3. Addressing the VAT/GST implications of the sharing/gig economy growth: A range of tax policy and administration options - The role of digital platforms
This chapter of the report analyses a range of potential VAT/GST policy and administration options that jurisdictions may wish to consider in designing their strategy to address the potential VAT/GST pressures created by the growth of the sharing/gig economy.
In particular, it considers a range of non-mutually exclusive tax and administrative measures to facilitate and enhance VAT/GST compliance in the sharing/gig economy, in particular through the simplification of VAT/GST compliance processes, the collection and effective use of data and (alternative) approaches for the collection of the VAT/GST due on sharing/gig economy supplies (in Section 3.2). This is complemented with a detailed analysis of the potential roles of digital sharing/gig economy platforms in facilitating and enhancing VAT/GST compliance in the sharing/gig economy (in Section 3.3). While recognising that there is no one-size-fits-all solution, the key objective is to discuss associated policy considerations (opportunities and challenges) and assist policy makers in their efforts to evaluate and develop the legal and administrative framework in their jurisdictions taking into account their own national circumstances and key policy motivations.
As discussed under Chapter 2, the key policy motivations for the development of a VAT/GST strategy in response to sharing/gig economy growth are likely to differ across jurisdictions. These will depend on a number of factors, including the size and growth of (a sector of) the sharing/gig economy in a given jurisdiction, its possible impact on the VAT/GST base and revenues, and the competitive pressure it creates for the economic equivalent sector(s). It is recognised that a jurisdiction’s policy priority may not necessarily involve the levying of VAT/GST on all sharing/gig economy activities but may for instance be aimed at addressing the need to acquire an appropriate understanding of the sharing/gig economy development and to monitor any potential risk of VAT/GST base erosion so as to inform future policy decisions as appropriate.
Given the diversity of policy motivations and challenges for jurisdictions, there is no one-size-fits-all response to the VAT/GST implications of the sharing/gig economy. It is reasonable to expect that the design and implementation of potential measures will reflect the differences in policy and legislative environments, tax authorities’ distinct challenges and key policy objectives and the diversity of sharing/gig economy business models. It is for individual jurisdictions to determine which measures are most appropriate for their particular circumstances. The key objective of this report is to identify potential options and discuss associated policy considerations (opportunities and challenges) to assist policy makers in evaluating and developing their policy and administrative response taking into account their national specificities.
This report recognises that the VAT/GST status of the sharing/gig economy actors (including platforms and underlying providers) in a given jurisdiction will generally be determined on the basis of that jurisdiction’s normal VAT/GST rules, often on a case-by-case basis in light of specific facts and circumstances. This includes the question whether a sharing/gig economy platform acts as a principal or as an agent for VAT/GST purposes. Indeed, as set out in Chapter 1, the activities carried out in the sharing/gig economy are generally not new and they are in principle captured by normal VAT/GST rules. It is the use of technology to facilitate and deliver these activities that is new and that creates challenges and opportunities for VAT/GST policy and administration, as sharing/gig economy platforms generate and stimulate the activity of potentially large numbers of new economic actors that may become subject to VAT/GST under normal rules. This new commercial reality may create considerable pressure for VAT/GST administration, as it may notably bring large numbers of private individuals into the VAT/GST system with limited VAT/GST knowledge and/or capacity to comply (i.e. micro-businesses, SMEs), whose activities may be hard to track and involve VAT/GST revenues and competitive distortions that are limited on an individual level but that may be significant at an aggregated level. The aim of this Chapter is to present a range of possible options for tax policy and administration to address these challenges.
It is recognised that the tax authorities may face the difficult challenge of balancing the need to protect revenue and minimise competitive distortions, which may point towards bringing large numbers of new and relatively small economic actors into the VAT/GST system, with the need to safeguard the efficiency of tax administration and to avoid undue compliance burden for sharing/gig economy actors. This may often be a complex exercise that requires careful consideration of a range of different parameters, including the national policy context and the specifics of a given sharing/gig economy activity or sector.
Against this background, this chapter considers a range of non-mutually exclusive policy and administration measures for the efficient application of VAT/GST to the sharing/gig economy. These include possible options to simplify VAT/GST administration and compliance as well as approaches for the efficient and effective collection of tax relevant data and for the collection of the VAT/GST due on sharing/gig economy supplies.
These measures can be grouped in two broad categories as illustrated in Figure 3.1.:
Source: OECD analysis.
Broad VAT/GST policy and administration measures, which are available for potential application to both traditional activities and similar sharing/gig economy activities. These present a range of possible measures for tax authorities to implement an equal treatment of traditional and corresponding sharing/gig economy sectors, while minimising risks of undue administrative burdens and compliance costs. These measures essentially aim at managing the number of new economic actors entering the VAT/GST system, and at simplifying compliance obligations for sharing/gig economy providers, notably by using the opportunities offered by technology to facilitate reporting and VAT/GST collection. These options are further analysed under Section 3.2. and include:
Measures focused specifically on digital platforms in light of their prominent role in generating and facilitating sharing/gig economy activities:
Educating the underlying suppliers on their VAT/GST obligations;
Providing data to the tax authorities, so as to allow these authorities to monitor the sharing/gig economy, to facilitate compliance and administration and/or to manage compliance risks;
Collecting the VAT/GST and/or assuming a type of liability for the VAT/GST on the sharing/gig economy supplies that they facilitate.
These measures on possible roles for sharing/gig economy platforms are further considered under Section 3.3. This section relates exclusively to platforms that facilitate supplies by sharing/gig economy providers to their customers, but which do not have the obligation to report or pay the VAT/GST on these supplies under normal VAT/GST rules (i.e. they act under the agent role). They do not relate to sharing/gig economy platforms that already have the obligations to report and/or remit the VAT/GST on sharing/gig economy supplies, notably as a consequence of their treatment as the VAT/GST supplier of these supplies under normal rules. They also do no relate to the normal VAT/GST obligations for digital platform in respect of the commissions or fees that they collect for their activities from the sharing/gig economy provider or the user or both. This section builds further on the 2019 Digital Platforms report, highlighting the possible differences in the operation of sharing/gig economy platforms and their impact on their possible roles in supporting VAT/GST compliance (OECD, 2019[1]).
As discussed under Chapter 2, there may be no good reason or justification, in principle, for a different VAT/GST treatment of sharing/gig economy activities compared to similar or identical activities in the traditional or broader platform economy, only because sharing/gig economy activities are facilitated via a different (digital) channel. The application of normal VAT/GST rules and compliance obligations for both sharing/gig economy providers and suppliers operating under similar circumstances in the traditional economy or in other sectors of the platform economy, will normally achieve competitive neutrality from a VAT/GST perspective.
It is recognised, however, that jurisdictions may wish to consider specific measures tailored to the specific features of the sharing/gig economy (e.g. the availability of technology to support compliance) or to achieve broader policy objectives (e.g. monitoring sector developments), which could ultimately result in a different tax treatment. In practice, in designing their sharing/gig economy policies, tax authorities may need to consider the appropriate trade-off between the objective to enhance compliance and revenue collection in the sharing/gig economy and the possible differences in the VAT/GST treatment of sharing/gig economy operators that may result from these policies (e.g. as a consequence of the application of a presumptive scheme). Identifying the appropriate rationale for differences in VAT/GST treatment, where appropriate, is an inevitably challenging task for tax authorities.1 To safeguard the overall integrity of their VAT/GST system, tax authorities are generally advised to minimise complexity and administrative burdens and compliance costs that may result from specific VAT/GST rules for the sharing/gig economy and to minimise their vulnerability to non-compliance and evasion.
Chapter 4 of the report discusses a number of risk-based compliance and enforcement approaches for tax administrations to consider in ensuring appropriate levels of compliance with the measures considered in Chapter 3.
This section considers a number of broader tax policy and administration options that essentially aim at managing the number of new economic actors entering the VAT/GST system, and at simplifying compliance obligations for sharing/gig economy providers, notably by using the opportunities offered by technology to facilitate reporting and VAT/GST collection. The relevant analysis builds on the recognition that the VAT/GST status of the sharing/gig economy providers and other actors in a given jurisdiction will generally be determined on the basis of that jurisdiction’s normal VAT/GST rules, often on a case-by-case basis in light of specific facts and circumstances.
3.2.1. The application of registration and/or collection thresholds
Many VAT/GST regimes apply one or multiple thresholds typically aimed at small businesses below which such a business is relieved from the obligation to charge and remit VAT/GST on its outputs and from the associated reporting obligations. These thresholds are generally based on annual turnover. Broadly two categories can be distinguished: registration thresholds that relieve a business from both the requirement to register and to collect the VAT/GST; and collection thresholds where a business is required to register for VAT/GST, even when their turnover is below the threshold, but is relieved from collecting the VAT/GST until it exceeds the threshold. Thresholds may vary according to sector or type of activity and sector.
The impact of sharing/gig economy growth on VAT/GST policy and administration, including on revenues and competitive neutrality, is likely to depend on a VAT/GST system’s threshold policy:
a jurisdiction with a relatively high VAT/GST registration or collection threshold (in general or sector-specific) may in particular be faced with VAT/GST base erosion and revenue losses in sectors where sharing/gig economy growth leads to a shift of activity from a relative small number of economic operators that are above the threshold (e.g. hotels) to a multitude of relatively small and new economic operators (e.g. owners of real estate that is offered for short-term rental) that are below the threshold. This may lead to rapidly increasing revenue losses and market distortions, including operators organising themselves to keep their activities below the threshold so as to remain competitive.
a jurisdiction with no or a low VAT/GST threshold, may face the administrative challenge of large numbers of small and new economic operators entering the VAT/GST system as the consequence of sharing/gig economy growth, often with a limited capacity to understand and comply with their VAT/GST obligations (e.g. gig workers). This may also increase the number of taxpayers entitled to input VAT/GST deduction (e.g. VAT/GST incurred on fuel costs by drivers in the transportation sector) with a correspondingly high administrative burden and potential revenue risks, as the assets used (e.g. cars or houses) will often be used also for private purposes.
Thresholds can thus be a useful tool for jurisdictions in managing the impact of sharing/gig economy growth on VAT/GST revenues and administration. A high threshold may reduce the pressure on the VAT/GST administration from large numbers of new small businesses entering the system with costs and compliance risks that may be disproportionate to the VAT/GST revenues raised. For sharing/gig economy providers, it avoids VAT/GST compliance costs that could often be disproportionate to their turnover. A relatively low threshold can limit risks of base erosion and competitive distortion and act as an incentive for businesses to formalise their activity. Designing this tool will thus be a delicate balancing act. There is no one-size-fits-all answer to what constitutes a “good” level for the VAT/GST threshold. A number of factors need to be considered by a jurisdiction when setting the level of threshold. The level of the threshold will typically be the result of a trade-off between minimising compliance and administration costs, and the need to protect revenue and avoid competitive distortion.
When considering the use of VAT/GST thresholds as a tool to manage the VAT/GST impact of sharing/gig economy growth, the following factors may be considered:
the core features of the relevant sharing/gig economy sector, particularly its size and growth perspective and the typical profile of the (new) economic operators that will become active as sharing/gig economy providers. The answer to these questions may help to indicate whether the revenue risks and the risks of competitive distortion are considered sufficiently important to warrant policy action – and to what extent a shift of activity from traditional economy operators to sharing/gig economy operators can lead to such loss of revenue and competitive distortion and to increased pressure on tax administration. The outcome of this analysis may for instance be different for a sector that is labour-intensive and requires limited financial investment (e.g. “gig-work”), than for a sector that is more capital intensive (e.g. short-term rental). The former may attract high numbers of new economic operators with perhaps less capacity to comply with VAT/GST requirements and challenging for tax administrations to track. The latter may be less numerous and relatively easier to track, and could be presumed to have a higher capability to comply with their tax obligations;
the complexity of the VAT/GST regime and compliance obligations and the associated compliance costs for sharing/gig economy operators;
the availability of a simplified accounting and reporting regime for small businesses, including a simplified regime for calculating VAT/GST liability. The availability of such simplification measures could for instance justify a relatively low threshold for a given sharing/gig economy sector;
the capacity of the tax administration to manage and monitor a large(r) number of VAT/GST-registered taxpayers, including the administration costs connected with tax supervision and collection;
It is thus obviously a matter for each jurisdiction to determine the level of the threshold depending on its circumstances, with potential trade-offs between encouraging new economic activity and reduction of the cash/informal economy, and potentially impacting competition in particular sectors. In this context, the following aspects would merit further consideration by interested jurisdictions:
Consider the availability of a voluntary registration scheme for small businesses, including sharing/gig economy actors, who may be disadvantaged by the VAT/GST exemption. That may notably apply to businesses that wish to recover the VAT/GST on their inputs and/or that deal with VAT/GST registered customers who themselves only wish to contract with VAT/GST registered providers to avoid VAT/GST cascading (such cascading can result for unregistered providers passing on the cost of irrecoverable VAT/GST to their customers). The option for voluntary registration may also stimulate and accommodate business to organise their business with a view of soon exceeding the threshold (and who therefore immediately design their processes with VAT/GST). Such voluntary registration could be allowed under the condition that the business remains registered for a minimum period of time so as to avoid VAT/GST fraud by “fly-by-night” providers who may register and ask for refund claims on an ad hoc basis;
Consider the implementation of anti-abuse measures, e.g. to counter sharing/gig economy operators artificially dividing their activities among a number of sharing/gig economy platforms or other distribution channels to stay below the threshold. Such measures could include collecting and cross-checking data from digital platforms and leveraging on technology enabled solutions (see analysis below).
