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1. The perfect gig: tax authorities and online platform business models
When tax authorities leverage your business model for the collection and remittance of tax then it should be treated as a badge of honour. This is precisely what has happened when focusing on the phrase ‘platform economy’. This phrase has become synonymous with forward-thinking initiatives by jurisdictions across the globe but, in reality, the authorities are leaning on the carefully designed business models of platforms – that have effectively become tax collectors.
2. Why extend the tax collection obligation to service platforms?
Why are digital platforms and online marketplaces being burdened with so many obligations for the collection and remittance of VAT/GST on the sales that they facilitate?
Put simply, it is because their business model is similar to the one of other platforms. Digital platforms connect sellers and purchasers. As a result, these platforms have all the necessary data required to understand transaction flows and to determine the taxability of each sale that is facilitated. Such data include, among others, the status of the seller and the buyer; the transaction amount, and the location of the end customer, or the transport destination of the goods sold. In short, tax authorities now see platforms as agents whose business models they can leverage so that the correct amount of tax is collected on each online sale.
3. The dawn of a new era in the taxation of online sales
Such ‘forward-thinking’ taxation approaches began in earnest in 2015 around digital services when the EU’s VAT rules were amended thus shifting to the platform the obligation to account for VAT based on where customers of B2C sales of digital services were located.
Online businesses supplying digital services to EU customers (B2C) through such platforms were not liable to apply, collect, and remit the correct EU VAT. That obligation had shifted to the platforms. This was the beginning of a new era in how VAT/GST on sales of digital services were collected and remitted to tax authorities across the globe.
The second phase of this new era arrived when obligations on platforms started to extend to the collection and remittance of VAT/GST on low-value goods. On July 1, 2018, Australia’s GST rules on the importation of low value goods changed dramatically with new reporting obligations for digital platforms, or Electronic Distribution Platforms (EDPs) as they are referred to in Australian legislation. Since then, platforms have been liable for the collection and remittance of GST on sales of low value goods (valued at AUD1,000 or less on a per consignment basis) made via their platform. This approach to taxing low value goods sold via platforms has been mirrored to a large degree (there are differences in threshold values and whether the threshold is applied to single items or as consignments) in the UK, EU, New Zealand, Norway, and Singapore.
More recently, we have experienced a third phase in this taxation evolution, with the liability of digital platforms expanded further with a broadening of the definition of ‘services’ to include remote services (including non-digital ones) and a movement towards the gig and/or sharing economy.
4. Jurisdictions broaden the scope of their rules
The previously mentioned 2015 EU rules limited obligations for online platforms to digital services. But even before this seminal taxation change other jurisdictions were already starting to think about broadening the scope of such VAT/GST rules on any type of services. For example, Australia (and other jurisdictions) discussed such a broad approach some 10 years ago (in 2013) prior to amending its own GST legislation in 2017. Such a broad definition as employed by Australia is now becoming the norm and countries are amending their own legislation to extend the scope of the liability as described below.
The prior focus was not on the gig economy as it was considered that gig economy activity was mainly provided by local entities and that the tax authorities have the capacity to manage their residents. However, it was noticed that the local providers were small, and those obligations may be too much of a burden for them. In addition, it was considered that using a platform for small, unregistered providers was creating a distortion of competition compared to traditional business who need to charge VAT.
With the rise of the platform economy and borderless structure of today’s activities, tax jurisdictions are extending the scope of VAT/GST obligations of digital platforms.
Here we summarise how certain tax jurisdictions have focused on digital platforms and their role in the collection and remittance of tax on services:
4.1 European Union
Gig and sharing economy
The model of platform being the deemed supplier is expanding through ViDA.
The platform accounts for the VAT to ensure an equal economic ecosystem with the local hotel and passenger transport. ViDA is about levelling this playing field whilst not placing the burden on small businesses, but to let the platform be the fictional VAT collector.
