What is a digital platform when it comes to the obligation to collect VAT/GST?
Since 2015 there has been a shift in approach on who should have the obligation for the collection of VAT/GST on the place of consumption of online sales. Involvement, or not, of digital platforms in the payment process and their access to key data points has become a deciding factor in determining who is liable.

A tax fiction was introduced considering platforms facilitating the sale as being the deemed supplier with the obligation to collect the VAT/GST due. This approach has been extended to many jurisdictions with place of consumption rules in place and is supported by the Organization for Economic Cooperation and Development (OECD) in two reports, the first published in 2017 and followed by an updated 2019 version referring specifically to the role of digital platforms in the collection of VAT/GST on online sales.
While definitions and terminology differ between taxing jurisdictions, there is one consistent thread: the exclusion of pure payment processors?
Here, we will explore the definitions in globally enacted legislation and provide some context relating to the key criteria to be seen as a VAT/GST collector.
Importance of technology
Across the globe, we are aware of different terms for the concept of a third-party collecting VAT/GST. The terms vary between using the word ‘Intermediary’ (e.g., in India and Saudi Arabia); to Electronic Distribution Platform (e.g., in Australia), and to Electronic Interface (e.g., in the European Union). As of year’s-end 2021, the scope of the EU’s legislation is one of the broadest in existence. The EU’s definition is flexible as it allows for the adoption of modern technologies without the need to change legislation.
The key point is that all three terms broadly refer to the same concept of the third party that is treated as the deemed supplier in the supply chain. It is interesting to note that in other pieces of legislation, specifically India’s Goods and Services Tax (GST) regime and the Gulf Cooperation (GCC) Value Added Tax (VAT) Agreement, they both use the same terminology as the OECD report from 2017: Intermediary. We have previously analysed the OECD’s recommended effective collection mechanisms here.
Approach to platform definitions in the U.S.
In the United States, there has been a parallel growth of ‘marketplace facilitator’ rules. Here, legislation enacted in many States revolves around whether a platform needs to have at a minimum a direct or indirect involvement in the payment processing of the transaction.
Such rules have been introduced since the Supreme Court’s Wayfair ruling in June 2018. The Wayfair ruling has put an end to the 25-year-old requirement of physical nexus in a state before that state can subject a remote seller, or marketplace facilitator, to its sales tax laws.
A July 2021 white paper on this topic from the Multistate Tax Commission outlined that a “narrow definition requires direct or indirect processing or collection of the customer’s payment by the marketplace facilitator/provider. The broad definition may not.”
Since the seminal Wayfair taxation decision, the taxation trend in the U.S. has closely mirrored what has happened globally. Some states have indeed introduced narrow platform definitions but, again, one of the key criteria for such definitions is whether there is involvement by the platform in the payment process. This is a replication of what is happening globally, all jurisdictions are assessing the same points: do you have access to key information to be able to collect the VAT/GST?
When differing definitions globally are considered, we begin to understand the difficulties posed for platforms operating on a global scale. It is in this quagmire of differing definitions where platforms can be trapped by liabilities. The unfortunate result is that a platform can find itself as the “tax liable intermediary” for one jurisdiction but not for another. The commercial difficulties that such inconsistency entails with the underlying merchants are obvious.
Payment processing puzzle
As mentioned earlier, it is common for those offering only payment processing services to be excluded from obligations to collect the VAT/GST. Definitions specifically refer to the service of payment processing as not being classed as a platform.
However, in numerous jurisdictions being part of the payment is still a key requirement. Indeed, there are generally three criteria used to be defined as a platform liable for the collection of VAT/GST:
- Authorising the charge
- Setting the terms and conditions
- Being involved in the ordering or delivery of the goods
The criteria can be cumulative such as in the UK, or exclusive, such as in the EU where meeting one of the above is enough to be seen as a platform liable for the collection of VAT.
The criteria around processing the payment are generally interpreted very broadly and indirect involvement in the payment will generally be considered as enough in many taxing jurisdictions.
However, some countries such as Taiwan have placed the act of collecting the payment as a key principle.
Other taxing jurisdictions allow the platform in the case of uncertainty to agree upon liability via contractual agreements (e.g., Singapore). This clarity is particularly important when there are multiple parties involved in the supply chain. Such an approach also exists in Australia in cases where multiple platforms are involved.
In the U.S., and again referring to the Multistate Tax Commission white paper, exclusions from definitions “typically address situations where the type of business falling within the definition lacks access to the sales transaction information and the payment so cannot practically comply, or the industry already has an established tax compliance model in place that would otherwise be disrupted.”
OECD’s key criteria for eligibility of a digital platform
More and more jurisdictions are following the recommended OECD approach from the 2019 report titled The Role of Digital Platform in the Collection of VAT/GST on Online Sales. In this report the OECD, when outlining their approach to attempted definitions of a digital platform, state that “It is important, therefore, for jurisdictions to take account of the broad meaning of the terms used together with the design and implementation considerations which also allow jurisdictions to tailor implementation to their own needs.”
The report identifies the same three key criteria mentioned above (among others) that may be used to “trigger the eligibility of a digital platform”:
- Controlling the terms and conditions of the transaction, e.g., the price, payment terms
- Direct or indirect involvement in payment processing
- Direct or indirect involvement in the delivery process
Jurisdictions across the globe have taken their lead from this OECD report especially when it comes to the functions that can be used to define a digital platform. This identification, or eligibility, then triggers the VAT/GST collection obligations on the online sales the digital platform facilitates. Such an identification brings considerable responsibilities, and potential liabilities, upon digital platforms.
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