The annual turnover is often the basis for determining a VAT/GST threshold. However, a jurisdiction may wish to differentiate the determination of a VAT/GST threshold depending on the sector and by reference to (additional) indicators that are typical and considered relevant for a given activity. In the accommodation sector, for instance, such an indicator could include the type of property that is offered for short-term rental (e.g. room in the principal residency vs. an entire apartment). In the transportation sector, the number of journeys per specific period (month/year) could be considered as an additional indicator. It is recognised though that this type of activity indicators per sector could increase complexity and make administration and compliance more challenging.
A threshold can be used as a tool allowing tax authority to decide how far they wish to “cast the net” to bring sharing/gig economy operators within the VAT/GST system and/or exclude from it.2 Where a jurisdiction opts to bring (a part of) sharing/gig economy providers within the VAT/GST system via a (lower) threshold, it may need to consider options for simplifying VAT/GST compliance for small businesses including for a simple determination of VAT/GST liability and/or payment of the VAT/GST due. Possible policy options for such simplification and for enhancing the efficiency of VAT/GST administration and compliance more generally are discussed in the following sections of this chapter.
3.2.2. Presumptive VAT/GST schemes
Presumptive VAT/GST schemes can be particularly helpful in reducing VAT/GST compliance burden for the eligible (small) businesses and thus allow for sharing/gig economy actors to be brought into the VAT/GST system without creating undue compliance cost and complexity. A core relevant feature of presumptive schemes is that they typically simplify the accounting and calculation of VAT/GST liability by notably removing the need to determine the recoverability of VAT/GST on individual expense items. This can lead to significant simplification for the application of VAT/GST for sharing/gig economy activities, which often involve assets that are used for both business and private purposes (e.g., vehicles, real-estate). This may often create challenges for sharing/gig economy providers to determine the correct amount of deductible input VAT/GST, and for tax administration to police the correct deduction of VAT/GST by large numbers of relatively small business operators.
The main relevant variations of presumptive VAT/GST schemes may include:
A simplified input tax credit calculation scheme, under which eligible taxpayers must charge VAT/GST on their outputs in line with regular VAT/GST provisions but are granted a fixed input VAT/GST deduction from the amount of VAT/GST due. Hence, the amount of VAT/GST to be paid to tax authorities is calculated differently than under normal rules (which require the amount of VAT/GST that has actually been incurred on business inputs to be offset against the output VAT). Such an approach reduces the VAT/GST compliance burden for eligible taxpayers, as it removes the need to determine the recoverability of VAT/GST on individual expense items. Under a simplified input tax credit calculation scheme, setting the level of the fixed input tax deduction requires careful consideration so as to avoid any unintended consequences, e.g., an inappropriately high level resulting in a subsidy for eligible taxpayers and eventual distortion of competition. The level of fixed input-VAT/GST deduction will typically need to be established on the basis of sector analysis (sector averages). This challenge may be less important in a labour-intensive sector where the amounts of deductible input VAT/GST may be smaller. Where a business typically supplies to other VAT/GST registered businesses, which have a right to the full deduction of input VAT/GST, tax authorities will need to consider to what extent the application of the simplified input tax credit calculation scheme has undue revenue consequences given that the overall amount of VAT/GST deducted may not correspond with the amount of VAT/GST that has been remitted to the tax authorities.
Application of a specific VAT/GST rate (a “flat-rate”) on the outputs of the eligible taxpayers, taking into account the taxpayer’s presumed (average) right to input VAT/GST deduction. Under such a regime, eligible taxpayers charge VAT/GST at a specific (lower than the normal) rate but will not have any right to input VAT/GST deduction. The flat rates for determining the VAT/GST liability under such a presumptive scheme are intended to reflect the average effective VAT/GST rate in the relevant sector in light of the average estimated recovery of VAT/GST on inputs in that sector. The variation of applicable flat rates will notably be relevant in the sharing/gig economy where labour-intensive activities may typically incur less input VAT/GST than capital-intensive (asset-based) sectors which could potentially justify the application of different flat rates. The determination of these flat rates requires a good understanding of the ecosystem in which those sharing/gig economy actors operate and therefore a close consultation with the stakeholders involved. However, it is recognised that the variation of flat tax rates among different sectors of sharing/gig economy could create distortions and policing problems in cases where a sharing/gig economy provider is involved in multiple activities that may be subject to different flat rates.
A lump-sum scheme under which the eligible taxpayer’s VAT/GST liability is determined on a lump-sum basis instead of through the normal process based on the taxpayer’s actual supplies. This lump-sum is based solely on a number of specific indicators per type of supply, e.g., type of properties provided for short-term leasing, the number of journeys performed, etc.
Application of a VAT/GST input tax credit/recovery scheme through the provider’s income tax return. Under such a scheme the taxpayer charges the normal VAT/GST rate on its supplies but any input VAT credit/recovery is calculated on the basis of (grossed up) income tax expenses claimed by the taxpayer via its income tax return, i.e. those grossed up expenses serve as the basis/proxy for input VAT/GST recovery. This could be supported by the use of industry standard rates to determine the correct grossing up rebate rate. Such an approach has the potential to simplify VAT/GST compliance for eligible providers and further incentivise them to file income tax returns to access their VAT/GST input tax credits. Hence it could promote the providers’ engagement with the tax system in general and improve the integrity of the tax system.
These schemes have the potential to simplify compliance for small sharing/gig economy operators while enhancing competitive neutrality by bringing them into the VAT/GST system and require them to charge the normal VAT/GST on their outputs. Neutrality may however not be achieved entirely under the flat-rate and lump-sum variations of a presumptive scheme, to the extent that non-eligible actors performing similar economic activities will have to charge the (most probably higher) VAT/GST rate that normally applies to this activity. Any such variations will however be the result of a trade-off between bringing sharing/gig economy providers within the VAT/GST net while mitigating any disproportionate compliance burden for micro-businesses and SMEs and promoting compliance. Neutrality could be enhanced by giving all businesses that perform economic equivalent activities (traditional as well as sharing/gig economy actors) and that meet the relevant criteria access to those schemes.
A jurisdiction may also consider coupling the operation of a presumptive scheme with a VAT/GST collection and/or liability role on other actors in the sharing/gig economy supply chain (e.g. digital platforms), as appropriate (see under 3.2.4, 3.3.6 and 3.3.7).
Further design and operation considerations
Turnover (e.g., the previous year) is the most common criterion for determining eligibility for a presumptive scheme. Its appeal will rely on the fact that almost every taxpayer concerned will have a broad idea of the expected value of its activities, therefore making it relatively easy to use and comply with. Even though other specific indicators per sector could also be taken into account for determining the eligibility for a presumptive scheme (e.g., the type of properties provided for short-term leasing, the number of journeys performed, etc.) it is recognised that these specific indicators could increase complexity and the associated administration and compliance burdens.
These schemes could be considered as an opt-in scheme. Some businesses may prefer to accurately claim the input VAT/GST that they have effectively incurred under normal rules, notably in cases where a high initial investment is necessary for a sharing/gig economy activity (e.g. drivers are required by the platform to use relatively new vehicles that meet specific standards) or where they operate predominantly for business customers. They may wish to opt for the application of the normal regime rather than for a presumptive scheme. Caution needs to be exercised to avoid abusive use of opt-in schemes by “fly-by-night” providers that may use those schemes on an ad hoc basis to gain undue advantages). For this reason, imposing a minimum period of time during which taxpayers that have opted for a scheme should remain under the scheme could be further considered as an anti-abuse measure.
While presumptive schemes have the potential to facilitate compliance for sharing/gig economy providers, care should be taken to ensure that these schemes are sufficiently simple to operate and monitor so that they do not create their own compliance risks and administrative burdens. Where presumptive schemes are complex, the need for a sharing/gig economy provider to monitor compliance with eligibility criteria, to understand the different applicable rules, and to regularly assess the benefit of a simplified scheme compared to the application of the normal regime in order to stay competitive with operators that operate under normal rules, could introduce complexity that may outweigh the benefit of simplification for eligible taxpayers. Business customers of sharing/gig economy providers that operate under a presumptive scheme may have difficulty determining the amounts of deductible VAT/GST included in the price paid to these providers, as it may vary along the VAT/GST rate that is applicable under the provider’s presumptive scheme. Business customers may have difficulty adjusting their accounting systems to deal with this complexity and choose not to contract with providers that operate under a presumptive scheme. Finally, for sharing/gig economy platforms, it may be complex to manage the impact of various presumptive schemes that their underlying providers may operate under, e.g. on pricing, on the calculation of fees and commissions, etc. It is therefore important to regularly monitor the efficiency and effectiveness of presumptive VAT/GST schemes and to consult with the sectors involved to ensure a good understanding of emerging trends, opportunities and challenges with respect to their operation.
3.2.3. Registration, accounting and reporting simplification measures
This section outlines a number of additional options for tax authorities to consider in simplifying VAT/GST compliance and administration to accommodate the entry into the VAT/GST system of the new and often small businesses operating in the sharing/gig economy. These measures are essentially aimed at making the tax compliance process more straightforward and seamless for taxpayers. Simplification of compliance obligations can be an effective way of driving compliance, particularly for small businesses that may have less capacity to comply.
VAT/GST registration
Jurisdictions are encouraged to use technology to facilitate registration. This could include the possibility for taxpayers to manage their registration online through a single web-portal; limiting requirements for hard-copy documents; and the availability of online taxpayer support. Within a whole-of-government approach, the VAT/GST registration could be integrated with the registration processes for other governmental agencies/entities (a “one-stop-shop” approach with one single registration for multiple purposes).
Accounting and reporting simplification measures.
Accounting and reporting simplification measures that jurisdictions may wish to consider include:
limiting the reporting and record-keeping obligation for taxpayers to what is strictly required to calculate the final VAT/GST liability;
limiting taxpayers’ obligation to issue normal invoices except where the customer specifically asks for one;
reduce the frequency of filing requirements. The requirement to file and remit the VAT/GST at less frequent intervals is likely to reduce compliance costs and support eligible taxpayers’ cash-flow. It is recognised though that less frequent filing and payment (e.g., annually) may increase the risk of the taxpayer being unable to pay a large amount of VAT/GST due and therefore such approach could benefit from a regular analysis of taxpayers’ risk profile;
allow the optional use of cash accounting schemes, i.e., schemes that allow taxpayers to defer their VAT/GST payments until they have collected payment from their customers. These schemes can support taxpayers’ cash flow, while simplifying their VAT/GST accounting and providing automatic bad-debt relief. These regimes are often accompanied by a restriction on input tax deduction until payment of the input VAT/GST due has been made which may make them a less attractive option in certain cases. It is recognised that these schemes may be less relevant for sharing/gig economy providers where the payment will often be made at the time of the supply (or even before) or shortly after;
facilitate the use of accounting and tax reporting software solutions by taxpayers. The introduction of electronically enabled reporting and/or invoicing processes can bring benefits of greater accuracy and efficiency compared to paper-based processes, particularly where those solutions can be used to facilitate and simplify tax compliance. The presumed familiarity of sharing/gig economy actors with technology, and on their possible access to technology via the sharing/gig economy platforms that facilitate their activities, may create significant opportunities for the use of accounting and reporting software solutions to facilitate VAT/GST compliance. This could include the use of accounting software allowing micro and small businesses to record business-to-consumer transactions (B2C), possibly online and in real time, and generate pre-filled tax returns. These solutions could also include virtual low-cost cash registers that require basic IT infrastructure, e.g. only a mobile phone (often used by the sharing/gig economy providers). The report of the OECD Forum of Tax Administration on Implementing Online Cash Registers: Benefits, Considerations and Guidance is of great relevance in this context and provides further useful insights for interested jurisdictions to consider (OECD, 2019[2]).
