Tax & Accounting Blog

Taxation and Sharing Economy

Blog, Indirect Tax, ONESOURCE July 25, 2016

Sharing economy is a concept that has been developed recently and can be heard very often nowadays. However, as a new idea, it represents certain challenges compared to the regular transactions or business models we were used to. These challenges go from regulatory issues to other aspects such as taxation, and represent a concern that countries need to address.

According to the Australian Taxation Office, sharing economy can be defined as a business model in which a facilitator who usually operates an app or a website connects buyers (users) and sellers (providers) in order to provide the users with different services, such as short term renting of a room or a whole house, rent of car park spaces, taxi travel services and others.

In this type of transactions usually bookings and payments are made from the users to the providers through the platform provided by the facilitator. Usually the providers of services are individuals and not companies, which makes the assessment of such activities more difficult from different perspectives.

From a tax perspective it is necessary to determine if the services rendered by the supplier represent a business or commercial activity to establish whether they are taxable or not, and in the case they are taxable, governments need to manage the collection of those taxes and also assess the tax rules compliance by the individuals providing those services, which can prove to be quite difficult.

Regarding the indirect taxation of these services, the European Commission has issued its opinion through the document “A European agenda for the collaborative economy” in which it states that the services provided through platforms giving rise to the sharing economy are in principle VAT taxable transactions. However, it acknowledges that given the nature of the services it can be difficult to qualify the suppliers as taxable persons, particularly regarding the assessment of economic activities carried on.

The European Commission is preparing different initiatives to increase the capacity of tax administrations to collect taxes on this type of business model. The Commission would like countries to improve tax collection by using the possibilities provided by collaborative platforms, as they already record economic activity. The Commission also believes that such platforms should cooperate with national tax authorities to improve the collection of taxes.

Regarding the cooperation between collaborative platforms and local authorities for the collection of taxes, it is important to highlight the case of Airbnb, which is partnering with local authorities around the world to collect and remit the Occupancy Tax that some of its hosts are due to pay. This is a very important first step and it may define the relation that the collaborative platforms will have to adopt with local authorities in order to be able to carry on their activities in each location.

As can be appreciated, the rise of the sharing economy brings complex issues that countries need to address, including the taxation of such activities. So far some measures have been adopted in order to regulate these activities from a taxation perspective, one of them being the cooperation of Airbnb with local authorities for the collection of Occupancy Taxes in different jurisdictions. However, many other taxation aspects still need to be addressed by countries around the globe and only time will tell how countries will deal with those issues.