The OECD has reported on some of the Value Added Tax issues around the gig and sharing economies. This includes the risks and challenges of fair and efficient tax collections, as well as the role of marketplaces and other intermediaries in registrations, calculations, reporting and payments.
The European Union is also examining VAT treatment for the platform economy, which includes the gig and sharing economies. And the DAC 7 EU marketplace reporting requirements come into effect on 1 January 2023.
The OECD has highlighted how the major online platforms have enabled millions of individuals to exploit their excess time, resources or assets to earn extra income. This explosion in small businesses and entrepreneurs has fallen out or below the normal mechanism for tax authorities on VAT collections. In addition to lost tax revenues, this creates unfair price competition to traditional providers of similar services.
The OECD recognises that it is important not to curb the opportunities and flexibility offered to millions of workers in the name solely of tax collections. Instead, the authorities should review a range of models to capture a fair share of income efficiently.
The Report notably presents the following findings and observations:
- Jurisdictions’ main objective may not necessarily be to bring all sharing/gig economy activities within the VAT/GST net. A jurisdiction may for instance wish to first monitor evolutions across sharing/gig economy sectors so as to allow fast and targeted policy action when needed.
- Jurisdictions may opt for a sequenced strategy, focusing their policy action first on the dominant sharing/gig economy sectors that may create the most immediate risks to VAT/GST revenue and/or competitive neutrality.
- The preferred policy response is one that is consistent with the general rules and principles of the jurisdiction’s existing VAT/GST system and limits the introduction of new exceptions or special regimes. This notably reflects the desire of jurisdictions to ensuring an equal treatment of various distribution channels in a given market, be they traditional or digital.
- Tax authorities will often face the difficult trade-off between the need to protect revenue and minimise competitive distortion, and the need to safeguard the efficiency of tax administration and to avoid undue compliance burden. The latter may point to an approach that minimizes the entry of high numbers of new sharing/gig economy actors into the VAT/GST system, perhaps with limited compliance capacity and knowledge of their tax obligations. The revenue and competitive consequences of this approach may be significant, when activity shifts from a limited number of established and largely VAT/GST compliant traditional operators to a large number of small sharing/gig economy operators that may remain outside the scope of VAT/GST (e.g. hotel activity vs. short-term vacation rentals). Bringing these new sharing/gig economy operators into the VAT/GST net may on the other hand create undue pressure on tax administration and compliance challenges for operators.
- To support a balanced response to this challenge, this Report sets out a number possible measures aimed at managing the number of new economic actors entering the VAT/GST system, and at simplifying compliance obligations for sharing/gig economy providers. These include: considerations for the determination of a VAT/GST registration and/or collection threshold; presumptive schemes for determining the VAT/GST liability; accounting and reporting simplifications; split payment/withholding mechanisms for VAT/GST collection; the use of technology to facilitate VAT/GST administration and compliance; third-party reporting obligations; taxpayer education and other awareness raising activities.
- The Report highlights the significant opportunities created by the central role of digital platforms in sharing/gig economy activity and growth, fuelled by advanced data analytics, in facilitating VAT/GST administration and compliance. It considers approaches for the implementation of data reporting obligations notably leveraging on the 2020 OECD Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing/gig Economy; the collection of VAT/GST by sharing/gig economy on the sharing/gig economy supplies that they facilitate; and approaches to educating sharing/gig economy providers on their VAT/GST obligations.
- In presenting these policy options, this Report points at the considerable opportunities created by the role of digital platforms and big data, for greater visibility and traceability of economic activity and for formalisation of previously informal economic activity particularly in developing economies.
- The Report finally presents a number of supporting measures for the efficient and effective operation of these policy options, including targeted risk management strategies through extensive use of third party data to assist compliance monitoring and data analysis; deterrents for non-compliance; and/or robust international administrative co-operation as appropriate.