The development of those software solutions will generally benefit from close co-operation with software developers and providers to determine the required set of information and provide the requirements of the tax rules that should be built into the software solutions to be used by taxpayers.
Such accounting software may allow the pre-population of (simplified) VAT/GST returns and transaction listings for submission to the tax authorities, thereby achieving productivity gains and improving the accuracy of their submissions. Considering the potential benefits of those software solutions while mitigating the associated compliance costs for taxpayers with limited capacity to comply, jurisdictions may consider making such software solutions available for free to taxpayers to assist and further incentivise their use.
3.2.4. Split payment/withholding VAT/GST collection mechanisms
The terms “split payment” and “withholding” are used interchangeably in this section to refer to a collection mechanism whereby the VAT/GST due on a sharing/gig economy transaction is collected/withheld via another party than the sharing/gig provider in the supply chain on behalf of the underlying sharing/gig provider.
This section considers the application of a split payment/withholding collection mechanism involving (i) financial intermediaries and (ii) the business customer in a sharing/gig economy supply chain.
Split payment/withholding of VAT/GST by financial intermediaries
Under a collection mechanism through split payment/withholding by financial intermediaries3 in the sharing/gig economy supply chain, the latter are required to split/withhold the amount of the VAT/GST from the total price paid for a sharing/gig economy supply by the customer to the provider at the time of processing the payment.
Such a regime may appear as an attractive option for a number of reasons. It can simplify VAT/GST accounting for taxpayers particularly in case where transactions are carried out via digital means (e.g. online ordering and payment for transportation service). It minimises risks of VAT/GST revenue losses from non-compliance, fraud or insolvency for tax authorities as taxpayers do not handle the VAT/GST. However, a range of challenges and systemic weaknesses have been identified that can heavily limit the effectiveness or even the operational feasibility of such a regime. These challenges include:
Financial intermediaries may often not have all the information necessary to fulfil the split payment or withholding obligation correctly. This includes information on the applicable VAT/GST rate in jurisdictions that apply multiple rates; possible exemptions; details of prices calculation, whether a payment is subject to the split payment/withholding requirement (e.g., because the recipient of the payment is not the person liable for the VAT/GST). A financial intermediary will also generally not be able to process the VAT/GST aspects of a full or partial refund. To address these challenges, the sharing/gig economy provider, or the person that has VAT/GST liability, would need to use a dedicated bank account for its sharing/gig economy activities under the assumption that all payments to that account are subject to split payment/withholding at a given VAT/GST rate. Sharing/gig economy platforms may then make providers’ access to their platform conditional upon the use of such a dedicated bank account to ensure these providers’ compliance with their VAT/GST obligations.
As often multiple financial intermediaries are involved in sharing/gig economy supply chains (credit card company, payment service provider, customer’s bank, provider’s bank, etc.) it will often be challenging for each of these intermediaries to know whether or not it has a split payment/withholding obligation. Clear rules will be required in this respect, which will inevitably add another layer of complexity.
Tax authorities need access to information to monitor compliance with the split payment or withholding obligation, and to ensure the proper VAT/GST treatment of transactions that are not covered by the split payment/withholding regime (e.g. because alternative payment mechanisms were used) and of VAT/GST refunds for cancelled or refunded transactions. Tax authorities may need to turn to the sharing/gig economy platform or to other parties to gain proper insight in the full compliance picture.
Taxpayers may face difficulties in adjusting their VAT/GST reporting and the calculation of VAT/GST liability in respect of the supplies for which VAT/GST has already been paid to the tax authorities through the split payment/withholding regime. Taxpayers may be relieved from the requirement to report transactions subject to the split payment/withholding regime, but that may limit the tax authorities’ access to information that may be required for proper monitoring and audit (see previous bullet). Tax administrations will need to work closely with accountancy software developers to ensure the proper processing of the VAT/GST relevant aspects of transactions subject to a split payment/withholding regime.
A split payment/withholding mechanism reduces the amount of the taxpayer’s output VAT/GST, which is problematic for taxpayers that regularly incur deductible input VAT/GST. As there will be less output VAT/GST against which deductible input VAT/GST can be offset, such a taxpayer can find itself in a structural excess input tax credit position. This can crate cash-flow pressures which can be particularly challenging for small sharing/gig economy operators. These adverse consequences could be mitigated by limiting the split payment/withholding obligation to only part of the VA/GST amount, so that a share of the output VAT/GST can still be used by the provider to offset deductible input VAT/GST, at the cost of introducing an even greater level of complexity into the system.
Compliance costs, and associated risks, for financial intermediaries may be considerable which may be passed on to sharing/gig economy operators and customers.
A split payment/withholding regime is likely to incentivise the use of alternative payment options that are outside the traditional and/or national banking system (where available) and that may not be captured by a collection obligation that is typically imposed on domestic banks and other intermediaries in the jurisdiction of taxation. It may also incentivise the use of cash payments which remain the main payment modality in several jurisdictions (notably in developing economies)
This regime may have an impact for customers, which may notably face difficulty to receive a full refund in case of errors or a cancelled transaction.
While it is clear that the operation of such a split payment/withholding as a primary collection mechanism faces significant challenges, a jurisdiction may wish to consider a collection role for financial intermediaries as a fall back option to enhance enforcement in cases where the person that has primary VAT/GST liability does not comply with its VAT/GST obligations (see Chapter 4).
Split payment/withholding of VAT/GST by business customers
The users of sharing/gig economy services may be predominantly private individuals, as explained in Chapter 1. Business customer however use sharing/gig economy services too, and this may increase over time as the sharing/gig economy continues to develop and differentiate. Against this background, the paragraphs below discuss the possible application of a split payment/withholding regime for collecting the VAT/GST on the supplies of sharing/gig economy services to the users, when those are business customers.
Under such a mechanism, the business customer of a sharing/gig economy supply acts as a splitting/withholding agent by separating the amount of the VAT/GST due for the supply from the net price at the time of payment and remitting this VAT/GST amount to the tax authority or on a dedicated account. If the customer is a fully taxable business, it is then entitled to deduct the VAT/GST that it has split and remitted to the tax authorities in accordance with normal VAT/GST rules. Such a system is similar to a self-assessment/reverse charge mechanism, with a number of differences. The cash-flow impact of a split-payment/withholding regime differs in that the business customer effectively remits the VAT/GST due on the sharing/gig economy supply to the tax authorities and recovers it separately via its VAT/GST return (as opposed to a self-assessment/reverse charge regime where the VAT/GST is normally reported as payable and deductible in the same return). Also the VAT/GST liability may be different in that it normally remains at the level of the supplier/provider in a split payment/withholding regime whereas it lies with the business customer under a self-assessment/reverse-charge mechanism.
Such a regime can be particularly helpful in facilitating compliance for sharing/gig economy providers transacting mainly with business customers. Examples could include food deliverers transacting directly with restaurants and/or a digital platform for the delivery of food; owners of real estate (apartments, houses) renting out their apartment/house directly to a hotel chain that subsequently offers stays there to final consumers. Under a split payment/withholding regime, the restaurant and the hotel in these examples would be required to split/withhold the VAT/GST due on the supply acquired from the sharing/gig economy provider (the food deliverer and the owner of the real estate) and remit it to the tax authorities. The role of a splitting/withholding agent could also be assumed by digital platforms that act as a principal in a sharing/gig economy supply, i.e. that receive the supply from the sharing/gig economy provider and supply it onwards to the final customer in their own name.
This approach relieves the sharing/gig economy provider from the burden of having to collect and remit the VAT/GST on its supplies by moving the VAT/GST payment liability to the business customer. This could generally be considered as a feasible and appropriate option as it can be assumed that business customers will have the information on the transaction that is necessary for a correct taxing decision and they have control over the payment.
Such a split payment/withholding approach may be attractive for a number of reasons. Once sharing/gig economy providers have been able to ascertain that they are subject to VAT/GST, it has the potential to simplify VAT/GST compliance for the providers that may have limited capacity to do so and thus increase overall compliance levels for tax authorities. It also facilitates the VAT/GST deduction for business customers as they have access to the necessary evidence for the payment of the VAT/GST while it reduces risks of fraud from the deduction of unpaid VAT/GST. For tax authorities, the costs of VAT/GST administration and compliance risks are reduced as VAT/GST is collected from a relatively small number of businesses that generally have the capacity to comply (e.g. restaurants; hotels; platforms) instead of having to administer collection from large numbers of often small sharing/gig economy providers.
When considering the implementation of a split payment/withholding regime, tax authorities may wish to further consider the following aspects:
While business customers can generally be presumed to have access to all the necessary information to carry out their split payment/withholding obligation and to have the capacity to comply, this may not always be the case notably for small businesses. Tax authorities may therefore consider excluding small businesses from a split payment/withholding obligation;
Clear rules will be necessary to allow business customers to easily identify the transactions for which they have a split payment/withholding obligation and to distinguish these transactions from transactions that are out of scope. This may notably require a clear identification of sectors or categories of transactions that are within the scope of the split payment/withholding regime.
Tax authorities may consider implementing a requirement for business customers to remit the VAT/GST due under a split payment/withholding regime periodically rather than on a transaction-by-transaction basis.
A split payment/withholding mechanism reduces the amount of output VAT/GST for providers that are subject to such a regime and thus reduces the amount of VAT/GST against which deductible input VAT/GST can be credited. This can lead to cash-flow pressures for particularly small businesses that regularly incur deductible input VAT/GST. Tax authorities may consider ways to ensure a simple and rapid process for refunding such amounts of excess input VAT/GST.
Compliance with a split payment/withholding regime could be further simplified by combining it with simplified accounting and reporting obligations for the sharing/gig economy providers (see 3.2.3 above) and/or a presumptive tax scheme (which removes the need for sharing/gig economy providers to claim input VAT/GST deduction for individual expense items).
3.2.5. Technology-based data collection to facilitate VAT/GST administration
Technology is an integral part of the sharing/gig economy. Section 3.2.3. considered the role of technology in promoting and facilitating compliance notably via the use of tax software solutions and digitally enabled registration and reporting processes. This section focuses in particular on the use of technology for data collection by tax authorities to enhance compliance risk management and facilitate compliance for sharing/gig economy actors.
Information technologies are available to facilitate the collection of data to support VAT/GST administration and risk management in the sharing/gig economy. A wide set of IT techniques are available for VAT/GST administrations, such as web scraping or web crawling tools, to monitor the sharing/gig economy. These tools can be used by tax administrations to search the Internet for sites that offer or promote sharing/gig economy activities or to extract (“scrape”) VAT/GST relevant information from certain public sources (including sites operated by sharing/gig economy platforms). These tools can be (further) developed or tailored in-house tools to take into account the specific features of data to be collected from particular platforms or third parties. Such data collected from the Internet can include information on individual transactions including the identity of a sharing/gig economy provider, or contact details such as a telephone number or an email address that allows the tax administration to identify providers (e.g. though automatic cross-checking of telephone number with telephone directories).
This data can be used for a range of tax administration actions, including:
monitoring the development of the sharing/gig economy, including the emergence of new sector, the evolution of existing sectors and their business models, and the associated compliance and revenue risks;
strengthen VAT/GST risk analysis capacity in respect of the sharing/gig economy through the use of data analytics notably to identify taxpayers and/or taxpayer segments that may need a targeted approach;
to analyse the impact of changes in tax policy on compliance and taxpayer behaviour, e.g. changes in registration or collection thresholds or in the frequency of return filing and VAT/GST payment;
rolling out information campaigns to enhance voluntary compliance by sharing/gig economy operators, including through direct communication with sharing/gig economy providers (e.g. via letters, e-mails or social media). For the use of technology to support education and dissemination of information to promote compliance, see 3.2.7 below.
