Chapter 1. The VAT/GST collection challenges of digital trade and the role of digital platforms in addressing them

This chapter provides the overall context for this report, most notably the explosive growth in online sales to private consumers, its challenges for VAT/GST collection and competitiveness and the possible role of digital platforms in the efficient and effective collection of VAT/GST on these sales. The chapter also describes the objective and the scope of this report and provides an overview of the measures identified and analysed by this report.


1.1. Introduction

This chapter outlines the overall context for this report, most notably the explosive growth in online sales to private consumers, its challenges for VAT/GST collection and for competitiveness and the possible role for digital platforms in more efficient and effective collection of VAT/GST on these sales. The chapter also describes the objective and the scope of this report and provides an overview of the measures identified and analysed by this report.

1.2. Digital trade growth and its challenges for VAT/GST collection

1.2.1. Increasing digitalisation and the growth in e-commerce

The increasing digitalisation of the economy1 has fundamentally changed the nature of retail distribution channels for sales of goods and services/intangibles to private consumers (business-to-consumer or B2C sales). Traditionally, a consumer would make a purchase from a local store. Now their first port of call is frequently a website of that store, an online supplier in the case of digital goods, a seller based in another country or increasingly a digital platform through which many suppliers make sales.

Global B2C e-commerce sales of goods alone are now estimated to be worth in the region of USD 2 trillion annually with projections indicating they may reach USD 4.5 trillion by 2021, USD 1 trillion of which is estimated to be cross-border e-commerce (eMarketer, 2018[1]) (Asia-Pacific Economic Cooperation, 2018[2]) (United Nations Conference on Trade and Development, 2019[3]) (World Trade Organization, 2018[4]) (Accenture and AliResearch, 2016[5]).2 Currently, approximately 1.6 billion consumers are buying online and this is estimated to grow to 2.2 billion consumers by 2022 (Statista, 2017[6]). While growth is slowing in mature markets, it has not yet reached saturation taking into account the scope for increasing Internet penetration in certain regions and the clear potential for increased spending together with higher value purchases as consumers gain greater confidence in using online channels.

It is mainly the growth in international online B2C trade, both in volume and in numbers of participants, which has created the most pressing challenges for VAT/GST collection. The VAT/GST on cross-border business-to-business (B2B) trade in services and intangibles, which also continues to grow, is generally collected through a reverse-charge or self-assessment mechanism, as recommended by the OECD International VAT/GST Guidelines (the “Guidelines”) (OECD, 2017[7]).3 These self-assessment mechanisms generally work well in a B2B context – however, they are largely ineffectual in a B2C context and this is becoming more and more relevant in light of the exploding B2C online trade.

A key driver in the rapid growth of e-commerce is the role of multi-sided platforms such as e-commerce marketplaces. Multi-sided platforms are platforms that enable, by electronic means, direct interactions between two or more customers or participant groups (typically buyers and sellers) with two key characteristics: (i) each group of participants (“side”) are customers of the multi-sided platforms in some meaningful way, and (ii) the multi-sided platform enables a direct interaction between the sides. For the purposes of this report, these multi-sided platforms are hereafter referred to as “digital platforms”.

Digital platforms allow business, particularly smaller businesses, to efficiently access millions of consumers in what is now a global marketplace. Indeed recent research suggests that 57% of cross-border supplies of goods are purchased via only the three biggest digital platforms, with many other platforms operating at a domestic level and in geographic clusters (International Post Corporation, 2017[8]). As a result, it is estimated that approximately two in every three e-commerce supplies of goods are made via digital platforms with one out of three made through direct sales (see Figure 1.1).

Figure 1.1. Global E-Commerce sellers by category (2017)
Figure 1.1. Global E-Commerce sellers by category (2017)

Note: The survey covers a number of markets, including North America, Europe, Latin America and Asia-Pacific regions. While the survey covers B2C e-commerce in the United States, it is relevant to note that the U.S. does not apply a VAT and therefore these supplies are not subject to VAT although they may be subject to sales taxes at sub-national level. For more details, please see the survey report available at

Source: OECD analysis based on the Cross-border E-Commerce Shopper Survey 2017 by International Post Corporation (IPC) (International Post Corporation, 2017[8]).

