Guest article by Alan Rhode
The gig economy has become synonymous with the “wild west” unregulated dark side of the digital economy. From the perspective of tax administrations, the dark side represents billions of euros in untaxed revenues, whether it be from money earned via ride-sharing services, such as Uber, home and room rentals via Air BnB, food delivery services, peer-to-peer e-commerce among others.
And as government deficits skyrocket in the face of the current international healthcare crisis, a frantic search of every “nook and cranny” is about to begin for possible new revenue sources – whether be in the form of Income Tax or indirect Value Added Tax.
The European Commission will try to lend a hand in this search when it unveils in mid-July another edition of the famous – or infamous within some circles – EU Directive for Administrative Cooperation that requires tax administrations to exchange various types of information in order to clamp down on tax evasion.
It what has already been dubbed “DAC 7”, the legislation will be the first tax law of an ambitious agenda European Tax Commissioner Paolo Gentiloni will pursue over the next four years. The law will call for the EU countries to ensure digital platform operators to collect revenue data and report it to national tax administrations, who should then pass it to relevant member states when it involves cross-border EU single market activities.
This is what already happens, for instance, in France, where marketplace notoriously do share revenue data with the local tax authorities.
“The specific objectives are to enable tax administrations to obtain information to control that taxpayers pay their fair share, in particular taxpayers who earn money via the digital platform economy as well as to provide for better cooperation across tax administrations and keep business compliance costs to a minimum by providing a common EU report standard,” according to a European Commission pre-legislative consultation document.
A 2019 OECD policy document titled “The Sharing and Gig Economy: Effective Taxation of Platform Sellers” estimated the gig economy will be worth $335 billion by 2025. That compares to $15 billion in 2014. In the case of the EU, the OECD report estimated that the gig economy has the potential to generate $572 billion from currently “under-utilised assets.”
Of course, the ultimate question is just how much tax revenue can be generated? Certainly from the indirect tax side, the new DAC 7 legislation will be late to the game in many countrieswhen it involves rental accommodation or transportation services. Due to pressure from the hotel or the taxi industry, local governments have already imposed mandatory indirect taxation.
As the digital platforms have consolidated over the years into large multinational companies (e.g. Booking.com, Trip Advisor or Expedia in the rental accommodation sector), they have imposed mandatory tax reporting requirements on users. In some cases they are required to collect the taxes and distribute them to tax administrations.
The reporting of revenue earned from the gig economy could generate much needed income tax, especially in the delivery service sector, crowd-funding and peer-to-peer lending or peer-to-peer e commerce sector. But will be a much needed windfall? Certainly not in the immediate future.