A number of challenges and limitations associated with the collection of these data, their quality and use by tax authorities need to be highlighted, in particular:
tax authorities may not have access to the VAT/GST relevant information until after a transaction has taken place, e.g., the address of an immovable property that is offered for short-time rental may become available only after a booking has been made via a booking platform;
Tax authorities may not be able to use the data collected from the Internet immediately, but will first need to check its reliability and transform into a dataset with the appropriate structure to support data analysis (including the capacity to identify unique taxpayers), and finally to ensure secure storage of these data as appropriate. These processes, include training and recruitment of skilful personnel, can be resource-intensive;
web scraping tools for the extraction of information from Internet sites and platforms, may need to be adjusted for each site or platform. Challenges may include the use of techniques by platforms or sites (e.g. “captcha” mechanisms) to prevent the automatic extraction of information by their competitors; and techniques to protect the identity of the providers behind the offers on their platform.
To address these challenges and limitations, tax authorities are encouraged to consult with sharing/gig economy platforms and other stakeholders that may hold useful information (e.g. financial intermediaries) to enhance the potential and efficiency of technology based data collection. This could also include consultation with developers and providers of accounting and tax software solutions (which could be certified by the tax authorities) to ensure that the VAT/GST relevant data are structured in a way that allows for direct transmission to the tax authorities without the need for further manipulation or that they can be collected directly by the tax administration from the taxpayers’ systems, e.g. through an “application-programming interface” (API).
Overall new IT technologies could enable moving away from traditional reporting and assessment processes towards more compliance-by-design outcomes,4 which have great potential in facilitating compliance and administration while drastically reducing opportunities for non-compliance.
3.2.6. Reporting obligations for third parties
Section 3.2.5. discusses the possible use of technology by tax authorities to collect VAT/GST relevant data from the internet to enhance compliance risk management in the sharing/gig economy and facilitate compliance for sharing/gig economy actors. Chapter 4 further discusses the role of data in supporting enforcement and compliance monitoring.
This section looks in further detail at the possibility for tax authorities to collect information through a reporting obligation for other stakeholders in the sharing/gig economy supply chain than the persons that are liable to collect and remit the VAT/GST on a sharing/gig economy supply.
Such third parties in sharing/gig economy activities could involve the financial intermediaries, sharing/gig economy platforms, or parties acting on behalf of a sharing/gig economy provider (e.g. real estate agents that administer immovable property on behalf of multiple owners and who may contract directly with sharing/gig economy platforms). Section 3.3. of this Chapter presents a detailed analysis of the role of sharing/gig economy platforms in tax authorities’ data collection strategies. This includes a detailed discussion on the VAT/GST dimension of the Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, which were released by the OECD in 2020 (OECD, 2020[3]).
When considering reporting obligations for these third parties, it is important that tax authorities take stock of the VAT/GST relevant information that is already available via other sources, particularly the information reported by the primary actors in the sharing/gig economy supply chain (providers and sharing/gig platforms) who may presumably be best placed to provide sufficient and accurate relevant information (see available information elements in Annex D). This will be helpful in minimising risks of duplication and complexity in reporting obligations.
The following overarching VAT/GST design policy principles may further be useful for tax authorities to consider when designing a possible reporting requirement for third parties in the sharing/gig economy:
Have a clear understanding of the policy objective pursued when determining the type and amount of the data to be reported. This is of crucial importance to ensure an efficient and proportionate operation of reporting obligations, recognising that new data reporting requirements come at a cost both for the administration and for the third parties that will have to report;
Identify the right data sources. An appropriate identification of the data sources is important both to ensure the relevance and adequacy of the data collected as well as to minimize the associated administrative and compliance burden. To this end administrations could explore opportunities to facilitate cooperation and information exchange amongst domestic public agencies so as to minimise the risks of unnecessary duplication of reporting requirements;
Consult with stakeholders concerned/involved (including IT/software providers) from the outset of the process so as to ensure a good understanding of their business processes and information available and to set up the appropriate environment (including specific reporting formats) in a workable and proportionate manner;
Ensure adequate human and technical resources to securely handle/process the (big) volumes of collected information and produce effective analysis in a timely fashion;
Develop a robust legal framework so as to ensure the appropriate compatibility of reporting rules with other regulatory areas (e.g. data protection/privacy/competition related) and to support their effective operation and enforcement;
Leverage on technology-enabled solutions to ensure the reliability of the transmitted data and their reporting in a timely manner while mitigating administration and compliance costs. This includes the possible use of Application Programming Interfaces (APIs) that allow the administration’s systems to digitally interact with the systems of third parties subject to reporting obligations;
Maximize consistency across jurisdictions with respect to the information elements collected as well as reporting formats. This will facilitate and enhance compliance, particularly for third parties that are faced with multi-jurisdictional reporting obligations, reduce compliance costs and improve the effectiveness and quality of information sharing mechanisms. For tax authorities consistency is also likely to support the effective international co-operation and enforcement.
3.2.7. Promoting compliance through communication, information and education
As discussed under Chapter 1 of this report, individual sharing/gig economy providers may often not be fully aware of their tax obligations and/or have limited capacity to comply as they may have little access to easy-to-understand information and to assistance by tax professionals. Actions by tax authorities to raise awareness among sharing/gig economy actors and to educate them on VAT/GST and other tax obligations are therefore of great importance to promote voluntary compliance.
It is recognised at the outset that educational tools work best if the rules are simple for the suppliers to comply with. Therefore, a jurisdiction may need to focus first on the implementation of simplification measures and then support their operation through education and communication.
Communication is critical for tax systems to promote compliance. Tax administration’s strategies in this context typically include publishing relevant information concerning tax regimes and obligations and compliance guidance on a dedicated tax authority website and targeted information campaigns including through social media. Tax authorities may consider creating dedicated web pages or portals for sharing/gig economy operators setting out the VAT/GST obligations and possible simplification regimes that may be available. Sharing/gig economy platforms could post links to this information on their website.
Theoretical information education may not always be sufficient, particularly in communication with sharing/gig economy providers. Additional and targeted communication and support efforts have been found to be effective in raising awareness and supporting compliance including the release of videos explaining VAT/GST registration and compliance processes; dedicated training sessions possibly organised in co-operation with sharing/gig economy platforms; and a dedicated “hotline” to answer to specific questions.
The information provided by tax authorities should obviously be reliable, timely, and easy to access and to understand. Experience suggests that the impact and usefulness of VAT/GST information can be enhanced considerably by making it available in a jurisdictions’ main trading languages in addition to the national language. This may for instance facilitate the education of sharing/gig economy providers on the VAT/GST obligations by sharing/gig economy platforms, which may often be established abroad, and allow these to assist sharing/gig economy providers in complying with heir VAT/GST obligations for the activities that they carry out through their platform.
Digital platforms facilitating sharing/gig economy activities have an important role to play in this context which is further discussed under Section 3.3.
This section of the report focuses on the potential roles for digital platforms in enhancing compliance by sharing/gig economy providers with the VAT/GST obligations in respect of their sharing/gig economy supplies. This section thus considers situations where a sharing/gig economy platform operator is not liable itself for the VAT/GST obligations in respect of the sharing/gig economy activities carried out through its platform under normal VAT/GST rules. This section does notably not apply to platforms that are regarded as the provider of a sharing/gig economy supply under a jurisdiction’s VAT/GST rules. This section does apply to sharing/gig economy platforms that are considered to act as agents, including for VAT/GST purposes, by enabling a direct interaction between sharing/gig economy providers and users with respect to a sharing/gig economy supply that is considered to take place between these two parties. In return, such a sharing/gig economy platform may receive a consideration/fee from either the provider or the user or both.
The 2019 Digital Platforms report considered a number of potential roles for digital platforms in the collection of VAT/GST on online sales (OECD, 2019[1]). This report focused in particular on e-commerce sales of services and digital products (such as streaming of music and movies, software application, etc.) and on online retail sales of goods (including the importation of small parcels from online sales). This report also took note of the prominent role of digital platforms in the growth of the sharing/gig economy and the desire of tax authorities to consider the potential role of platforms in enhancing VAT/GST compliance in this context (see Section 1.3.3. of the 2019 Digital Platforms Report (OECD, 2019[1])). The report recognised, however, that the sharing/gig economy was a relatively new and rapidly evolving phenomenon with specific features, and that further research and analysis were required on the possible impact of its growth on VAT/GST policy and administration before any conclusions could be drawn about the possible role of digital platforms in addressing these VAT/GST aspects. The 2019 Digital Platforms report therefore concluded that additional work on the sharing/gig economy would be carried out as a separate work stream, in consultation with the sharing/gig economy stakeholders and taking account of the findings and recommendations included in the 2019 report (OECD, 2019[1]).
The table below recalls and outlines the main similarities and specificities of the sharing/gig economy compared to the broader digital platform economy that may warrant specific consideration when evaluating the roles that digital platforms may play in addressing the VAT/GST implications of the sharing/gig economy growth.
The various roles for digital platforms in supporting VAT/GST collection as identified in the 2019 Digital Platforms report are considered further in this section in light of the specifics of the sharing/gig economy outlined above (OECD, 2019[1]). The following roles for digital platforms in facilitating and enhancing VAT/GST compliance in the sharing/gig economy will be considered in particular:
educating sharing/gig economy providers on their VAT/GST obligations;
data reporting to the tax authorities to facilitate compliance (e.g. by pre-filling VAT/GST returns) and/or preventing non-compliance by sharing/gig economy providers;
assuming a type of liability for the collection of VAT/GST on the sharing/gig economy supplies they facilitate.
Table 3.2. below provides a more detailed overview of these roles with a focus on their key features and the possible policy objective(s) that each role may address. Each of these roles comes with its own challenges and opportunities, which are considered in further detail in the remaining part of this section together with an outline of broader design considerations.
While the order by which those roles are presented and discussed in this section does not suggest a particular preference or priority, it does reflect a number of considerations including:
the possibility that jurisdictions may wish to adopt a gradual VAT/GST policy approach, or a differentiated sectoral approach, which is likely to influence the possible role of sharing/gig economy platforms in supporting that policy;
the possibility that a jurisdiction may not necessarily want to levy VAT/GST on all sharing/gig economy activities and may for instance first wish to monitor this economy’s development and the possible need for further VAT/GST policy action;
the potential preference for a jurisdiction to limit compliance burdens for digital platforms and/or to implement role(s) that have the potential for application to a broader number of platforms and/or are more future proof in view of emerging business models;
a jurisdiction’s capacity to administer VAT/GST compliance and collection in the sharing/gig economy in the absence of the involvement of sharing/gig economy platforms in the VAT/GST process.
3.3.1. Scope and operation of digital platforms’ involvement in addressing the VAT/GST implications of the sharing/gig economy
Which platform to be enlisted under which role? Determining eligibility
This part of the analysis considers potential roles for the platforms that enable groups of sharing/gig economy providers and users to interact directly and to enter into transactions, through the use of the advanced technology that these platforms provide. It focuses on the digital platforms that carry out functions in the sharing/gig economy that can play an essential role in facilitating and enhancing VAT/GST compliance in respect of sharing/gig economy supplies.
In keeping with this approach, the analysis focuses on the possible approaches that a tax authority could use when determining the digital platforms it wishes to involve in the VAT/GST compliance process under a potential role. The starting point for this is to consider what is required for a digital platform to be able to comply with a specific role depending on the policy objective set. Overall whether a digital platform is indeed in a position to comply with a specific role may often depend on its business model, and a targeted analysis and consultation with individual platforms would be therefore required.
Tax authorities are encouraged to issue clear guidance on the scope of the VAT/GST regime(s) for digital platforms in the sharing/gig economy in their jurisdiction. This could be provided by reference to the functions performed by digital platforms that take account of these platforms’ capability to comply with a given role (see Annex E).