1.2.2. The relevance for VAT/GST

Taking into account the continuously expanding volume of e-commerce sales, and the fact that most of these sales should in principle be subject to VAT/GST, the amounts of VAT/GST revenue at stake are considerable. As already identified in the Report on Action 1 “Addressing the Tax Challenges of the Digital Economy” of the OECD/G20 Base Erosion and Profit Shifting Project (“2015 BEPS Action 1 Report”) (OECD, 2015[9]), cross-border trade in goods, services and intangibles (which include for VAT/GST purposes digital downloads) creates challenges for VAT/GST systems, particularly where such products are acquired by private consumers from suppliers abroad. The digital economy magnifies these challenges, as the evolution of technology has dramatically increased the capability of private consumers to shop online and the capability of businesses to sell to consumers around the world without the need to be present physically or otherwise in the consumer’s country.

The main VAT/GST challenges related to the digital economy that were identified in the 2015 BEPS Action 1 Report are (i) imports of low-value parcels from online sales which are treated as VAT/GST exempt in many jurisdictions, and (ii) the strong growth in the trade of services and intangibles, particularly sales to private consumers, on which often no or an inappropriately low amount of VAT/GST is levied due to the complexity of enforcing VAT/GST payment on such supplies (OECD, 2015[9]).

Recommended approaches for addressing the key challenge of collecting the VAT/GST on the sales of digital products to private consumers by foreign suppliers are presented in the Guidelines (OECD, 2017[7]) and in the 2015 BEPS Action 1 Report (OECD, 2015[9]). In considering and implementing these recommended approaches, countries are increasingly examining the role that digital platforms can play in the collection of the VAT/GST. Several jurisdictions have already introduced or have signalled the introduction of measures involving the digital platform in the VAT/GST collection on sales of digital services via platforms. A key reasoning behind this approach is that the platform is viewed as taking the role of a ‘store’ with an offering of different supplies such as digital supplies of music, films, books, games and software applications, and in many cases act as the sole point of contact with the end consumer including in respect of service delivery. Importantly, it is also seen as an efficient and effective means for collecting the VAT/GST which has had largely positive results.

1.2.3. The particular challenge of cross-border supplies of goods

Meanwhile, the exploding volume of cross-border online sales in goods has created increasingly important challenges for VAT/GST regimes and customs authorities. Many jurisdictions apply an exemption from VAT/GST for imports of low-value goods4 as the administrative costs associated with collecting the VAT/GST on the goods is likely to outweigh the VAT/GST that would be paid on those goods.

These exemptions for imports of low-value goods have become increasingly controversial in the context of the growing digital economy. At the time when most of these exemptions were introduced, Internet shopping did not exist and the level of imports benefitting from the relief was relatively small. Over recent years, many VAT/GST countries have seen a significant and rapid growth in the volume of low-value imports of goods on which VAT/GST is not collected resulting in decreased VAT/GST revenues and potentially unfair competitive pressures on domestic retailers who are required to charge VAT/GST on their sales to domestic consumers. It is no longer considered acceptable in an increasing number of countries that this continuously growing volume of goods from online sales is imported without VAT/GST as a consequence of the exemption for imports of low-value goods. This is not only because of VAT/GST revenue losses, but also because of the unfair competitive pressure on domestic businesses that are increasingly incapable of competing against the continuously rising volumes of VAT/GST-free online sales of goods, and the associated negative impacts on domestic employment and direct tax revenue.

Tax and customs administrations are also facing challenges in respect of the collection of VAT/GST at importation above the VAT/GST threshold. To underline this, a 2016 study by Copenhagen Economics, using real purchases, estimated a non-compliance rate of 65% for e-commerce supplies from outside the EU to EU consumers via the postal channel (Basalisco, Wahl and Okholm, 2016[10]). This study also included purchases where both customs duty and VAT were payable on importation, i.e. involving importation of goods above the VAT/GST exemption threshold and the de minimis exemption threshold for customs duties.5 The VAT/GST on importation and the customs duties are generally collected by customs authorities. It is relevant to recall, however, that customs authorities carry out many other critical functions including the facilitation of trade, the control of drugs and drug precursors, the control of intellectual property rights and importantly the safety of citizens in respect of the importation of dangerous goods and the threat of terrorism. Against this background, the World Customs Organisation (“WCO”) has identified that growth of trade in goods from e-commerce is presenting significant challenges to customs and tax authorities, and has acted through the establishment of an e-commerce working group that is developing policy responses as a priority. In this context, the WCO has delivered in June 2018, a Cross-Border E-Commerce Framework of Standards (see Annex G), one of the core objectives of which is ensuring efficient revenue collection.

