Online marketplaces will soon have a raft of reporting obligations to contend with as jurisdictions across the globe take their lead from developments in the EU and from recommendations put forward by the OECD.
The reporting obligations broadly relate to the exchange of information regarding transactional information; income received by sellers on online marketplaces, and additional identifying data on the sellers themselves.
One of the developments that have made most waves in this space is the EU’S DAC7 which is taking its lead from work performed by an Organisation for Economic Cooperation and Development (OECD) 2020 report titled ‘Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy’.
DAC7 makes the point that this is a global issue, requiring cooperation among jurisdictions, stating that “it can reasonably be expected that non-Union jurisdictions will have sufficient incentives to follow the leading example of the [EU] and implement the collection and mutual automatic exchange of information on reportable sellers according to the [OECD] Model Rules.”
The aim of this OECD report, after all, was to provide interested tax administrations with guidance on how “to collect information on transactions and income realised by platform sellers, in order to contain the proliferation of different domestic reporting requirements and to facilitate the automatic exchange agreements between such interested jurisdictions.”
The situation has led to EU member state tax administrations agreeing to exchange more information. This exchange of information approach is effectively cemented in DAC7.
In a December 2020 communication, the European Commission stated DAC7 attempts to ensure that EU member states “automatically exchange information on the revenues generated by sellers on digital platforms, whether the platform is located in the EU or not.”
On April 19, 2021, the OECD issued an additional report building on the body of work in the ‘Model Rules'. This report, 'The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration', is the result of an inclusive consultation process "with more than 100 delegations from countries, jurisdictions and international organisations, as well as representatives from the business community and academia through the OECD Global Forum on VAT."
Collection and reporting of seller information
The 'Model Rules' are referenced in Annex C of this report which emphasises how digital platforms should first report to their jurisdiction of residence and then to the jurisdiction where the sellers are located. The reporting is to include data such as:
- Seller’s name
- Primary address
- Tax Identification Number (including a VAT/GST Registration Number issued by the jurisdiction of the Primary Address of the Seller) and
- Date of birth
DAC7 replicates the data listed above in Annex V, Section II B.1 for individual sellers, and adds the following data to be collected (in addition to the above) for sellers that are entities:
- Legal name
- Business registration number, and
- Information on any permanent establishment in the EU, indicating each respective Member State where such a permanent establishment is located
Where a seller does not provide the information after two reminders following the initial request then the platform is obligated to close the seller’s platform account. The platform should then prevent the seller from re-registering or withhold the payment of the consideration to the seller until the requested information is provided. Platforms will need to keep a record of such due diligence procedures.
DAC7 in a nutshell
The seventh amendment to the Directive on Administrative Cooperation (or DAC7) aims to foster a culture of tax transparency within the digital economy and encourage information sharing between the EU’s 27 tax jurisdictions.
As a result of the adoption of DAC7 in March 2021 these tax jurisdictions "now have a broader set of cooperation tools at their disposal, to detect and tackle forms of tax fraud, tax evasion and tax avoidance.”
Reporting obligations for digital platforms have been introduced to aid the automatic exchange of information and in turn enable tax jurisdictions more precisely assess the VAT due.
DAC7 does however place additional reporting obligations on digital platforms as these “platform operators are better placed to collect and verify the necessary information on all sellers operating on and making use of a specific digital platform.”
Global obligations for gig and sharing economy marketplaces
While the OECD has provided the recommended structure, and the EU has revealed its rules (via DAC7) there are other jurisdictions planning to introduce similar obligations for online marketplaces thus aiding the consistency of globally-introduced rules.
The UK government concluded a public consultation on reporting obligations for digital marketplaces in October 2021. The UK has stated that it aims to introduce the OECD’s recommended model rules when designing its system that will “require digital platforms to report details of the income of sellers on their platform to the tax authority and also to the sellers.”
Canada’s Revenue Agency has proposed GST reporting obligations for marketplaces operating in the gig and sharing economy. The first annual report was originally due for submission by June 2022, but this has been postponed until June 2023. The June 2023 report will apply to third party transactions on digital marketplaces and will cover 2022.
A Bill introduced in Australia's House of Representatives that impacts platforms in the sharing and gig economy. According to the Bill, platform operators will be required to report to the ATO information regarding certain transactions that occur on their platforms, such as seller identification and payment details. The reasoning behind the Bill is also touched on when it states that "a transparency gap has emerged as existing tax reporting requirements do not adequately capture information about transactions in this part of the economy." The proposed introduction date for such rules is July 1, 2022.
Additional jurisdictions will unveil their own versions of the OECD’s recommended rules in due course. The key is the aim of consistency which will hinge on jurisdictions continuing to agree on the automatic exchange of information relating to the identifying data of sellers on these gig and sharing economy marketplaces.
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