It is for tax authorities to decide on the level of detail they want to go into when providing guidance/indicators of digital platforms’ inclusion in the scope of a role. Possible approaches include the use of list(s) of functions that are considered indicative of a digital platform’s capability to take on a specific role (i.e. a positive list); and/or of digital platform’s inability to take on a specific role (i.e. a negative list). The use of detailed indicators for platforms’ inclusion in, or exclusion from, a specific role has the advantage of enhancing certainty for digital platforms and tax authorities. It may be challenging, however, for tax authorities to keep such detailed indicators up-to-date in light of the rapid evolution of sharing/gig economy business models and of information technology and the capability it provides to digital platforms to comply with VAT/GST obligations under a specific role/regime. This could result in an uneven playing field, where some digital platforms remain out of scope of a role on the basis of the indicators defined by a tax authority, although they are in fact in a similar position as platforms that are covered by the same role and have the capacity to comply with it, e.g. through the implementation of new technologies that are not yet reflected in these indicators. Same considerations are relevant in case that a jurisdiction decides to publish a list with names of digital platforms covered by a specific role. Such individual approach may lead to distortions in competition/arbitrary decisions based on tax authorities understanding of the market.
Against this background, tax authorities may wish to build in some flexibility when designing and implementing the indicators for the inclusion of digital platforms under a specific role. Apart from neutrality considerations, which require that digital platforms that are in a similar situation are treated equally, a flexible approach also allows tax authorities to give due consideration to the proportionality aspect. A platform may for instance be eligible for the application of a role on the basis of the functions it performs, whereas the application of this role would in fact result in disproportionate compliance burden given the platform’s technological or financial capabilities. This may notably be the case for small and medium digital platforms and for start-ups. To avoid potential risks of uneven treatment of platforms that are in similar situation, such a flexible approach could be based on clear and robust criteria and any exclusion from a role be reviewed regularly so as to reflect any changes in the technological or financial capacities of the digital platform concerned. Special consideration will be required also in the context of a platform in platform ecosystem in terms of identifying which platform could be enlisted under a specific role (see further description under Annex D).
Additional consideration might also be given to how other rules than VAT/GST rules applicable to digital platforms may interact with conditions imposed under one of the potential roles considered in this report, e.g. reporting obligations on digital platforms that may already exist for direct tax purposes.
All the above considerations confirm the importance of tax authorities consulting closely with the digital platforms involved in the sharing/gig economy to achieve a good understanding of their ecosystems and trends so as to ensure the workability of platforms’ roles in a proportionate and, to the extent possible, future proof manner.
Foreign platforms (i.e. operated by non-residents) vs. domestic platforms
In principle, it should not matter whether the sharing/gig economy platform is operated by a resident or by a non-resident of the jurisdiction of taxation. Consideration might be given however to the fact that enforcement might be more challenging against foreign digital platforms, and tax authorities might consider introducing additional (reasonable and proportionate) safeguards to reduce risks of non-compliance where appropriate (see further analysis below under Chapter 4).
Tax authorities may wish to give particularly careful consideration when considering a VAT/GST collection or liability role for platforms in respect of the sharing/gig economy activities they facilitate. As highlighted above, sharing/gig economy providers are often located in the jurisdiction of taxation and may already be registered there for VAT/GST purposes. This is different to the broader digital platforms economy, particularly e-commerce sales of goods, services and digital products, which may often involve online sellers that sell into markets around the world form a single location to. Where the sharing/gig economy platform is not located in the jurisdiction of taxation, the tax authorities may wish to carefully weigh the risks and benefits from shifting the VAT/GST collection or liability for sharing/gig supplies from the individual sharing/gig economy providers that are resident in its jurisdiction onto a platform that is not resident in this jurisdiction. This is further examined under the relevant sections for different roles of the platforms.
Voluntary or mandatory?
In theory most of the roles for platforms considered under this report (with the exception of the formal co-operation agreements roles) could be designed either as voluntary or mandatory. Each approach merits a number of considerations.
While optional and contractual roles have the benefit of flexibility, they may lead to the development of exceptional VAT/GST collection schemes that may vary from one platform to another and create uncertainty and complexity for compliance and administration. A proliferation of such a variety of schemes, and their optional character, may risk undermining efforts to secure VAT/GST compliance by actors that may seek to operate on platforms that have not entered into an optional regime or that operate an optional regime that involves less (perceived) VAT/GST compliance burdens than other regimes.
Optional sharing/gig economy roles may also create challenges for administrative co-operation and exchange of information between jurisdictions to the extent that there may be no definite legal status and obligation for the platform to comply with a role. Overall, a mandatory operation of a role on all eligible sharing/gig economy platforms will generally be more effective for tax administrations in enhancing VAT/GST compliance and in providing certainty and an even playing field for sharing/gig actors involved.
In the interim, a jurisdiction may consider running a (voluntary) pilot programme with sharing/gig economy platforms to test a possible regime, for instance as part of a cooperative agreement with platforms. This could ultimately facilitate the transition into a mandatory operation of such a role across all platforms concerned.
Other overarching design considerations
The involvement of digital platforms in the VAT/GST compliance process is not exempt from challenges from the point of view of risk assessment, tax monitoring, audits and compliance. In particular, as many of the (big) platforms may have no physical presence in the jurisdiction of consumption (taxing jurisdiction) that would allow an enforcement of domestic rules, there are inherent limitations to the effectiveness of those rules. Audit and risk management efforts face important limitations, as local legislation may be ineffective in enforcing them against non-resident platforms.
The ability to effectively enforce, i.e. ensure compliance by digital platforms under the VAT/GST roles imposed by the domestic legislation, is of crucial importance to avoid competitive distortion for compliant platforms that would result from compliance not being properly enforced against non-compliant foreign platforms. Poor enforcement could lead to underlying sharing/gig economy providers leaving compliant digital platforms for a digital platform that allows for non-compliant activity.
To address these challenges the tax authorities are encouraged to adopt a two-pronged approach whereby, on the one hand compliance is facilitated and encouraged by robust legal frameworks that build on the Ottawa Taxation Framework Conditions and on the other hand, appropriate deterrents are implemented against non-compliance.
In addition to the overarching design principles and considerations for a VAT/GST strategy targeted at the sharing/gig economy as outlined in Chapter 2, tax authorities are encouraged to take account of the following policy principles and considerations when designing potential role(s) for digital platforms in enhancing VAT/GST compliance in the sharing/gig economy:
Engage with the digital platforms early in the reform process. Consultation with the digital platforms concerned allows tax authorities to achieve the appropriate understanding of the platforms’ business models and operation, which will contribute to identifying solutions that are proportionate and workable. With respect to reporting obligations for instance, it is important to identify what type of information the digital platforms can reasonably be expected to provide to tax authorities to ensure that policy objectives can be met without disproportionate burden for digital platforms - recognising that available information may differ among platforms.
Provide appropriate lead-in time in order to ensure that digital platforms will be in a position to comply with the role. It is likely that platforms will need to develop and implement considerable system changes to ensure appropriate levels of efficiency, certainty and effectiveness.
Promote compliance by limiting VAT/GST compliance obligations to what is strictly necessary to facilitate the compliance process by digital platforms. Where compliance procedures are too complex and/or disproportionate, their application for digital platforms may lead to non-compliance or certain (non-resident) digital platforms declining to serve customers in certain jurisdictions. The compliance processes should therefore be as simple and efficient as possible. Where possible, simplified registration and compliance regimes such as those presented in the International VAT/GST Guidelines (OECD, 2017[4]) and the 2017 Report on Mechanisms for the Collection of VAT/GST (OECD, 2017[5]) are expected to facilitate compliance by digital platforms.
Wherever relevant, clearly define the VAT/GST obligations of the underlying sharing/gig economy providers, notably in their relationship with the platform. This includes clear rules on the VAT/GST status of the relationship between the underlying provider and the digital platform; the VAT/GST treatment of the platform fees; and the associated compliance obligations (invoicing, reporting, payment of VAT/GST, etc.). Similarly, consider providing clear guidance in cases where persons/entities are active on a platform under their own name but on behalf of other parties as undisclosed agents (e.g. a property manager that may act in its own name but on behalf of various homeowners as further illustrated in Annex D).
Provide clear guidance on the operation of any VAT/GST registration or collection thresholds. Where a threshold exists in the jurisdiction of taxation it is important to be clear whether the threshold is set at the level of the platform or at the level of each underlying sharing/gig economy provider.
Consider implementing hierarchy rules in cases where more than one digital platform may be involved in the supply chain/ecosystem (e.g. under a “platform on platform” scenario - this particular business model is further described in Annex D). Those rules should clarify which digital platform is enlisted under which specific role.
Depending on the situation, any reform might be best achieved through a phased implementation and/or grand-fathering provisions for sharing/gig economy activities covered by a role before the law comes into effect for both the digital platforms and the national authorities involved.
Consider the need for rules to limit compliance risks for platforms acting in good faith and having made reasonable efforts to ensure compliance, particularly in respect of the collection and verification of the information elements that platforms may have to report or base their tax determination on. Digital platforms must often rely on information provided to them by the underlying sharing/gig economy providers and third parties as appropriate to comply with their VAT/GST obligations under certain roles. There is therefore an expectation for platforms to operate meaningful due diligence processes in respect of the accuracy and the reliability of this information. In principle due diligence processes should ensure that accurate information is reported/used for VAT/GST related determinations without imposing overly burdensome procedures on platforms. The application of a rule that eliminates digital platforms’ liability for mistakes resulting from reliance on inaccurate information can be considered reasonable, if the platform can provide evidence of its good faith and of its reasonable efforts to secure the accuracy and reliability of the information. This could include cases where the platform relies on a verification service by a jurisdiction’s tax authorities to ascertain the identity and VAT/GST status of an underlying provider and/or user.
Consider moving from a transactions-based system for determining and validating the accuracy of VAT/GST related information to a systems-based validation system. The use of business analytics may, over time, provide a more efficient solution for assessing VAT/GST compliance than the current practice of testing every individual transaction, including high-volume/low-value supplies. Moving to a systems-based approach will normally require that tax authorities acquire a good understanding of the relevant digital platforms, their business models and their business accounting and tax compliance systems.
Consider trade-related issues. Tax authorities are expected to ensure that, in accordance with the International VAT/GST Guidelines, the domestic design and operation of roles involving foreign digital platforms do not unduly affect the international neutrality (OECD, 2017[4]). Guideline 2.6. according to which specific measures may be required for transactions involving foreign businesses also applies to digital platforms (OECD, 2017[4]). This Guideline clearly indicates, however, that such measures should not create disproportionate or inappropriate compliance burden (OECD, 2017[4]). Tax authorities are therefore encouraged to take due account of the approaches for a consistent design of regimes involving foreign platforms and for limiting compliance complexity as outlined in this analysis.
Consider a number of supporting measures for the efficient and effective operation of the roles for digital platforms in facilitating VAT/GST compliance in the sharing/gig economy, including complementing these roles with robust international administrative co-operation; ensure deterrents for non-compliance; complement these roles with the targeted risk management strategies including through extensive use of third party data to assist compliance monitoring and data analysis; do not lose sight of similar activities that may be performed offline and/or with limited intervention of digital platforms (e.g. in cases where the platform operates as a click through/ referral platform thus enabling the discovery, promotion or listing of sharing/gig supplies by providers without any direct or indirect involvement of the digital platform in the setting of the terms of the underlying supply or in the payment or supply process). These supporting measures are discussed in further detail under Chapter 4 of this report.
3.3.2. Education/communication role
Under an education and communication role, sharing/gig economy platforms serve as communication channels to provide accurate and timely information to sharing/gig economy providers on their VAT/GST obligations. This could include the dissemination of guidelines and direct notifications on changes in obligations. Platforms can also develop their own guidance and documentation for their sharing/gig economy providers in consultation with the tax authorities.
Digital platforms can be encouraged to carry out such a role spontaneously or this could be organised in close co-operation with tax authorities, e.g. as part of a co-operation agreement. The enlistment of digital platforms under such an education/communication role will generally be intended to supplement rather than replace existing communication strategies by tax authorities to inform (potential) taxpayers of their obligations. The key policy objective being to promote and facilitate compliance and ultimately level the playing field for compliant actors.