The challenges faced by tax authorities even where VAT/GST and customs duties should be collected, i.e. on imports above the VAT/GST threshold and/or the de minimis customs duties threshold, indicate that a solution which simply involves the removal of the low value exemption is not the answer. Such a solution without supporting measures is likely to be counter-productive, with customs having to control more consignments with knock-on effects for other functions. Therefore, as outlined in the 2015 BEPS Action 1 Report (OECD, 2015[9]), smarter solutions are needed which seek to collect the VAT/GST more effectively – most notably through the involvement of digital platforms in the collection of the VAT/GST and the use of simplified registration and compliance mechanism.

Several jurisdictions, notably Australia and the EU,6 have already legislated to make platforms liable for the collection of VAT/GST in respect of goods, although these provisions have been limited in both cases to imports of goods below the respective de minimis thresholds for customs duties. Additionally, the EU has made provisions for the sharing of information with tax authorities and several countries are applying provisions for joint and several liability to assist with compliance. Indeed, a key driver for several jurisdictions in applying simplified registration and compliance models and digital platform liability is to free up customs resources and allow these authorities to focus on those other critical functions.

It is relevant also that the jurisdictions that have introduced the measures outlined above, have indicated that a key driver in taking these actions is the need to protect domestic business, in particular bricks and mortar retailers from unfair competition in addition to protecting tax revenue.

1.3. Delivering consistent solutions for the involvement of digital platforms in the collection of VAT/GST on online sales

1.3.1. Objective of the report

As indicated above, jurisdictions have acted or are considering acting in respect of the role of digital platforms in the collection of VAT/GST on online sales. The OECD's Working Party No.9 on Consumption Taxes (WP9), which consists of VAT/GST policy officials from OECD members and Partner countries, signalled in 2017 an urgent need for work on consistent solutions in this context. This does not mean that the possibility of other measures to enhance the VAT/GST collection on online sales is discarded, but rather reflects the significant role that digital platforms play in respect of online sales, which is why countries have requested guidance on how this can be done efficiently and consistently across jurisdictions.

The overall objective of this work is to achieve efficient and effective solutions for involving digital platforms in collecting VAT/GST on online sales without creating undue administrative costs and compliance burdens. The objective is to bring benefits to tax authorities in terms of workable and proven solutions, while limiting compliance burdens on platforms through a coordinated multilateral policy dialogue. This work has proceeded as a priority for WP9, and has benefitted greatly from the engagement of the business and academic community through the Technical Advisory Group to WP9 (TAG).

In carrying out this work on the possible roles of digital platforms in VAT/GST collection, it is important to ensure as much consistency as possible across jurisdictions. Greater consistency among country approaches will further facilitate compliance, particularly by businesses that are faced with multi-jurisdictional obligations, reduce compliance costs and improve the effectiveness and quality of compliance processes. For tax and customs authorities, consistency is also likely to support the effective international co-operation in tax administration and enforcement.

This work is also developed against the background of the G20 tax certainty agenda.7 This relates to the importance of providing greater tax certainty to taxpayers to support trade, investment and economic growth which has become a shared priority of governments and businesses. In bringing forward this work, it is recognised that there is a spectrum of different roles for digital platforms in the collection of VAT/GST. The involvement of digital platforms should be considered in light of effectiveness, efficiency and proportionality and the neutrality principles as promulgated by the Guidelines (see further Chapter 2 – Neutrality of value added taxes in the context of cross-border trade) (OECD, 2017[7]).

The report is also cognisant of the desirability for jurisdictions to consider the Ottawa Taxation Framework Conditions8 in framing and implementing the policy and administrative measures identified in the report. These generally accepted principles of tax policy are as follows:

  • Neutrality: Taxation should seek to be neutral and equitable between forms of electronic commerce and between conventional and electronic forms of commerce. Business decisions should be motivated by economic rather than tax considerations. Taxpayers in similar situations carrying out similar transactions should be subject to similar levels of taxation.

  • Efficiency: Compliance costs for businesses and administrative costs for the tax authorities should be minimised as far as possible.

