Platforms’ concerns deemed supplier obligations ahead of ViDA proposal adoption means likely delay to 2026 launch
Digital marketplaces and intermediaries have been rising concerns over the proposed imposition of deemed supplier status on shared accommodation and rides arranged on their platforms. This would make the platforms liable for charging and collected VAT on behalf of their house or ride sharer providers – replicating the 2021 e-commerce package which imposed deemed supplier for certain e-commerce goods.
This proposal is the second of the three pillars of the EU VAT in the Digital Age which is scheduled to be voted on by EU Finance Ministers in December 2023. Some of the concerns on the proposals (see below) include:
- It will disproportoinaly impose VAT for the first time on many small-time home or ride sharers if they opt to use platforms. This will distort the market for those who choose to stay off platforms.
- The effective VAT rise will likely hit the incomes of many low-income people trying to supplement their regular income during the current cost of living crisis.
- To add to the sharers woes, under the ViDA proposal, they will not be able to recover the VAT charged – unlike a regular VAT-registered business.
- Platforms will have to undertake a huge investment in tracking, authorisation, archiving etc IT to be able to support and administer such a complex new regime.
- Platforms are already mid-way through complying with many other new regimes which should achieve the same objective around detecting VAT evasion. These include: DAC7; Joint and Several Liability; and CESOP. Perhaps the member states should wait for progress on their success.
Dec 2022 proposals: €6bn extra taxes – Travel & accommodation platforms to be made deemed supplier for their users VAT
- 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
- 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
- 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 in the Digital Age reforms
|EU VAT in the Digital Age|
|3 pillars to improve efficiency of VAT for all and reduce fraud|
|1. Digital Reporting Requirements; e-invoicing||2030?: Mandatory digital reporting of intra-community transactions; obligation to be able to issue and receive intra-community e-invoices; member states free to impose own e-invoicing or real-time reporting but most conform to EU e-invoice standard EN 16931|
|Read more about EU Digital Reporting Requirements (DRR)|
|Structured e-invoices mandated for intra-community supplies|
|EC Sales lists replaced by Digital Reporting Requirements|
|Withdrawal of EU permission requirements for e-invoicing|
|2 Platform economy||2025: Travel & accommodation sharing platforms to become deemed supplier / liable to users' VAT. New definitions of the roles of providers, users and platforms to avoid double and no-taxation|
|Read more - Travel & accommodation platforms deemed suppliers for EU VAT|
|3 Single VAT Registration; extension of OSS||2025: Following the 1 July 2021 introduction of the One Stop-Shop (OSS), extended to cover movement of own stocks prior to cross-border B2C to reduce the foreign, non-resident VAT registrations & returns. Plus to movements of own stock with ending of 'call-off' stock burden|
|More details on Single VAT Registration in the EU|
|Marketplaces deemed supplier for EU sellers|
|EU IOSS mandated for marketplaces|
|EU tackles misuse of IOSS numbers|
|Quick fixes to existing e-commerce VAT rules|
|Call-off stock VAT simplification ends|
|Harmonisation of B2B Reverse Charge rules|