Design and operation considerations
When considering the involvement of sharing/gig economy platforms in educating and informing sharing/gig economy providers on their VAT/GST obligations, tax authorities are encouraged to consider the following specific aspects:
For sharing/gig economy platforms to be able to carry out their education/communication role, it must be able to rely on information from the tax authorities that is sufficiently focused, clear and up-to-date. Tax authorities need to take account of often limited level of tax literacy of underlying sharing/gig economy providers. Any changes to this information need to be communicated in a timely manner by the tax authorities to the platform, which has to promptly inform their underlying providers.
The process whereby new sharing/gig economy providers are given access to a digital platform to carry out their sharing/gig economy activities (“onboarding”) is the ideal first opportunity to inform sharing/gig economy providers of their VAT/GST obligations. Onboarding is a standard requirement that all sharing/gig economy providers normally must go through.
It may be important to make the relevant information available in a number of languages (notably in English) especially in sectors where the sharing/gig providers may not necessarily be located in the jurisdiction of taxation (e.g. accommodation).
Also the tone of communication is likely to have an impact as taxpayers have been found to be generally more receptive to messages written in a simple and positive, friendly manner (c.f. chapter 10 of Tax Administration 2019 – Comparative Information on OECD and other Advanced and Emerging Economies (OECD, 2019[6])).
The involvement of sharing/gig economy platforms in communication with sharing/gig economy providers on their VAT/GST obligations will generally benefit from a close co-operation with tax authorities notably in identifying the appropriate timing of communication, the information needs as they evolve, communication tools and targeted actions. This could for instance include the organisation by platforms of webinars with the tax authorities or webpages with “frequently asked questions” and/or through which a platform’s underlying providers can communicate directly with tax authority representatives.
3.3.3. Role(s) performed under a formal co-operation agreement
Formal co-operation agreements are essentially multi-faceted in that they can combine a variety of measures and approaches to involve digital platforms in maximising VAT/GST compliance levels in the sharing/gig economy. They would typically include information sharing (on demand or regular) and education by a digital platform (including using the platform as a conduit to communicate with underlying sharing/gig economy providers on their VAT/GST obligations); alerting the tax authorities of suspected non-compliance or fraud; and responding quickly to notifications by a tax authority where a platform’s underlying sharing/gig economy providers are found to be in breach of their VAT/GST obligations. These agreements are concluded on a voluntary basis typically as part of a co-operative compliance approach between tax authority and platform.
Design and operation considerations
When considering the conclusion of formal co-operation agreements with sharing/gig economy platforms to support VAT/GST compliance by their underlying sharing/gig economy providers, tax authorities are further encouraged to consider the following aspects:
Close consultation with digital platforms will be required in clearly defining the terms, conditions and timeframe of the agreement. The Code of Conduct: Co-operation between tax administrations and sharing/gig economy platforms developed by the Forum on Tax Administration provides for a standardisation of “soft law” approaches to the provision of information by platforms (OECD Forum on Tax Administration, 2020[7]). It may provide an excellent basis for a model on VAT/GST compliance that is acceptable for tax authorities worldwide and may thus reduce complexity for tax authorities from negotiating multiple similar arrangements with platforms operating in their jurisdiction and, vice versa, for platforms that may negotiate such agreements with tax authorities in multiple jurisdictions.
Jurisdictions may consider making these formal cooperation agreements public to incentivise platforms’ participation given the expected positive reputational impact for the platforms concerned.
3.3.4. Information sharing role – Leveraging the OECD model reporting rules
Under an information sharing role, the digital platform is required by law to provide the tax authority with information relevant for VAT/GST compliance and administration without the platform necessarily being liable or having a role in collecting and remitting the VAT/GST due in respect of the activity of underlying sharing/gig economy providers. The below diagram provides an illustrative description of this role.
The platform could be asked to provide the information either upon request or spontaneously (e.g. in case of suspicious activity) and on a regular basis.
Source: OECD analysis
Design and operation considerations
Section 3.2.6. above listed a number of overarching principles for the design of information-sharing roles for third parties in the sharing/gig economy, which were not limited to sharing/gig economy platforms. A range of additional aspects are presented below for consideration by tax authorities when designing and implementing information reporting regimes for digital platforms to support VAT/GST compliance in the sharing/gig economy, in particular:
An information sharing role for sharing/gig economy platforms can be considered as a standalone measure (notably to monitor sharing/gig economy evolutions and/or to monitor compliance by sharing/gig economy providers) or to supplement other roles for digital platforms (notably to complement a joint and several liability regime for platforms that are found to allow non-compliance by their underlying providers). The policy objective(s) of an information sharing regime for sharing/gig economy platforms will largely dictate the type of information that a tax authority will require these platforms to provide. An objective to pre-populate VAT/GST returns is likely to require more detailed information at greater frequency than the objective to monitor providers’ compliance with their requirement to register for VAT/GST, which may involve more aggregate data over a longer time period. These objectives, and thus the reporting requirements, may differ depending on the sharing/gig economy sector that is targeted.
In general terms, it is advised to require platforms to report information which can reasonably be expected to be available to them in the course of their normal business operation, which is proportionally relevant to the tax authority’s policy objective(s) and which is not subject to legal limitations for such reporting under data protection or other legal restrictions. It is therefore important that tax authorities gain a proper insight into the data that sharing/gig economy platforms hold on their underlying providers and the activities they facilitate and on their capacity to share that information with tax authorities for VAT/GST compliance purposes, from a technical as well as a legal (e.g. privacy, data protection) perspective.
The timing of the reporting obligation can have an impact on the quality of the data. Platforms will generally need time to format and run quality checks on the data before reporting them to the tax authorities. Tax authorities may wish to organise the frequency and timing of the reporting requirement so as to provide reasonable time to platforms to process and prepare the data to be transmitted. Tax authorities may further consider separating such information reporting from return filing and other reporting obligations that may involve the same information, as it may be challenging for platforms to comply with different competing reporting and filing obligations at the same time, particularly for small and/or start-up platforms.
Tax authorities would ideally allow the reported information to be submitted through electronic means so as to allow platform operators to implement an automated reporting process. Early consultation with sharing/gig economy platforms operators when designing an information reporting regime will thus be important for the design of an efficient regime and for its successful operation including a smooth and seamless transmission of data.
Depending on the ultimate design of the reporting regime, and the associated compliance burden for sharing/gig economy platforms, tax authorities may consider limiting its scope to the platforms that have activities above a certain materiality threshold to avoid risks of disproportionate compliance consequences. Such a threshold could be based on (a combination of) turnover of underlying sharing/gig economy supplies, number of underlying providers and/or volume of transactions facilitated by the platform. Tax authorities could still retain the possibility for information reporting on request in respect of the platforms below such a threshold.
To further manage the volume of data reported and enhance the efficiency of the reporting regime for sharing/gig economy platforms, tax authorities can exclude the reporting obligation on underlying providers that can be expected to be already known to the tax administration and to be themselves subject to reporting obligations, notably because of the size of their operation. This could for instance apply to taxi/transport firms that also offer their services through a sharing/gig economy platform or a hotel chain that offers short-term accommodation through such a platform. To this end, tax authorities could implement a materiality threshold based on turnover and/or value of transactions above which underlying providers are excluded from the scope of the reporting obligation of the digital platform that facilitates their supplies.
Tax authorities may consider rules to limit compliance risks in respect of the data reported if they have acted in good faith and made reasonable efforts to ensure the accuracy of these data (“safe harbour” rules). This could include cases where the platform has relied on information provided by tax authorities, notably to ascertain the identity and VAT/GST status of underlying providers and/or users. It can be expected that platforms operate the appropriate due diligence processes in respect of the accuracy and the reliability of the information that they collect in the course of their normal business operation. Tax authorities may wish to align the application of a possible safe harbour rule for digital platforms with the assurance that the appropriate, systems-based, due diligence process is operated.
As a multitude of digital platforms may be involved in facilitating sharing/gig economy supplies, tax authorities need to provide clear guidance on the reporting requirements for platform(s) in light of their role in the sharing/gig economy process. As a general rule, the platform that is closest to the underlying sharing/gig economy provider will be best placed to report on this provider’s activities (typically the platform that has “on boarded” the provider to allow the sharing/gig activity to be carried out). This may in practice lead to a layered reporting, with reporting requirements adjusted to each platform’s position in the sharing/gig economy supply chain. In the accommodation sector, for instance, an online travel agent operating its own platform may advertise on another platform in its own name but on behalf of various property owners (as an undisclosed agent; see further under Annex D). The most efficient approach is then for the online travel agent to be required to report on the transactions involving the property owners for which it acts as an undisclosed agent. The platform on which the online travel agent advertises properties in its own name but on behalf of undisclosed other property owners, then reports the transactions of this travel agent (i.e. not the transactions of the underlying property owners).
Tax authorities will need to ensure that their tax administration has the technological capability and is properly resourced to receive the data reported by sharing/gig economy platforms and to use this information to achieve the intended policy objective(s). A critical aspect to consider in this context is the volume of data that tax authorities expect to receive, which can be significant depending on the sharing/gig economy sector in scope. Reporting at transactional level could, for instance, involve the reporting of thousands of transactions of a relatively small value in certain cases (e.g. the transportation sector). A tax authority may then wish to rather opt for the reporting of, for instance, taxable amounts at aggregated level per underlying sharing/gig economy provider. It would be unreasonable and inefficient to require information to be reported at a volume and/or level of detail that the tax administration is not capable to process.
Tax authorities are strongly encouraged to implement a coordinated approach within their tax administration, to ensure that the data collected from digital platforms can be used for different types of taxes (direct and indirect taxes) as appropriate and to minimise risks of duplication of reporting regimes. In this context, jurisdictions are encouraged to leverage on the potential of the OECD Model Reporting Rules to support the implementation of an efficient and coordinated information regime for sharing/gig economy platforms (see further below) (OECD, 2020[3]).
The OECD Model Reporting Rules are also likely to support consistency across reporting regimes at the international level, including on format and data elements, which is likely to enhance compliance, particularly by platforms that are faced with multi-jurisdictional obligations (OECD, 2020[3]). International consistency is also likely to support the effective international co-operation in tax administration and enforcement. Chapter 4 discusses further potential approaches to support such an effective international co-operation in tax administration and enforcement.
Leveraging the Model Rules for Reporting by Platforms Operators with respect to Sellers in the Sharing and Gig Economy5 (the OECD Model Reporting Rules) for VAT/GST compliance purposes
The OECD Model Reporting Rules were adopted by the OECD/G20 Inclusive Framework on BEPS in 2020 to assist jurisdictions in implementing a requirement for digital platforms to collect information on the income realised by sharing/gig economy sellers that offer accommodation, transport and personal services and to report the information to tax authorities (OECD, 2020[3]). One of the core objectives of these model rules is to promote international co-operation to ensure that tax administrations have access to information on income earned by sharing/gig economy sellers within their jurisdictions, including from platforms that are located in other jurisdictions. To achieve this, the rules provide that platform operators report information to the tax authorities of the jurisdiction in which these operators are resident; and that this information is exchanged automatically and annually by the residence jurisdiction of the platform operator with the jurisdictions of residence of the sellers - and, with respect to transactions involving the rental of immovable property, the jurisdictions in which such immovable property is located.
The OECD Model Reporting Rules promote standardisation of reporting rules between jurisdictions in order to help platforms comply with reporting obligations across different jurisdictions, by allowing them to follow largely similar processes for gathering and reporting information on the transactions and identity of the platform sellers (OECD, 2020[3]). Annex C to this report provides further detailed information on the key features of the OECD Model Reporting Rules (OECD, 2020[3]).