  • Certainty and simplicity: The tax rules should be clear and simple to understand so that taxpayers can anticipate the tax consequences in advance of a transaction, including knowing when, where, and how the tax is to be accounted.

  • Effectiveness and fairness: Taxation should produce the right amount of tax at the right time. The potential for tax evasion and avoidance should be minimised while keeping counteracting measures proportionate to risks involved.

  • Flexibility: The systems for taxation should be flexible and dynamic to ensure that they keep pace with technological and commercial developments.

It is also recognised that there is a need to take a broader perspective which not only looks at the role platforms can play in the collection of VAT/GST but also takes a more holistic look at enforcement recognising the role of the various other actors in the supply chain such as shippers, importers, payment service providers and fulfilment houses. In addition, the report recognises the desirability of achieving channel neutrality i.e. the same VAT/GST treatment should generally apply whether a supply is made via a platform, sold directly on-line, or indeed through the traditional bricks and mortar store. Further, efforts should be made to limit the impact on value chains as much as possible and to avoid high barriers to entry for small and medium-sized enterprises (SMEs) and start-ups.

1.3.2. Scope of the report

The report considers the possible roles of digital platforms in the collection of VAT/GST on e-commerce sales. In considering this, it is recognised that transactions involving goods are different than those only involving services and intangibles, including as regards the role of digital platform. This report therefore gives particular attention to the role of digital platforms in the collection of VAT/GST on online sales that involve an importation of goods. A particular complexity is that cross-border supplies of goods are ordinarily subject to customs procedures. While there is some uniformity of procedures which are developed by the WCO,9 there are important differences such as different VAT/GST and customs de minimis thresholds and associated procedures which can create additional burdens for business operating cross-border.

This work starts from the presumption that a tax authority wishes to exercise its right to tax a supply from an online sale, and will thus focus exclusively on how this tax authority can effectively collect the VAT/GST on this supply. This work will not discuss other issues than those that are purely related to the collection of the VAT/GST (e.g. whether or not a certain transaction constitutes a supply or not, whether a certain stakeholder is a taxable person or not, etc.).

1.3.3. Sharing economy as a separate work stream

It is noted that digital platforms are also at the forefront of delivering new solutions for the delivery of services that involve a certain level of physical presence and/or performance in the jurisdiction of taxation, such as hotel/bed & breakfast accommodation, transportation, and of other services such as food delivery, house cleaning and work on property. While these services are often traditional in nature, the service provider and the buyer are brought together through platforms which harness new technologies. These services are often performed by a wider range of actors than “traditional” business, and are often associated with the so-called “sharing’’ and “gig” economies.

While there is a desire by tax authorities to explore the possible role of platforms for tax purposes and indeed some jurisdictions are already asking platforms to provide information on transactions, there is recognition at WP9 that these supplies have specific characteristics, most notably the fact that the underlying suppliers will generally have a presence in the taxing jurisdiction although the cross-border element to such supplies may become more significant over time. A particular issue of relevance is also the involvement of a large number of micro or small entrepreneurs, many of whom are not considered as taxpayers under current VAT/GST rules.

Given the need to further evaluate and scope this issue, and indeed to consult with relevant stakeholders on the role of these particular digital platforms in the collection of VAT/GST in respect of these supplies, WP9 has decided to develop work in this area as a separate work stream.

1.3.4. Overview of measures identified in the report

As already highlighted above, this report acknowledges that there is a spectrum of roles that digital platforms can play to ensure the effective collection of VAT/GST from online sales. These roles include making digital platforms liable to assess, collect and remit the tax (Chapter 2), the possibility to voluntarily act as the collector for the VAT/GST, legislative provisions for information sharing with tax authorities, and being a conduit for tax authorities to reach out to the underlying suppliers on the platforms (Chapter 3).

Further, the report has identified actions amongst others (Chapter 4) that tax authorities can take to improve compliance such as through effective communication and engagement with digital platforms, the use of enforcement tools such as joint and several liability, and also importantly through an increased emphasis on administrative co-operation and exchange of information within jurisdictions and at international level.

