In this article, we look at the OECD's work to harmonise tax rules for the gig and sharing economy.
The rise of digital technologies has allowed individuals and businesses to provide various services to consumers through online platforms and apps, such as holiday accommodation, ride-sharing, and food delivery services.
As with other areas of the digital economy that have developed so rapidly in recent years, these business models exposed blind spots in countries' tax rules and lawmakers are now beginning to catch up.
To solve the conundrum of collecting tax from the gig and sharing economy, governments are increasingly looking to the platforms themselves to administer and enforce tax rules.
In addition, many countries now require these platforms to report transaction data directly to the tax authority, allowing it to more easily target its compliance activities. However, while this solved one part of the problem for countries, it gave rise to another for businesses: the proliferation of different reporting rules and standards at the jurisdictional level.
Model Rules for Reporting by Platform Operators (MDRP)
In July 2020, the OECD released new model rules for sharing and gig economy platforms to report information on transactions to tax authorities. Known as the MDRP, the model rules utilise a three-pronged approach including:
- a targeted scope of transactions to be reported, focusing on accommodation, transport, and other personal services;
- a broad scope of platform operators and sellers, to ensure that as many relevant transactions as possible are being reported; and
- due diligence and reporting rules that ensure that accurate information gets reported without imposing overly burdensome procedures on platform operators.
The adoption of the model rules, in place of these disparate regimes, is intended to benefit tax authorities and support growth in the digital economy. It will also enable tax agencies to better share the information they receive from platforms with other states.
Information exchange and VAT
The next step in the process will be the release of a new framework for the international exchange of information received from sharing and gig economy platform operators later in 2021. According to the OECD, this will "greatly facilitate and ensure tax compliance by online sellers."
Another important aspect of this work is the ongoing implementation of the OECD's standards for the effective collection of VAT on online sales of goods, services and digital products. These standards include new measures to make e-commerce marketplaces liable for VAT and similar taxes not paid by business users on their platforms.
As of February 2021, 69 countries had implemented these standards, with a further 40 in the process of doing so, according to the OECD, which intends to shortly release new guidance on appropriate VAT rules for the sharing and gig economy.