The OECD Model Reporting Rules have been designed primarily to facilitate and enhance compliance by sharing/gig economy providers with their direct tax obligations (OECD, 2020[3]). They recognise explicitly, however, that the information reported and exchanged under these rules is likely to be relevant for VAT/GST compliance purposes also. The information reported under the OECD Model Reporting Rules will include the consideration received by sharing/gig economy providers, the types/number of services provided and the underlying provider’s tax identification data (OECD, 2020[3]). This information is likely to be relevant for VAT/GST compliance purposes in the jurisdiction receiving the information under the Model Reporting Rules (OECD, 2020[3]). Depending on the type of services and the applicable rules for determining their VAT/GST place of taxation, the tax authorities may benefit from the information received under the Model Reporting Rules (OECD, 2020[3]) for VAT/GST compliance purposes as follows:
In general, tax authorities in the jurisdiction where a sharing/gig economy provider is established, will be able to use the information received under the Model Reporting Rules to verify this provider’s compliance with its VAT/GST registration obligation (and associated obligations such as reporting, application of simplification regimes, etc.) (OECD, 2020[3]);
Where a tax authority receives information on a sharing/gig economy provider in its jurisdiction in respect of supplies that are subject to VAT/GST in this jurisdiction, the tax administration will be able to use these data to monitor and pursue compliance by this provider with all the associated VAT/GST obligations, including the provider’s obligation to register, report and remit the VAT/GST. This will typically apply to supplies of services for which the VAT/GST place of taxation is determined by reference to their place of performance or by reference to the location of the supplier (typically “on-the-spot” services as described in Guideline 3.5. of the International VAT/GST Guidelines (OECD, 2017[4])). This is important in the sharing/gig economy context, as these will often involve such “on-the-spot” services that will be subject to VAT/GST in the jurisdiction where the sharing/gig economy provider is established, such as local transportation and delivery services and personal services.
Where information is received by a tax authority relating to services connected with immovable property that is located in this tax authority’s jurisdiction, this tax administration will be able to use this information to monitor compliance with all the VAT/GST obligations in respect of these services. Indeed, such services will in general be subject to VAT/GST in the jurisdiction where the relevant immovable property is located (see Guideline 3.8. of the International VAT/GST Guidelines (OECD, 2017[4])). This information will be particularly useful to monitor and pursue compliance with VAT/GST obligations in the accommodation (short-term rental) sector of the sharing/gig economy.
It is thus clear that the information that will be exchanged under the OECD Model Reporting Rules will be of significant use for authorities to enhance VAT/GST compliance in key sectors of the sharing/gig economy, including the sectors of transportation, personal services and accommodation (OECD, 2020[3]). It is important that tax authorities ensure that the information exchanged under these rules is used effectively to address their VAT/GST reporting needs at the national level as well as to support the international VAT/GST cooperation in this context. This will notably minimise risks of uncoordinated proliferation of reporting requirements that would have an adverse impact on the efficiency and costs of tax administration and compliance for both tax administrations and economic operators.
Where the information exchanged under these Model Reporting Rules (OECD, 2020[3]) is intended to be used for purposes other than the administration of direct taxes by the receiving tax administration, jurisdictions should ensure that the information is shared and used in compliance with the relevant confidentiality and appropriate use provisions of the underlying international exchange instrument, such as Article 22 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (OECD/Council of Europe, 2011[8]).
While the information covered by the Model Reporting Rules will thus be valuable for VAT/GST compliance purposes in respect of an important range of sharing/gig economy supplies, including in sectors that are likely to need the most urgent attention given their size and further growth potential, it is recognised that these rules may not satisfy all VAT/GST needs (OECD, 2020[3]). This may for instance be the case for services that are subject to VAT/GST in another jurisdiction than the jurisdiction where the relevant provider or the relevant immovable property is located. Moreover the annual frequency of information exchange may not satisfy all needs for VAT/GST reporting (given the transactional nature of the tax and the higher frequency of VAT/GST reporting and payment obligations). Against this background, it is recognised that a further extension of reporting requirements for VAT/GST purposes may be necessary over time. It is important to note in this context that the Model Reporting Rules acknowledge that reporting on other types of transactions is likely to become relevant in the future (OECD, 2020[3]). This could for instance include types of services that are not yet included in its scope such as the rental of moveable assets and peer-to-peer lending. The Model Reporting Rules anticipate that the possible further development and expansion of these rules will take due account of VAT/GST compliance needs, notably in determining the scope of reporting and the reporting flows (OECD, 2020[3]).
The Model Reporting Rules do not seek to dictate jurisdictions to introduce them (OECD, 2020[3]). They rather encourage jurisdictions that wish to introduce reporting rules aimed at the sharing/gig economy, to do so in a manner that is consistent with the Model Reporting Rules (OECD, 2020[3]). This is expected to enhance consistency of reporting regimes across jurisdictions, which will promote and facilitate international co-operation between tax administrations including to support VAT/GST compliance in the sharing/gig economy. By supporting the international exchange of information, the Model Reporting Rules are likely to offer the most powerful tool for tax authorities to gather information on supplies and providers that are subject to VAT/GST in their jurisdiction from non-resident sharing/gig economy platforms (OECD, 2020[3]).
This is an important advantage that the Model Reporting Rules are likely to have over purely domestic reporting regimes for VAT/GST purposes, as it may be challenging to enforce such reporting requirements against non-resident platform operators (OECD, 2020[3]). On the other hand, platforms facilitating transactions in multiple jurisdictions may be confronted with a wide set of diverging domestic reporting requirements in the absence of coordination, which may lead to increased costs, potentially harmful barriers to the business development and a negative effect on compliance and data quality.
Overall, international consistency promoted by the Model Reporting Rules is thus expected to facilitate compliance, lower compliance costs and administrative burdens and improve the effectiveness of VAT/GST systems recognising in particular that digital platforms are likely to be faced with multi-jurisdictional obligations (OECD, 2020[3]).
Jurisdictions are thus strongly encouraged to leverage, as appropriate, the potential of the Model Reporting Rules to monitor and enhance VAT/GST compliance in the sharing/gig economy (OECD, 2020[3]).
These Model Reporting Rules could more generally provide the appropriate basis for a future expansion of information reporting and exchange in the area of VAT/GST (OECD, 2020[3]).
3.3.5. Joint and several liability regime (JSL)
Under a Joint and Several Liability regime, if the underlying sharing/gig economy provider is not VAT/GST compliant, the tax authorities have the possibility to declare the platform facilitating the sharing/gig economy supply jointly and severally liable for the VAT/GST due. The underlying provider remains itself VAT/GST liable. Such a regime requires that the sharing/gig economy activities are within the scope of VAT/GST in line with the national legislation of the taxing jurisdiction and that the sharing/gig economy provider is liable to register, collect and pay VAT/GST on the supplies performed. Such a regime could operate under two main variations which are not mutually exclusive. In particular:
Under Variation 1 of the JSL regime, the platform is held jointly and severally liable for the future undeclared VAT/GST on the underlying sharing/gig economy providers, once the tax authority has spotted cases of non-compliance, has reported these cases to the digital platform and the latter did not take appropriate action within a specified period. Such action by the digital platform typically consists of securing compliance from the underlying provider or removing the provider from its platform. This variation can in principle be implemented without the requirement for the tax authority to prove that the digital platform knew that the underlying provider was not compliant.
Under Variation 2 of the JSL regime, the sharing/gig economy platform may be held jointly and severally liable for the past undeclared VAT/GST for the underlying provider when the digital platform should have had a reasonable expectation based on the underlying provider’s activities on the platform that the provider should be registered for VAT/GST but has not. It is for the taxing jurisdiction to determine when such a reasonable expectation exists.
Such a regime does not necessarily ensure that any lost VAT/GST is collected. For example, under Variation 1, the platform would have the possibility to escape the JSL by taking the necessary safeguard actions towards the provider (i.e. remove it from the platform). Indeed, in such case the tax authorities would have no other option than to pursue the collection of the VAT/GST due form the underlying provider. JSL could be considered as a tool to encourage and enforce compliance by underlying sharing/gig economy providers, by incentivizing sharing/gig economy platforms to pursue such compliance from the providers that use their platform (and/or by creating disincentives for platforms against tolerate non-compliance by providers on their platform).
The following diagram provides an illustrative description of this regime.
Source: OECD analysis
Design and operation considerations
When considering a joint and several liability role for digital platforms in enhancing VAT/GST compliance by underlying sharing/gig economy providers, tax authorities are encouraged to take account of the following additional aspects:
It is critical that JSL regimes for sharing/gig economy platforms are enforced across the sharing/gig economy as a whole so as to avoid that non-compliant providers simply continue their activity on other platforms. If a supplier is found to be non-compliant, then all the platforms in which it is active need to be notified.
A JSL regime needs to ensure that reasonable time is available for well-intentioned sharing /gig economy providers to regularise their VAT/GST position if needed, i.e. for providers to register for VAT/GST purposes when they are required to do so and for the sharing/gig platforms to remove/block non-compliant providers from their platform. JSL regimes thus notably need to be consistent with the performance of a jurisdiction’s VAT/GST registration process for sharing/gig economy providers (see also Section 3.2.3). Under Variation 1 it may be appropriate to allow reasonable time to the platform to first reach out to providers that have been found to be non-compliant and, if non-compliance has indeed been established, then additionally to ensure that these underlying suppliers complete the registration and provide the VAT/GST number to the platform.
Under Variation 1, electronic means of communication are preferable to paper-based communication in notifying the platforms of underlying providers’ non-compliance, particularly for non-resident platforms. It would also be practically efficient to establish a contact point within each platform for communication with tax authorities.
Proportionality of JSL regimes needs to be safeguarded. In particular under Variation 2, it would be disproportionate to hold a platform unconditionally liable for unpaid VAT/GST where it cannot reasonably be expected to be in position to be aware of the non-compliance, e.g. where an underlying provider is registered but underreports its activity in its VAT/GST return or where a provider has exceeded a registration threshold through its activities via another platform. A safe harbour provision could be considered to protect a platform against liability under a JSL regime if it can satisfy the tax authorities that it has taken all reasonable measures to avoid the non-compliance of underlying providers. Tax authorities could for instance impose a number of predetermined checks for platforms to undertake and limit joint and several liability to cases where the provider does not meet the requirements set by those checks.
A JSL will likely need to be combined with an information sharing obligation on platforms to be effective, notably as underlying providers are likely to operate via more than one platform. Indeed, sharing/gig economy providers often operate across multiple platforms making it difficult for tax authorities and platforms to know if and when they have exceeded a registration threshold where applicable. Tax authorities will be in a better position to monitor sharing/gig economy providers’ compliance in this respect if platforms share information on these underlying providers with the tax authorities.
3.3.6. Full liability regime (FLR)
Under the full VAT/GST liability regime (FLR), the digital platform is designated by law as the supplier for VAT/GST liability purposes. Under this regime the digital platform is solely and fully liable for assessing, collecting and remitting the VAT/GST on the sharing/gig economy activity that goes through the platform, to the tax authorities in the jurisdiction of taxation, in line with the VAT/GST legislation of that jurisdiction. This liability regime is limited to VAT/GST obligations only. It does not affect any other liability aspects for digital platforms beyond the VAT/GST.
The underlying sharing/gig economy provider is in principle relieved from any VAT/GST liability on the supply to its customer/user. In order to avoid a break in the staged collection chain, the FLR may treat the digital platform as having received the supply from the underlying provider and having supplied it onwards to the customer/user.
Depending on the policy objective and national specifics, potential variations of the FLR could include the following:
Variation 1: the FLR applies only in cases where the underlying supplier is regarded as a taxable person for VAT/GST purposes under national law.
Variation 2: the FLR applies irrespective of the status of the underlying supplier for VAT/GST purposes under national law.
The following diagram provides an illustrative description of the role.
Design and operation considerations
The table above shows that a full liability regime may have great potential for tax authorities in facilitating the efficient application of VAT/GST to sharing/gig economy activities and in enhancing overall VAT/GST compliance levels in this context. It may come, however, with a number of challenges that may be considerable depending on the design of the regime and the sector to which it applies (its size, complexity, cross-border nature, etc.). It will be important for tax authorities to pursue the appropriate balance between these challenges and opportunities, possible by accompanying the FLR with simplification measures to limit the VAT/GST compliance aspects for underlying sharing/gig economy suppliers (see below and further detail in Section 3.2.2 above). In addition to what has been set out above, tax authorities are encouraged to consider the following aspects:
When considering whether a sharing/gig economy platform is capable to comply with a FLR, tax authorities are advised to essentially consider the two following core aspects:
Whether the sharing/gig economy platform has access to sufficient and accurate information to make the appropriate VAT/GST determination. In particular, the platform will need the appropriate information to determine core elements in a reliable manner: the identity and (under Variation 1) the status of its underlying sharing/gig economy providers; the nature of the supply; its value; and its VAT/GST treatment (including place of taxation, possible exemption, rate.). This VAT/GST treatment may not always be that straightforward and may require access to specific information elements. For example in the accommodation sector, supplies may be treated differently depending on whether they include the leasing of a furnished or unfurnished apartment with or without additional (hotel-type) services. Similarly in the transportation sector the VAT/GST treatment may differ depending on whether it involves a ride-sourcing service against a fee or ride-sharing/car-pooling under a cost sharing arrangement (e.g. passengers contribute in the estimated costs of the trip to the driver) (see further discussion on available information elements in Annex D).
