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The terms ‘marketplace facilitator’, ‘intermediary’, ‘electronic distribution platform’, or ‘electronic interface’ are used across the globe in various tax rules to define the platform that is liable for the collection of VAT/GST/sales tax and are, effectively, interchangeable.
There are many different platform business models and the OECD’s March 2019 report The Role of Digital Platforms in the Collection of VAT/GST on Online Sales did not attempt to define “digital platforms” as “it is a concept that is likely to evolve over time.” The authors were not to know just how quickly this evolution would occur.
Online commerce has been a bullet train in evolutionary terms and, today, it is possible that two or more platforms may be involved in a supply chain. Such incidents are magnified with the rise of Artificial Intelligence (A.I.) tools that have quickly morphed into platforms. Today, transactions performed on such A.I. platforms invariably involve two entities, or two platforms. In such scenarios it is difficult to assess on which platform the transaction really occurred and this may be further clouded with the evolution of technology.
As the nature of sales online evolves, so too will the age-old method of assessing the tax-liable party. In a whirlpool of record-breaking numbers of consumers buying online, both platforms and tax jurisdictions still crave certainty: who is the liable party for the collection and remittance of tax?
In this article we delve into the guidance provided by different jurisdictions when faced with sales where multiple platforms are involved. Think about your last online sale, who did you make the purchase from? Did you know what entity was collecting and remitting the relevant tax applied to the sale? Did you check the invoice? And the all-important question is: which one is the liable party for the collection of tax?
Interestingly, the 2019 OECD report (section 2.2.2) anticipated this possibility i.e. where more than one digital platform (eligible to be liable for VAT/GST collection) is present in a supply chain. Here, the OECD guidance is that tax authorities could “consider applying hierarchy rules”.
Involvement of multiple platforms in an online sale: who is liable?
Following on from the guidance mentioned above from the OECD, that tax authorities could consider applying a hierarchical approach to the liable party in the case of multiple potentially-liable platforms involved in an online sale, it is relevant to consider the approaches taken by numerous jurisdictions.
Australia, for example, relies on the contract to determine who is liable for the Australian GST that applies to an online sale. If there is no written agreement then Australia’s default rules fall back on which is the first entity to authorise the charge for the sale. If such criteria does not apply then the next rule looks to which is the first entity to authorise the delivery of the supply. Finally, the Australian Commissioner of Taxation also has the “power to prescribe, by legislative instrument, additional rules to determine which EDP operator is responsible for GST. These additional rules will operate only in the absence of a written agreement between the EDP operators.”
Other jurisdictions, to a large degree, follow Australia’s path with some crucial differences. Both Singapore and New Zealand place their focus on who authorises the charge to determine who is the liable party for the collection and remittance of the respective GST in these jurisdictions. Where Australia has default rules no such default approach exists in Singapore and New Zealand.
In an FAQ section of a recent Inland Revenue Authority of Singapore (IRAS) guidance titled Taxing imported remote services by way of the overseas vendor registration regime, the IRAS highlights that the entity that authorises a charge or receives a payment from the end customer in Singapore will be the liable party for the collection and remittance of Singapore GST.
It is key to acknowledge that both Singapore and New Zealand also have a clause that you can decide by contract who will collect the tax. It means that platforms can agree to shift the tax liability to another platform.
Elsewhere, section 2.1.8 of the EU’s explanatory notes for the 2021 VAT on e-commerce Rules covers the involvement of several electronic interfaces:
“It entails that there can only be one electronic interface that is the deemed supplier, this being the electronic interface where the order is taken and through which the supply is concluded. Any other intermediary in the supply chain typically carries out a B2B supply either to the underlying supplier, to the electronic interface being the deemed supplier or to potentially any other electronic interface.”
In the United Kingdom, it is HMRC’s view that the “platform operator” is the entity that contracts with the seller. This is the case even if “this is not the same as the platform or entity that provides the ‘platform’ and facilitates the provision of relevant activities,” according to this useful Institute of Chartered Accountants in England and Wales (ICAEW) article. The article adds that the platforms can “agree which one will collect and report the required information.”
In detailed information relating to the identification of the reporting platform, the UK Government states that a reporting platform operator is not required to comply where it “reasonably believes that another platform operator is required to, and will, include in a report the information it would otherwise be required to include in a report.”
In India, the liable platform in an online sale involving multiple platforms will be the one which contracts with the seller. Such scenarios of multiple platforms being involved in an online sale were covered in a July 2023 circular issued by India’s Central Board of Indirect Taxes & Customs (CBIC).
Not all major jurisdictions have provided clarity on the topic of multiple platforms involved in an online sale, and the resulting issue of determining liability.
Canada’s guidance, for example, is not clear when it comes to the involvement of multiple platforms in an online sale. The rules as they are written in Canada offer no guidance as to what represents “facilitating” the making of supplies.
Only a “distribution platform operator” is required to collect GST/HST under Canada’s specified regime. Such a “distribution platform operator” can be identified using three criteria, it:
- controls or sets the essential elements of the transaction between the supplier and the recipient;
- if paragraph (a) does not apply to any person, is involved, directly or through arrangements with third parties, in collecting, receiving or charging the consideration for the supply and transmitting all or part of the consideration to the supplier; or
- is a prescribed person.
However, again, the rules in Canada are silent in defining the first function: “controls or sets the essential elements of the transaction between the supplier and the recipient”. As a result, it is difficult to determine what platform would be the liable party in a scenario where multiple platforms are involved in an online sale.
In the United States, this point was not specifically covered by initial legislative developments regarding marketplace facilitator laws. However, in April 2023, the State of Massachusetts issued a working draft document on the topic and we can expect more States to follow. In this working draft the possibility of a marketplace facilitator assuming the tax liable party role on behalf of another marketplace facilitator is entertained.
Platform-on-platform sales are an e-commerce trend gathering pace given the exponential growth of these platforms in the last few years. The concepts we have covered in this article will continue to evolve and increase in frequency with the development of new business models. As we have covered above with India and the new draft law in Massachusetts we should expect more jurisdictions to amend legislation or provide additional guidance.
Indeed the OECD – in its recent VAT Digital Toolkit for Africa – advances the logic of using platforms for the collection and remittance of VAT due by another platform: “A non-resident supplier or digital platform may have entered into a commercial agreement with a third party whereby the third party agrees to assume contractual liability for VAT compliance, including VAT payment, on behalf of the non-resident business as part of the contractual arrangement […]
[…] in practice, often itself a digital platform that will be subject to full VAT liability obligations under the taxing jurisdiction’s simplified compliance regime.”
This approach as recommended by the OECD may help smaller platforms to develop and grow as it would remove certain obligations. In turn this would foster growth and enable the sector to expand and serve more consumers globally – leading to additional tax revenue for jurisdictions that future-proof their legislation.
It is a real possibility that in the coming years there will be multiple layers of platforms involved in online sales. Clearly, the key criteria will be the contract but (and here is the critical part) it will also have to be fair and based on the capacity of the parties to manage tax collection obligations. The scope of legislations that have been introduced are broad enough with non-rebuttable presumptions included to prevent parties from opting out of their obligations.
As online sales continue to skyrocket the real-time assessment of who is the tax-liable party becomes increasingly important. This determination can be helped by focusing, as stated, on the contractual approach as it provides a basis for clarity and certainty. And this is something that all parties involved in e-commerce crave.
Image by: Esi Grünhagen from Pixabay
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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.
