategy, focusing their policy action first on the dominant sharing/gig economy sectors that may create the most immediate risks to VAT/GST revenue and/or competitive neutrality.
The preferred policy response is one that is consistent with the general rules and principles of the jurisdiction’s existing VAT/GST system and limits the introduction of new exceptions or special regimes. This notably reflects the desire of jurisdictions to ensuring an equal treatment of various distribution channels in a given market, be they traditional or digital.
Tax authorities will often face the difficult trade-off between the need to protect revenue and minimise competitive distortion, and the need to safeguard the efficiency of tax administration and to avoid undue compliance burden. The latter may point to an approach that minimizes the entry of high numbers of new sharing/gig economy actors into the VAT/GST system, perhaps with limited compliance capacity and knowledge of their tax obligations. The revenue and competitive consequences of this approach may be significant, when activity shifts from a limited number of established and largely VAT/GST compliant traditional operators to a large number of small sharing/gig economy operators that may remain outside the scope of VAT/GST (e.g. hotel activity vs. short-term vacation rentals). Bringing these new sharing/gig economy operators into the VAT/GST net may on the other hand create undue pressure on tax administration and compliance challenges for operators.
To support a balanced response to this challenge, this Report sets out a number possible measures aimed at managing the number of new economic actors entering the VAT/GST system, and at simplifying compliance obligations for sharing/gig economy providers. These include: considerations for the determination of a VAT/GST registration and/or collection threshold; presumptive schemes for determining the VAT/GST liability; accounting and reporting simplifications; split payment/withholding mechanisms for VAT/GST collection; the use of technology to facilitate VAT/GST administration and compliance; third-party reporting obligations; taxpayer education and other awareness raising activities.
The Report highlights the significant opportunities created by the central role of digital platforms in sharing/gig economy activity and growth, fuelled by advanced data analytics, in facilitating VAT/GST administration and compliance. It considers approaches for the implementation of data reporting obligations notably leveraging on the 2020 OECD Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing/gig Economy; the collection of VAT/GST by sharing/gig economy on the sharing/gig economy supplies that they facilitate; and approaches to educating sharing/gig economy providers on their VAT/GST obligations.
In presenting these policy options, this Report points at the considerable opportunities created by the role of digital platforms and big data, for greater visibility and traceability of economic activity and for formalisation of previously informal economic activity particularly in developing economies.
The Report finally presents a number of supporting measures for the efficient and effective operation of these policy options, including targeted risk management strategies through extensive use of third party data to assist compliance monitoring and data analysis; deterrents for non-compliance; and/or robust international administrative co-operation as appropriate.