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EU Platform Economy 2025 deemed supplier – VAT in the Digital Age

€6bn extra taxes – Travel & accommodation platforms to be made deemed supplier for their users VAT

One of the three pillars of the EU VAT in the Digital Age package, new Platform Economy VAT collections role for the dominating travel and accommodation platforms will be responsible for charging and remitting VAT on behalf of the car and house shares on their marketplaces.

  • Extension of the deemed supplier VAT obligations to short-term accommodation and transport economies platforms which represent over 70% of the platform economy when excluding goods (so gig & sharing economies).
  • The supply by the underlying house or car sharing service to the platform will be regarded as ‘exempt’ without the right to deduct. Whilst this could be regarded as undermining the rules of VAT neutrality; however, affected suppliers could voluntarily VAT register.
  • ‘Short-term’ for accommodation purposes is regarded as 45 days or less.
  • Even where the platform is not determined to be the deemed supplier, as with the 2021 e-commerce requirements for goods, the marketplace record-keeping requirements apply.
  • This recognises the major market distortions for traditional hotel operators and taxi operators who must charge VAT today, and so ensure a level playing field between traditional and digital channels.
  • This will exclude transactions under the special scheme for travel engines (TOMS) which is under a separate modernisation review.
  • This will raise an estimated €6bn per annum, or €66bn in VAT for member states between 2023-32.
  • Other areas of the gig & sharing economies may be included in the future. These include professional and manual services, ‘click work’, crowdfunding and P2P lending.  But the VAT and difficulties with small entrepreneurs operating in these sectors mean this will happen at a later date.
  • This measure is highly complex, and there was heavy reluctance from the digital platforms. They believed their business models, with multiple parties in the supply chain, are too complex for simplistic division of VAT liabilities.  However, some tourist-popular states pushed for the full liability model for platforms. This makes any ratification and implementation timing difficult to predict.
  • Alongside the DAC7 marketplace reporting reforms, there will be improved definition and clarifications of the players and roles in the digital marketplace sphere, and standardisation of information requirements.
  • In particular, definitions around the taxation of fees charged as there are many inconsistencies between member states leading to double or no taxation. Also clarification that the VAT exemption does not apply to short-term rental as some countries have not correctly applied this.
  • These measures will save an estimated €480m per annum.

Other pillars of ViDA are: Single VAT registration in the EU; and Digital Reporting requirements.

Overlap with OECD gig and sharing economy

The OECD has performed extensive work on VAT issues for the gig and sharing economies. The EU’s focus should be broader, although the OECD has now extended to goods and ride sharing. HMRC’s UK gig & sharing economy VAT consultation started in 2021.

Questions to resolve before 2025

There still remains questions and details to answer.  These include the effects for:

1 Deemed Supplier and new small exempt enterprise rules

From 1 January 2025, fairer rules on VAT registration threshold equivalence when trading across borders will be enforced. Currently, domestic small businesses enjoy a local VAT registration threshold not available to businesses from other member states. The reforms would give a potential €100,000 total EU registration threshold to all from 2025 and a €85,000 maximum small exempt enterprise local threshold.

Businesses under the threshold would not be able to provide deemed supplier marketplaces with a VAT number, but the digital platform would charge VAT. However, sometimes, member states do issue VAT numbers to exempt business for administrative reasons for the exempt small enterprise wishes to avail itself of the special scheme in another Member State (in which case the number will have an ‘EX’ suffix). This would require second identification stage by the digital platform.

The Commission is now considering dropping this requirements where the enterprise is from a member state that does not use the EX scheme, or may be otherwise distinguished from a non-taxable person.

2 Identifying customer by the deemed supplier platform for cross-border

It is anticipated there will be challenges for deemed supplier platforms to identify if the end customer is VAT registered when they are not resident in the same country as the provider of the service.  As with the imported distance selling IOSS rules, it could be presumed the recipient of the service is a non-taxable person where they do not provide a VAT number. But, as per above, if the customer is an exempt small enterprise, this would produce the wrong outcome.

3 TOMS and deemed supplier model

The EU TOMS reforms are now under discussion. And deemed supplier platform may risk being viewed as acting as a travel agent services provider under TOMS, and therefore not charge VAT. Instead, use TOMS.

The Commission is now reviewing two different types of supplies

  1. supplies made to the platform and whether they can be regarded as a supply by a taxable person in the provision of travel facilities, and
  2. the differentiation between platforms dealing in (say) accommodation, and online travel agents, and how platforms can be excluded from the special scheme whilst not excluding legitimate travel agents.

4 Exemption on short-term rental of accommodation

A number of member states exempt short-term house sharing and similar accommodation because of the high cost of administering large numbers of providers for small amounts of VAT.  The Commission does not encourage this as it undermines the tax base and provides unfair tax advantages versus compliant traditional providers.

This could though mean providers who opt to use digital platforms, who would take on the deemed supplier VAT obligations, could avoid registration.

EU VAT reforms

Reform (click for details) Update
Contact VATCalc to learn how our single VAT determination, reporting and e-invoicing platform can help you manage and thrive with global compliance change
2028 Digital Reporting Requirements and e-invoicing harmonisation Published Dec 2022
Structured e-invoices supercede paper invoices Published Dec 2022
EC Sales lists replaced by Digital Reporting Requirements Published Dec 2022
2025 Single VAT Registration in the EU - extension of OSS Published Dec 2022
Marketplace deemed supplier extended to EU sellers Published Dec 2022
Proposal for VAT treatment of the platform economy Published Dec 2022
EU IOSS mandated for marketplaces Published Dec 2022
Call-off stock VAT simplification ends Published Dec 2022
Harmonisation of B2B Reverse Charge rules Published Dec 2022
VAT registration thresholds equivalence foreign businesses On track
Virtual events VAT rule changes Agreed
2024 Payment providers' seller transaction reporting and bookkeeping obligations On track
EU permissions on e-invoicing removed Published Dec 2022
2023 DAC 7 - marketplace reporting harmonisation On track
Financial Services VAT exemption reform proposals Consultation complete; proposal 2023
Tour operator margin scheme VAT reforms EC undertaking fresh review
2022 IOSS reforms to prevent double taxation Proposals early 2022
EU reduced VAT rate freedoms Enter into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option
EU Generalised Domestic Reverse Charge VAT Mechanism In effect, although no country has adopted this voluntary option
2015 B2C electronic services VAT reforms - MOSS return In effect
Contact VATCalc to learn how our single VAT determination, reporting and e-invoicing platform can help you manage and thrive with global compliance change

 

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