On December 8, 2022, the EU Commission presented its plans for adapting VAT rules in our digital world, known as VAT in the Digital Age (ViDA). One of these proposals specifically pertains to the platform economy. In this article, we delve deeper into the proposed changes for platforms.
Background
The European Commission aims to establish new rules for the platform economy. In a platform economy, digital platforms serve as intermediaries between providers and consumers. Think of popular online marketplaces such as Amazon and eBay.
The growth of the digital economy has transformed the business landscape, with traditional sectors like passenger transport and accommodation rentals (think Uber and Airbnb) now adopting online sales models. Despite this significant growth, it has been observed that 70% of online sellers do not register for VAT.
This inequality is problematic, as traditional players like hotels and taxi services have long been subject to VAT. This is where the EU’s VAT proposal for the digital age (ViDA) comes into play, aiming to rectify this inequality.
Key Changes for the Platform Economy
The EU’s ViDA proposal, expected to take effect on January 1, 2025, encompasses the following changes for the platform economy:
- Deemed Supplier Regime: New rules are introduced for short-term accommodation rental and passenger transport in situations where the underlying supplier does not charge VAT. This may occur because the supplier is a non-taxable individual or is utilizing the small business exemption.
- Specific Conditions for the Application of Presumed Supply Rules: These rules apply when the original seller does not charge VAT. Examples include individuals, non-established or non-EU VAT-registered individuals, and entities operating under the special small business regime.
- Amendments to the EU Implementing Regulation: Clarifications include the use of a valid VAT ID number to identify both the seller and the customer. Furthermore, a definition of “electronic interface” linked to short-term rentals and passenger transport is integrated.
- Equivalence with the Hotel Industry: When a space is rented online for up to 45 days, it is considered a hotel booking. Consequently, it is no longer exempt from VAT, and VAT must be remitted.
- Obligation to Keep Records: Platforms must maintain records and share portions of facilitated B2B and B2C deliveries if the presumed supply rules do not apply to short-term accommodation or passenger transport.
- Mechanism of Presumed Supply Rules: There are two transactional layers: The original seller is presumed to have sold to the platform, which is exempt from VAT. The platform is responsible for collecting and remitting the VAT to the relevant tax authorities. This process does not affect the platform’s right to deduct VAT.
This system aims to ensure greater equality between traditional and platform service providers without burdening the sellers.
Conclusion
The rationale behind the VAT changes for the platform economy is twofold: on one hand, the expectation to increase VAT revenues for EU member states by an estimated €6.6 billion per year, and on the other hand, to promote fair competition between digital and traditional service providers.
When Will It Take Effect?
The EU finance ministers (‘Ecofin’) will meet several more times to review the ViDA proposals. On December 8, 2023, the ministers will reconsider the planned implementation of the rules between 2024 and 2028. Several EU member states have already called for a delay, so the exact date when the rules for a single VAT registration will come into effect remains unclear.
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