Whether the sharing/gig economy platform has the means (ability) to collect the VAT/GST due on the sharing/gig economy supply (see different payment models in Annex D). A platform can be reasonably expected to have the means (ability) to collect the VAT/GST due on the sharing/gig economy supply it facilitates when it is involved in the electronic payment process for these supplies. As highlighted in chapter 1 of this report, the use of electronic (often online) payment is one of the typical features of the sharing/gig economy. Challenges may arise where payments are made in cash, which may still be the case in the transportation sector, particularly in developing economies). In such cases, tax authorities will need to give due consideration to a solution that limits financial risks and compliance burdens for platforms from having to potentially (pre)finance VAT/GST for underlying providers that are remunerated by their customers in cash.
The functions performed by a sharing/gig economy platform in the normal course of its business can serve as useful indicators of this platform’s capability to comply with the FLR, in light of the two core aspects outlined above. Particularly useful (non-exhaustive) indicators include the following:
the level of control that the platform exercises in setting the terms and conditions of the supply (e.g. high degree of standardisation of the service and an extended knowledge of the sharing/gig economy suppliers’ activities);
the control over the payment for the sharing/gig economy supply (directly or indirectly);
the extent in which the platform presents itself as the supplier to the consumer (the “consumer-facing” approach), the degree in which the platform provides guarantees the quality of the services, security protection, refund in case of cancellation unsatisfactory service...
In contrast, platforms that merely list or advertise services; or only process payments; or only provide the technical means or capacity to carry data (e.g. provide internet network capacity via cable, satellite etc.; data storage capacity etc.) are unlikely to be in a position to comply with a full liability regime and can thus be excluded from its scope. The list of functions in the Annex A. of the 2019 Digital Platforms report are of equal relevance for the application of FLR on platforms facilitating sharing/gig economy supplies (see in Annex E to this report) (OECD, 2019[1]). In any case, a FLR needs to be designed as future proof and as flexible as possible given the continuous evolution of the sharing/gig economy and the digital platforms economy more generally, which may impact platforms’ eligibility for such a regime.
To enhance and facilitate compliance by non-resident platforms, it is advised to operate a simplified registration regime as recommended by the International VAT/GST Guidelines (OECD, 2017[4]) and for these platforms to comply with the VAT/GST obligations under a full liability regime. Where compliance procedures are too complex, their application for non-resident digital platforms may lead to non-compliance or to certain digital platforms declining to operate in certain jurisdictions. The challenges of enforcing obligations on platforms that are not located in the taxing jurisdiction are further discussed under Chapter 4.
In order to avoid a break in the staged collection chain, the FLR may treat the sharing/gig economy platform as having received the supply from the underlying provider and having supplied it onwards to the customer/user. In this context the taxing jurisdiction may wish to treat this supply as zero-rated and/or subject to reduced VAT/GST compliance burden for both providers and platforms, to reduce revenue risks for tax authorities (from generating recoverable VAT/GST for digital platforms that needs to be collected from the underlying providers) and reduce cash-flow costs for platforms (of having to pay VAT/GST to their underlying providers and subsequently recover it via their VAT/GST return).
To minimize the administrative burden and compliance risks from input VAT/GST deduction claims by underlying sharing/gig economy providers, careful consideration could be given to complementing the FLR with a simplification measure for the underlying providers such as a presumptive or flat rate tax scheme or a VAT/GST input tax credit scheme through the provider’s income tax return (see further analysis under Section 3.2.2. above).
Zero-rating of the fees charged by the digital platform to its underlying sharing/gig economy providers, depending on the business model that is used, could be considered to further reduce the possible amounts of deductible input VAT/GST for the providers (and further simplify their VAT/GST compliance), to reduce cash-flow costs for these underlying providers and to avoid double taxation in case these fees (and the VAT/GST on these fees) would be embedded in the final price of the sharing/gig economy supply on which VAT/GST is collected by the platform.
A full liability regime for sharing/gig economy platforms requires simple and straightforward rules with clear definitions of the VAT/GST obligations of the platforms and of the underlying providers. This includes clear rules on the VAT/GST status of the relationship between the underlying provider and the digital platform and the associated compliance obligations (invoicing, reporting, etc.).
FLR also requires careful consideration of the design and operation of thresholds (if any), in particular whether they apply at the level of the platform or of the underling provider and how they are calculated (does the platform have the capacity and information to monitor its underlying providers’ thresholds?). Policy decisions on this aspect are likely to have significant impact on revenue, compliance and administration.
Consideration may need to be given to the interaction between the FLR and other sector-specific VAT/GST regimes such as tourist operator margin schemes.
Digital platforms are likely to require certainty that the application of a FLR remains limited to VAT/GST and that it does not influence treatment in other areas, such as for inst Key fance labour law.
3.3.7. Collection role/withholding role
Under a collection/withholding regime, the platform acts as a third-party service provider or on behalf of the underlying sharing/gig economy provider to calculate, collect and remit the VAT/GST owed. The below diagram provides an illustrative description of the role.
Key features
The platform incurs no other VAT/GST liability than the responsibility to collect/withhold the VAT/GST due on the underlying sharing/gig economy supply and pass it on to the tax authorities in the jurisdiction of taxation. The underlying sharing/gig economy provider remains liable for the VAT/GST towards the tax authorities.
Depending on the design, the underlying provider may still need to fulfil its VAT/GST reporting obligations (i.e. the only relief is the payment of the VAT/GST via the platform).
Such a regime could be designed on a voluntary basis (under an agreement between the underlying supplier and the platform) or on a mandatory basis (imposed by law).
Design and operation considerations
Tax authorities may wish to consider the following additional policy and operational aspects when designing a possible collection/withholding regime for sharing/gig economy platforms to support VAT/GST compliance by sharing/gig economy providers:
A collection/withholding regime operates as a lighter version of a full liability role, in that the platform collects/withholds the VAT/GST due on sharing/gig economy supplies that it facilitates and remits it to the tax authorities without incurring wider VAT/GST liability towards the tax authorities. The underlying sharing/gig economy provider remains ultimately liable to the tax authorities for the VAT/GST on its supplies. There is thus no need to treat the platform as the supplier of the underlying sharing/gig economy supplies (as under the full-liability regime), nor to treat the digital platform as having received the supply from the underlying sharing/gig economy provider and having supplied in onwards to the customer/user. However, a collection/withholding role does involve a number of VAT/GST obligations and possible compliance risks for platforms, which are particularly important to consider when designing the legal framework for such a regime. In this context, the design and operation considerations discussed under the full liability role (see Section 3.3.6) are of equal relevance for the design of a collection/withholding role. In particular, the following two core conditions are critical for a successful operation of both regimes:
The eligible platform needs to hold or have access to sufficient and accurate information as required to make the appropriate VAT/GST determination in respect of the underlying VAT/GST supply (status of underlying provider and customer/user, nature of the supply, price, applicable VAT/GST rate, place of taxation…);
The platform must have the means (the ability) to collect/withhold the VAT/GST due on the sharing/gig economy supply it facilitates. This means, in principle, that the platform should be involved in some way (directly or indirectly) in the payment for the underlying supply by the customer/user or be reasonably able to ensure such involvement.
The underlying sharing/gig economy providers remain ultimately liable for the VAT/GST due on their supplies, even though it is collected/withheld and remitted to the tax authorities by the platform that facilitates these supplies. These underlying providers therefore need to be informed of the amounts of VAT/GST collected/withheld and paid by the platform to the tax authorities on their behalf, to fulfil their own reporting obligations. This could involve a regular recapitulative statement with the VAT/GST amounts collected/withheld and remitted, to be issued by the platform to the underlying provider. This will need to be taken into account by tax authorities when considering the filing and reporting regime for underlying sharing/gig economy providers, so as to ensure that they have the means and sufficient time to receive and process the data from the platform. Simplification measures for sharing/gig economy providers to limit their filing and reporting requirements could be helpful in addressing this challenge (see notably Section 3.2.3.).
In light of the above, tax authorities need to be aware that a requirement to remit the VAT/GST for each underlying provider to the tax authorities separately and the associated reporting (connecting the amounts remitted to each underlying provider individually) may be challenging for sharing/gig economy platforms, particularly start-ups and smaller platforms and/or platforms that face collection/withholding obligations in multiple jurisdictions.
Safe-harbour rules may need to be considered to protect both platforms and underlying providers from liability for potential errors made in good faith and despite reasonable efforts. This could for instance apply to a digital platform relying on information that turned out to be incorrect despite reasonable efforts made to verify its validity. Or to an underlying provider for errors that were made by the platform despite having provided correct and timely information.
References
[10] Milanez, A. and B. Bratta (2019), “Taxation and the future of work: How tax systems influence choice of employment form”, OECD Taxation Working Papers, No. 41, OECD Publishing, Paris, https://dx.doi.org/10.1787/20f7164a-en.
[3] OECD (2020), Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, OECD , Paris, https://www.oecd.org/tax/exchange-of-tax-information/model-rules-for-reporting-by-platform-operators-with-respect-to-sellers-in-the-sharing-and-gig-economy.htm (accessed on 25 February 2021).
[2] OECD (2019), Implementing Online Cash Registers: Benefits, Considerations and Guidance, OECD , Paris, http://www.oecd.org/ctp/implementing-online-cash-registers-benefits-considerations-and-guidance.htm (accessed on 25 February 2021).
[6] OECD (2019), Tax Administration 2019: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://dx.doi.org/10.1787/74d162b6-en.
[1] OECD (2019), The Role of Digital Platforms in the Collection of VAT/GST on Online Sales, OECD Publishing, Paris, https://dx.doi.org/10.1787/e0e2dd2d-en.
[4] OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264271401-en.
[5] OECD (2017), Mechanisms for the Effective Collection of VAT/GST, OECD, Paris, http://www.oecd.org/ctp/consumption/mechanisms-for-the-effective-collection-of-vat-gst.htm.
[9] OECD (2014), Tax Compliance by Design: Achieving Improved SME Tax Compliance by Adopting a System Perspective, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264223219-en.
[7] OECD Forum on Tax Administration (2020), Code of Conduct: Co-operation between tax administrations and sharing and gig economy platforms, OECD, Paris, http://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/code-of-conduct-co-operation-between-tax-administrations-and-sharing-and-gig-economy-platforms.pdf (accessed on 25 February 2021).
[8] OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264115606-en.
Notes
← 1. See also similar considerations in a working paper by Milanez, A. and B. Bratta (2019) developed under the WP2 auspices on Taxation and the future of work: How tax systems influence choice of employment form, (Milanez and Bratta, 2019[10]).
← 2. It is recognised that the VAT/GST status of the sharing/gig economy actors is determined in line with the relevant provisions of each national legislation and does not fall within the scope of this work.
← 3. For the purposes of this report, a financial intermediary is a third party that processes payments in relation to the supplies by the underlying sharing/gig economy suppliers. These financial intermediaries are distinct from sharing/gig economy platforms that establish contact between the underlying suppliers and users and allows the provision of a sharing/gig economy supply. Collection and reporting roles for these sharing/gig economy platforms are considered under Section 3.3.
← 4. See further Forum on Tax Administration’s publication on Tax compliance by design (2014) that assembles the different elements of technology associated with modern commerce into a system (as an integral part of the one SMEs use to carry out their daily business) that delivers a seamless and secure flow of accurate tax information and tax payments (OECD, 2014[9]).
← 5. The OECD Model Rules define a “Seller” as a Platform user that is registered at any moment during the Reportable period with the platform for the purposes of the provision of Relevant Services. In this light, Sellers can include both individuals and Entities. For the purposes of this report the term “Seller” is used interchangeably with the term “Provider” (OECD, 2020[3]).