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The platform economy is revolutionizing how we transact, connect, and create value. A platform is more than just a digital marketplace—it’s an ecosystem facilitating interactions between two or more groups, such as consumers and producers. By harnessing network effects, platforms grow and scale rapidly without owning the assets exchanged. This scalability has enabled platforms to dominate global e-commerce, now accounting for two-thirds of B2C sales.From global giants like Amazon and Uber to niche platforms advancing the circular economy, all share a common trait: enabling seamless transactions that drive efficiency and growth.

Platforms exist in many forms such as B2C and B2B marketplaces, service aggregators, rental platforms or traditional retailer transitioning to digital platforms.

From global giants like Amazon and Uber to niche platforms advancing the circular economy, all share a common trait: enabling seamless transactions that drive efficiency and growth.

The Rise of Platform Tax Obligations

Over the last decade, tax authorities worldwide have focused on platforms as key players in ensuring compliance. The introduction of VAT rules, driven by the shift to taxation at the place of consumption, marked the beginning of this trend. Authorities recognized that platforms, rather than individual sellers, were better positioned to efficiently collect VAT/GST/Sales Tax on behalf of multiple smaller vendors—it is simply much more efficient for tax authorities to engage with a single platform rather than many individual sellers.

Initially focused on digital services, the scope of platform obligations has expanded to include goods, services, and the gig economy. The “deemed supplier” rule often holds platforms accountable for collecting and remitting VAT/GST/Sales Tax on transactions they facilitate. While this imposes compliance burdens on platforms, it also presents an opportunity to level the playing field for local sellers who are charging tax on domestic sales.

Defining a “Deemed Supplier”

Defining what kind of platform constitutes a “deemed supplier” for tax purposes is complex, as it depends on the platform’s specific roles rather than a general definition. Different jurisdictions use varying terms like “marketplace facilitators,” “electronic distribution platforms,” or “electronic interfaces,” but the criteria are often similar:

• Authorizing charges
• Delivering services
• Setting terms of supply

Jurisdictions differ on whether these conditions must all be met (e.g., the UK) or if meeting just one suffices (e.g., the EU). Additional criteria, such as processing payments (e.g., Taiwan or South Africa) or the option to opt-in (e.g., New Zealand and Singapore), add further complexity.

Notably, the OECD’s 2019 paper on the role of platforms in the collection of VAT/GST emphasized adopting broad definitions to adapt to evolving commerce models and technology, allowing legislation to remain relevant. In summary, the concept is broad, though two major universal exclusions are pure payment processors and pure listing platforms. However, qualifying for these exclusions can easily be jeopardized by each additional interaction in the transaction due to the broad language mentioned above, especially with the ever-evolving e-commerce environment. Accordingly, it is imperative that the ecosystem supporting e-commerce undertakes a thorough review of its roles and obligations and how it interacts in each transaction.

Expanding Role: Sharing Information

The responsibility of platforms also extends beyond collecting VAT/GST/Sales Tax. A major issue for tax authorities has been the lack of visibility into a seller’s income, prompting them to introduce data-sharing requirements on platforms. These obligations aim to mitigate tax evasion risks and increase transparency.

Model Rules for Reporting by Platform Operators, developed by the OECD, have inspired frameworks worldwide. The EU’s DAC7, for example, mandates platforms to report seller activity to tax authorities, with analogous rules introduced in other countries such as the UK, New Zealand, and Australia.

The goal is to provide tax authorities with accurate data on seller activities and, in the future, enable pre-populated tax returns to simplify compliance. However, many platforms face challenges in maintaining systems, validating data, and educating sellers on their responsibilities.

Understanding the scope of these obligations is critical, as definitions and requirements vary by jurisdiction. In the EU, for instance, DAC7’s definition of a platform is broader than the “deemed supplier” rules for VAT purposes, encompassing “pure listing-only” companies that are otherwise exempt from deemed suppliers obligations. In some cases, these obligations may extend even further, as seen in discussions by Dutch tax authorities to include real estate agencies under DAC7 reporting requirements.

Expanding Role: Withholding Tax Obligations

In addition to VAT/GST/Sales Tax, platforms are increasingly responsible for withholding tax (WHT) on a seller’s income. This ensures tax compliance among freelancers or independent sellers operating on platforms. Countries like Italy, India, Mexico, and Vietnam have implemented WHT requirements, with more jurisdictions expected to follow.

For example:

• India: Imposes a 1% tax deducted at source (TDS) on sales by Indian sellers via online platforms, regardless of the platform’s location.
• Mexico: Requires platforms to withhold up to 20% from Mexican sellers and issue e-invoices to confirm deductions, presenting challenges for foreign platforms that are otherwise exempt from Mexico’s e-invoicing rules.

Italy: Applies WHT obligations to property rental platforms.

While WHT helps to ensure and simplify compliance for tax authorities, it creates operational complexities for platforms. They must calculate and remit WHT accurately and provide sellers with proof of such deductions for their own tax filings. Poor communication in this area can lead to disputes, as seen when sellers contested platform-imposed tax treatments.

The Double-Edged Sword of Regulation

The increasing volume of tax obligations presents a significant challenge for platforms. While regulations like VAT and WHT enhance transparency, equity, and compliance for tax authorities, they impose significant costs on platforms, from IT system upgrades to seller education programs. These obligations can delay market entry and complicate expansion, particularly in regions with inconsistent or overly stringent rules.

Moreover, platforms must balance their tax obligations with their core business models. Although not all platforms are directly liable for sellers’ transactional taxes as described above, they often still face scrutiny from tax authorities and the public. Proactively addressing the broader impact of tax regulations—such as their effects on sellers and user experience—is crucial for maintaining trust and fostering growth.

Looking Ahead: The Future of Tax and Platforms

The platform economy continues to thrive on scalability and innovation—the global cross-border e-commerce marketplace is projected to approach $8 trillion by 2030! Yet the rapid expansion of tax obligations threatens to significantly impact this momentum. So how can platforms continue to grow and expand in such a challenging environment? And indeed, can platforms even adapt to these growing obligations in a proactive way to offer their customers an increased value proposition by, for example, enabling them to expand to new markets without the burdens of dealing with local tax regulatory restrictions?

The key lies in adaptability. Investing in robust compliance systems, fostering transparency with sellers, and aligning tax strategies with broader business objectives can turn regulatory challenges into opportunities. Platforms that prioritize seller education and streamline tax processes can differentiate themselves, enhancing their reputation and market appeal.

At its core, a platform’s success depends on supporting its own constituents—its sellers and users. By embracing compliance as a means to build trust and scale efficiently, platforms can continue to thrive even as the tax landscape becomes more demanding. Ultimately, those that innovate to meet these challenges head-on will be best positioned to sustain growth and lead the next wave of platform-driven commerce.

Disclaimer: The views, statements or opinions expressed in this article are solely those of the author and do not represent tax advice and are not to be designated to be the views, statements or opinions of any other person, group, association or company.

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