The additional roles for platforms and enforcement measures included in Chapters 3 and 4 may be seen as attractive for jurisdictions for protecting revenues in the short term as they may be viewed as easier to implement than the full VAT/GST liability regime outlined in Chapter 2. The experience from several jurisdictions is that the full VAT/GST liability regime requires changes to the tax administration and customs procedures as well as to the business systems which can require time for implementation. It is further relevant that jurisdictions may see the roles and measures in Chapters 3 and 4 as policy stepping stones or as complementary to the full VAT/GST liability regime.

Therefore, the report presents a suite of options which jurisdictions can consider for implementation taking into account their own circumstances.


[5] Accenture and AliResearch (2016), Global Cross Border B2C e-Commerce Market 2020, (accessed on 3 April 2018).

[2] Asia-Pacific Economic Cooperation (2018), Electronic Commerce Steering Group, (accessed on 3 April 2018).

[10] Basalisco, B., J. Wahl and H. Okholm (2016), E-Commerce Imports into Europe: VAT and Customs Treatment, (accessed on 3 April 2018).

[1] eMarketer (2018), Retail Ecommerce Sales Worldwide, 2016-2021, (accessed on 3 April 2018).

[8] International Post Corporation (2017), IPC Online Shopper Survey 2017 reports,

[7] OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris,

[9] OECD (2015), Addressing the Tax Challenges of the Digital Economy, Action 1 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,

[6] Statista (2017), Digital buyers worldwide 2021 | Statistic, (accessed on 3 April 2018).

[3] United Nations Conference on Trade and Development (2019), Global e-Commerce sales surged to $29 trillion, (accessed on 3 April 2019).

[4] World Trade Organization (2018), WORLD TRADE STATISTICAL REVIEW 2018, (accessed on 3 August 2018).


← 1. The growth of the digital economy and its implications for policymakers, including around taxation issues, are the subjects of a major, ongoing interdisciplinary project at the OECD. For more information on the project “Going Digital”, please see

← 2. These figures are based on a range of estimates used by various sources, which have reported similar or sometimes higher projections. According to eMarketer, global retail e-commerce sales reached USD 2.8 trillion in 2018, which is estimated to grow to USD 4.8 trillion by 2021. Asia-Pacific Economic Cooperation indicated that global B2C e-commerce sales reached USD 2.1 trillion in 2017 while the figure totalled USD 3.8 trillion in 2016 according to the World Trade Organization. United Nations Conference on Trade and Development reported that global B2C e-commerce reached USD 3.9 trillion in 2017. Accenture and AliResearch forecasted that cross-border e-commerce will reach USD 1 trillion in 2020.

← 3. The International VAT/GST Guidelines recommend the application of the reverse-charge mechanisms (sometimes referred to as “tax shift” or “self-assessment”) where that is consistent with the overall design of the national VAT/GST system. Under this procedure, the customer is typically required to declare the VAT/GST due on the supply received from the foreign supplier as output tax on the relevant VAT/GST return. The rate to be applied is the rate applicable in the customer’s jurisdiction. The customer is then entitled to input tax deduction to the extent allowed under the rules of its jurisdiction. If the customer is entitled to full input tax deduction on the relevant supply, it may be that local VAT/GST legislation does not require declaration of the output tax under the reverse-charge mechanism. In many VAT/GST systems that operate an invoice-credit method, the VAT/GST on cross-border B2B supplies of services and intangibles is collected by the reverse-charge mechanism. Nevertheless, the reverse-charge mechanism is not applied in all jurisdictions and, where it is implemented, the rules may differ from country to country (please see further Guidelines 3.63-3.64).

← 4. This refers to imports with a value below the de minimis threshold for customs duties.

← 5. Most countries operate a de minimis threshold for customs duties, which regulated by the WCO’s Revised Kyoto Convention (RKC). While this rule is obligatory for Contracting Parties to the RKC, no minimum standard is prescribed. The customs duties relief is generally higher than the VAT/GST exemption threshold.

← 6. The Australian reforms have commenced since 1 July 2018. EU legislation foresees a 2021 implementation date.

← 7. The OECD and the IMF are progressing this work as a G20 priority. The first report was published in 2017 ( An updated report was published in July 2018 (

← 8. The Ottawa Taxation Framework Conditions were welcomed by Ministers and the Ministerial Conference on Electronic Commerce held in Ottawa on 7-9 October 1998.

← 9. For more information on the instruments and tools developed by the WCO in this area, please see

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