Remote services, other than digital
With the evolution of technology, a question arose as to whether live streaming events are deemed to be digital services. The European Court of Justice (ECJ) had the opportunity to answer this question in the 2019 Geelen case, but it failed. In this case (webcam services filmed in the Philippines for sale online in the Netherlands), the ECJ ruled that as the organiser and the recipients were all located in the Netherlands, VAT was due in the Netherlands.
As a result, the ECJ left unanswered the question of whether the service should be considered as an electronically supplied (or digital) service.
However, EU legislation has evolved in this area, as it has in other tax jurisdictions. Indeed, as of 1 January 2025, the EU Directive 2022/542 dictates that the place of supply of such services (I.e. events where the attendance is virtual) will be where the recipient is established. Non-resident suppliers will be able to make use of the OSS simplified registration scheme. Effectively, this change means that live events will be taxed at destination (where consumption takes place) even though not being considered electronically supplied services since there is a certain degree of human intervention. This is a clear sign that the intention of the lawmaker is to tax, when possible, in the country of destination.
4.2 India
Gig and sharing economy
Since January 1, 2022, platforms must collect and remit GST on certain supplies made by their sellers. India’s GST legislation does not distinguish between the gig economy and the shared economy – GST liability depends upon the nature of the service provided by the supplier. Platforms only need to register and pay GST for sales facilitated by it for certain services, these include:
- Transportation of passengers by a radio-taxi, motorcab, maxicab, motorcycle, omnibus or any other motor vehicle;
- Providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes;
- Housekeeping, such as plumbing, carpentering etc; and
- “Restaurant service” other than the services supplied by restaurants, eating joints etc. located at specified premises (hotel)
Remote services, other than digital
As of January 2023, India also expanded the scope of its OIDAR (Online Information Database Access and Retrieval) definitions and while we are still waiting for more clarity it seems to include services. India’s Budget 2023 stated that once a service is provided “online” then it is likely to be covered in the expanded scope. Once again, this is a broad application of definitions allowing more services to be within the scope of India’s GST rules.
4.3 Canada
Gig and sharing economy
Canada’s rules target providers of short-term accommodations located in Canada and accommodation platform operators that facilitate such supplies. Under these rules, registered Canadian or non-resident suppliers would be required to collect sales tax on supplies of short-term accommodation located in Canada. Where the suppliers are not themselves registered, the platform would be charged with collecting the sales tax on behalf of the suppliers as well as collecting tax on the services provided to the suppliers. Provinces that administer their own sales tax regimes followed suit and introduced rules addressing short-term accommodation platforms.
There are no other Federal or provincial rules specifically targeting or addressing transport services. However, the tax authority of Québec did enter into a specific agreement with Uber whereby Uber is required to collect and remit Québec sales tax on behalf of its drivers.
Remote services, other than digital
In addition, Canada opted for a broader definition of services included in its simplified sales tax regime, which means the rules do not include only digital services but also those that involve human intervention, provided that the service may be used or consumed in whole or in part in Canada.
4.4 New Zealand
Gig and sharing economy
In New Zealand, new rules that are planned to come into effect in April 2024 will mean gig economy platforms will have to collect and remit GST on the sales that they facilitate.
Remote services, other than digital
New Zealand’s Inland Revenue Department (IRD) has defined ‘remote services’ by listing services that can be included. There is no distinction between intangible and tangible services. Therefore, affected remote services in New Zealand can include:
- Digital content such as e-books, movies, TV shows, music and online newspaper subscriptions
- Games, apps, software and software maintenance
- Online gambling services
- Website design or web publishing services
- Legal, accounting, insurance or consultancy services.
4.5 Mexico
Gig and sharing economy
In 2020, reforms were implemented in Mexico to support gig and sharing economy sellers to comply with their tax obligations. The main change was to place withholding and reporting obligations on gig and sharing economy platforms for income tax and VAT owed by the seller.
Remote services, other than digital
In Mexico, the live streaming of events, and the sale of tickets for such events, is considered as a digital service and the digital platform is liable for the tax on the supply of this service.
