Annex C. Considerations for domestic legislation for effective taxation of platform sellers for direct tax purposes

Background

One option to boost tax compliance in the area of sharing and gig economy is to introduce specific legislation as is already the case in a number of jurisdictions.

Jurisdictions may wish to consider the following elements that could be incorporated into domestic legislation focused on enhancing the effective taxation of platform sellers as well as providing flexibility to adapt to any future international standardisation or international exchange of information.

Scope

Legislation could be designed to cover all sectors of the sharing and gig economy or to address those sectors where there may be a greater risk of tax non-compliance or higher levels of tax at risk. Where only some platforms are included within scope, consideration needs to be given to competition issues.

Where legal obligations are placed on non-resident platforms, consideration needs to be given to how to enforce those obligations.

In order to ensure flexibility for future developments, consideration should be given to retaining flexibility in legislation to change the scope of legislative requirements, including the ability to collect information on behalf of other tax administrations where an international exchange agreement is in place.

Information requirements – on-boarding

Sharing and gig economy platforms have in place on-boarding procedures by which they collect data on platform sellers upon registration. Legislation could require online platforms to acquire specific data which could then be communicated to tax authorities in an appropriate format. For example, platforms engaging in the conclusion of the rental contract could be required to collect the following data: name and lessor’s TIN, lessor’s address (including the country of residence), date of birth, duration of contract, address of the immovable property, gross amount of rental and bank account number.

In order to ensure flexibility both for future developments in the platform economy and to respond to possible future standardization of requirements, consideration should be given to retaining flexibility in legislation to add to, or adapt future information recording requirements.

Due diligence requirements

Legislation can provide for minimum due diligence requirements by the platform to ensure a high degree of reliability of the information provided by platform sellers. These would need to be in line with data protection rules concerning the processing of personal data.

Questions to be considered include:

  • what information should be provided by the platform seller during on boarding procedures, or where there are changes in circumstances

  • should this information be in line with anti-money laundering requirements or are there different considerations, for example for proportionality reasons

  • what records should be kept of checks done or documents received (including electronically)

  • how can due diligence requirements be enforced where platforms have no physical presence in the jurisdiction.?

    In order to ensure flexibility for future developments, including possible international agreements, consideration should be given to retaining flexibility in legislation to change due diligence requirements.

Withholding

Jurisdictions may wish to consider the introduction of a withholding tax levied by sharing and gig economy platforms on the gross income received by platform sellers for services provided or goods sold via sharing and gig economy platforms.

The introduction of legislative provisions implying a withholding tax obligation on intermediaries, e.g. platform providers that provide end-to-end services for their customers, may help to achieve tax certainty as to tax liabilities and a reduction in complexity for platform sellers. Moreover, given the large and potentially growing number of platform sellers, a withholding tax may be seen as an effective measure compared to resource intensive audits involving large numbers of individuals many of who may receive relatively small amounts of income.

Questions to be considered include:

  • should legislative simplifications be introduced to reduce burdens on platforms from applying different rates and thresholds

  • should taxpayers have the option to have withholding tax applied or to be subject to existing rules for reporting and payment of tax

  • how can over-withholding be minimized to avoid large numbers of new interactions with taxpayers over potentially small amounts

  • should differential tax rates and/or thresholds be applied for withholding arrangements

  • should withholding be targeted to individuals not running a business activity

  • how can withholding be applied where a platform has no physical presence in the jurisdiction?

Reporting requirements

Legislation could impose reporting obligations on online platforms, in particular those acting as intermediaries facilitating payments.

Questions to be considered include:

  • should platforms be required to send identity information on all platform sellers to the tax administration to ensure that they are registered for tax before undertaking activity

  • should platforms be required to provide all relevant data for a given period to the platform seller to facilitate self-reporting

  • what data should be collected and sent to tax administrations to enable the matching of taxpayers and/or pre-filling

  • are different data sets required for different types of platform (for example where immoveable property is concerned)

  • how frequently should data be sent, for example to enable pre-filling of tax returns, and should this be a minimum frequency (for example allowing platforms to develop real-time options)

  • what format should the information should be sent in (for example XML)

  • what sanctions should be imposed for non-reporting

  • how can reporting be enforced where platforms have no physical presence in the jurisdiction?

    In order to ensure flexibility for future developments, consideration should be given to retaining flexibility in legislation to change reporting requirements, including format and periodicity. For example, future technology solutions such as application programming interfaces may allow real-time reporting direct into tax administration systems.

International exchange matters

To help overcome concerns about the enforceability of requirements on platforms which have no physical presence, consideration could be given to provisions enabling the reciprocal automatic exchange of information with other tax administrations where a suitable international agreement (such as a competent authority agreement under Article 6 of the Multilateral Convention on Mutual Administrative Assistance) is in place.

Such provisions could allow for the exchange of information among some tax administrations prior to the outcome of multilateral policy discussions and could also enable the swift implementation of any multilateral agreements.

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