The OECD and European Commission have published proposals for online platforms to conduct due diligence on users and make annual reports of the data collected to tax authorities.
The key aim is to help tax authorities police compliance by platform sellers who might otherwise go under the radar. As part of that, the proposals seek to replace the patchwork of information requirements currently facing platform operators with a coherent international regime.
If widely adopted, a uniform set of rules might be attractive to the big players (especially compared with other options for policing platform users’ tax compliance, such as withholding taxes). However, smaller platforms may struggle with the compliance burden the rules impose. Both will need to take action now to prepare for the new rules.
What are the new proposals?
The proposals are two-fold:
- The OECD has published a set of model rules for reporting by platforms with respect to ‘sellers’ in the sharing and gig economy (the Model Rules).
- As part of a new package of anti-avoidance measures, the European Commission has proposed a new directive amending the directive on administrative co-operation (DAC 7). DAC 7 would largely adopt the Model Rules – but with some important differences.
The proposals envisage automatic exchange of information between jurisdictions choosing to participate – a sort of Common Reporting Standard for online platforms.
Which platforms are in scope?
There is a lot of common ground between the proposals. Both cover platforms via which sellers sell “personal services” (time or task-based work carried out by individuals on request) or rental immovable property – Uber, TaskRabbit and AirBnB being obvious examples. Both proposals would exclude search engines, pure payment processors and pure listings sites (with some further limited exceptions, such as for small start-ups, under the Model Rules).
However, DAC 7 is currently wider than that. It would also cover sales of goods, transport rentals and crowdfunding. So platforms like Amazon Marketplace, ebay and Hiya will need to pay attention too (not least because the Model Rules envisage potential extensions that could well end up mirroring DAC 7).
What do platforms have to do?
In-scope platforms are required to:
- Conduct due diligence on their ‘sellers’ and take specific steps to determine whether information they collect is reliable. This may result in a significant compliance burden for platforms.
- Make annual reports of data collected on their sellers to tax authorities, including information on sellers’ financial account details, the total consideration they’ve earned on the platform that year and the number of services provided.
- Enforce the rules. Under DAC 7, platforms will be required to enforce the due diligence rules by withholding payments from non-cooperative sellers or by closing their accounts (the Model Rules are less prescriptive but envisage similar measures).
Under DAC 7, platforms will generally be able to elect to report in a single member state. Together, these obligations make platforms into a quasi-regulated sector that must co-operate with tax authorities to police their users’ tax compliance.
At this stage, these are proposals only. However, they are very likely to turn into legal requirements in the EU (and likely beyond). Given that, platforms will need to start preparation early. For example, are they in scope? For which transactions and where? Would their systems and onboarding processes collect the right information? How will that be verified? Are their terms and conditions sufficient to deal with any disclosures required (and any possible sanctions against non-compliant sellers)? These are all questions that we are starting to work through with affected businesses.
Our Tax Journal article published on 31 July 2020 contains further details on the proposals, available as a PDF here.