4.6 Argentina
Gig and sharing economy
From April 1, 2023, Argentina’s tax authority (AFIP) updated its VAT withholding regime for digital platforms that had been applicable since 2010. Since then, digital platforms are required to act as VAT withholding agents on the sales (subject to thresholds) of products and provision of services via their platforms by Argentina-based sellers. Due to inflation pressures, another change is that the regime applies to sellers with 10 monthly transactions and above, and total monthly transaction amounts of at least 200,000 Argentine pesos. This was an interesting change as up to January 2023 collection of VAT was made in Argentina through financial intermediary.
Remote services, other than digital
A noteworthy element of the rules in Argentina is that not all digital services are in scope. The AFIP have compiled a list of non-resident suppliers. The list is not exhaustive as some large companies are absent. Domestic consumers and payment providers can view this list to know the affected services for which Argentina VAT should be applied. The collection of the VAT, however, is by financial intermediaries such as domestic banks.
5. The evolving interpretation of traditional services
Dealing specifically with professional services (or those typically seen as gig economy activities) we understand the traditional interpretation has been that the person providing the service and the customer of the service would be in the same country. Therefore, it was straightforward for the relevant tax authority to go after them, and it was not too burdensome for the domestic seller to comply.
This has evolved, people can now work from anywhere and sell their service to a customer located anywhere. This complicates matters for traditional taxation models that are based on the presumption that the seller and the customer are in the same jurisdiction.
6. Expanded scope of services
Recently, as mentioned above with India we have seen an expansion of the definition of services when the scope was previously limited to digital services. For example, Singapore and Norway have also extended the scope of affected services to cover remote services as of January 2023.
6.1 Singapore
In Singapore such rules came into effect on January 1, 2023, and so-called “remote services” are now within the scope of Singapore’s GST rules. Remote services do not require the customers to be physically located where the services are performed. Common examples include professional services; personal services (e.g., online personal trainer); education, development, and examination services (e.g., distance learning classes), and membership to professional associations such as accounting and other bodies. Platforms that facilitate the sales of such remote services to customers based in Singapore are now responsible for the collection of remittance of GST to Singapore’s tax authority.
6.2 Norway
At the same time, Norway’s VAT on Ecommerce (VOEC) rules also changed and expanded, according to Norway’s Skatteetaten, from “only applying to low value goods and electronic services to also include all services capable of delivery from a remote location (remotely deliverable services) – for example, legal services and consulting services.” As a result, platforms are now liable for the collection and remittance of Norway VAT when they facilitate sales of such legal services and consulting services.
Here we list some approaches from various tax jurisdictions that had a broad definition and included professional services:
6.3 Albania
In Albania a recent instruction from the Ministry of Finance uses the concept of “effectively used and enjoyed” in Albania when defining services. This approach opens the possibility of all services sold online to customers in Albania as being within the scope of Albania’s VAT rules.
6.4 Egypt
In March 2023, Egypt released its VAT rules and guidelines for B2C digital services and other remote services provided by non-residents. Remote services (electronic and digital) are defined in guidelines released by Egypt’s tax authority as “any services where, at the time of the performance of the service, there is no necessary connection between the physical location of the recipient and the place of physical performance.”
Those businesses supplying such B2C services must register with the Egypt tax authority via the Simplified Vendor Registration Regime. Registrations become effective from June 22, 2023. There is a threshold for registration of EGP500,000 in revenue within a 12-month period.
6.5 Turkey
In Turkey, a broad approach to the definition of services is also applied. It states that services are “all services related to goods and services sales through places where sellers and buyers come together via the internet or any electronic network and carry out transactions (including the sale of rights to put goods or services up for sale on a website).”
The phrase “where sellers and buyers come together via the internet” can come to mean many types of e-commerce but crucially there are no types named by exception. It is believed that the Turkish tax authorities were very deliberate to have a broad interpretation of what a service is to cover all sorts of services.
6.6 United States
In the United States there is the concept of marketplace facilitator and if one meets a particular State’s definition of a marketplace facilitator then you will be liable for everything on which there is sales tax. There are no questions of what is in scope or not as taxability is assessed at a product and/or service level. If the product or service sold via the marketplace facilitator is subject to sales tax, then the marketplace facilitator has the obligation to collect and remit sales tax to the relevant U.S. Jurisdictions.
In general, services are often outside the scope of sales tax in the U.S. However, if they were in scope then the marketplace would have the obligation for the collection and remittance of the sales tax applied to those services.
6.7 Uganda
Uganda introduced new VAT rules affecting accommodation and transport platforms in 2023. These rules come into effect on July 1, 2023.
6.8 Uzbekistan
In Uzbekistan, simply supplying services via the internet is enough for it to be considered as a digital service. Article 282 of the Uzbekistan tax code covers a multitude of different activities that can be supplied via the internet. This broad approach means ‘remote’ services such as consultancy and training are within the scope of Uzbekistan’s VAT rules.
6.9 Vietnam
Interestingly, the situation in Vietnam for ‘remote services’ is different to the approaches referenced in other jurisdictions. For example, online consulting services are subject to VAT, but online training services are not subject to VAT. When selling the latter, proof must be provided upon the tax authority’s request that what is being sold is online training.
7. An ever-increasing number of obligations for platforms
As the FT.com stated in its article titled ‘The Rise of the Platform Economy’, the digital economy is “impossible to ignore.” The trend is that online commerce will only increase: “(T)he proportion of online consumers is still expected to increase from 32 per cent in 2021 to 34 per cent by 2025. In other words, 2.77bn of the world’s population of 8.2bn will shop online.”
It is to this backdrop that governments need to tread carefully to not over-regulate and constrain online commerce. There is a risk that over-regulation will reduce the number of active platforms (over-burdened by obligations) and thus diminish choice for consumers.
We have seen a rapid evolution of tax collection obligations placed on digital platforms beginning with the 2015 VAT rules in the E.U. We have monitored and analysed these obligations as they have stretched to include the sales of low value goods and now, more recently, to the supplies of ‘remote services’. The taxation evolution has been burdensome for many digital platforms as they are weighed down by more and more obligations in the name of progressive tax policies. The simple fact is that they are victims of the success of their own business models. They are providing the perfect bridge for tax authorities as they link sellers and buyers online, it was only natural that the obligation for collection and remittance would fall on their shoulders.
This method of tax collection and remittance is now broadly accepted. Today, a platform — no matter its offering and size — needs to review its obligations and focus on solutions that will enable its growth and support its needs for today and tomorrow.
One of the toughest conundrums that platforms face is that liability is not always straightforward. There are scenarios when they are not liable determined by issues such as the value of goods, the platform location, or the registration status of the customer. There is also a lack of uniformity amongst tax jurisdictions on the scope of these rules. There is uncertainty created by how legislations have been drafted, there has not been a standard approach in relation to definitions, etc. This makes it difficult for platforms to understand the rules and their scope. In addition, there is no library of case law on this form of taxation as tax jurisdictions are still learning about how the digital economy works which will no doubt mean more amendments in the future. Platforms are also unsure how tax jurisdictions will enforce these new tax laws and whether they will be business friendly.
The digital service rules (such as those introduced in the E.U. in 2015) are live in more than 70 jurisdictions; the specific rules on low value goods are in use in circa ten jurisdictions, while the gig economy-centric rules are in their early stages and are also present in about ten jurisdictions. This mish-mash approach leads to confusion for platforms as to when and where they are liable – leading in turn to increased costs in terms of research and advice.
The modern digital platform is filling the role of the de-facto tax collector. But the platform cannot forget the needs of its own merchants who are requesting more and more support. This support is not just in relation to tax issues. The obligations of marketplaces are not limited to tax but are now broader and include, among many others, sharing information on their sellers to tax authorities. All this is before we even start to discuss audits which are expected to begin very shortly given the outcome of the recent Fenix International case law (C-695/20) by the Court of Justice of the European Union. The obligations have only just started.
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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.
