Expertise

The Model Rules are designed as a framework for interested jurisdictions to adopt a standardised approach for tax administrations to collect data on transactions that platform sellers undertake and the income they earn as a result.  Under the Model Rules, digital platforms would be required to collect information on the income realised by those offering accommodation, transport and personal services through platforms and to report the information to tax authorities.  This is likely to affect companies who provide ride sharing services and the provision of temporary accommodation such as Uber, Lyft and Airbnb.

The OECD notes that the Model Rules are part of a wider strategy relating to the digitalisation of the economy and are designed to serve as a basis for further policy developments in increasing tax transparency to create a stable environment for the growth of the digital economy.

Who would the Model Rules apply to?
The Model Rules would apply to Platform Operators, defined as an entity that contracts with sellers to make available “any software, including a website or a part thereof, and applications, including mobile applications” that sellers can use to connect with other users to provide relevant services in exchange for consideration.

Relevant Services comprise the rental of immovable property or personal services, defined as services “involving time or task-based work performed by one or more individuals at the request of a user”. The Model Rules note that personal services could therefore include “transportation and delivery services, manual labor, tutoring, copywriting, data manipulation as well as clerical, legal or accounting tasks,” provided they are carried out following a specific request of a particular user.

Under the proposed Model Rules Platform Operators would be subject to the reporting requirements when they are resident, incorporated or managed in the jurisdiction adopting the rules.  There are optional exclusions for small-scale platform operators, in particular targeted at start-ups, and platforms that do not allow sellers to derive a profit from the consideration received or that do not have reportable sellers.

Implementation
The OECD has developed the Model Rules as a framework that could be adopted by interested jurisdictions on a uniform basis to collect information on transactions and income realized by platform sellers, in order to contain the rapid increase of different domestic reporting requirements and to facilitate automatic exchange agreements between such interested jurisdictions.

To support the implementation of the Model Rules, the OECD intends to take forward work on the international legal and technical framework to facilitate the automatic exchange of the information collected under the Model Rules.

Several jurisdictions such as Germany and Austria have already introduced reporting measures requiring Platform Operators to communicate to the tax authorities revenues received by platform sellers, while others are planning to introduce similar measures in the near future.  The adoption of the Model Rules at OECD level is expected to increase the likelihood of implementation by other jurisdictions.

What will this mean in practice?
While there is no strict obligation to assume the Model Rules, the adoption of the framework would mean increased access to information for tax administrations.  Platform Operators subject to this regime would be required to collect several details for each seller, including first and last name, primary address, tax identification number and jurisdiction of issuance, date of birth, and property addresses if they rent out immovable property. Information on the consideration paid or credited during each quarter of the reportable period and the number of such Relevant Services to which the consideration relates would have to be disclosed to tax administrations under the Model Rules.  Platform Operators would also be responsible for verifying the data and determining sellers’ residence jurisdictions.

The reporting requirements of the Model Rules provide that a Reporting Platform Operator would have to complete its due diligence procedures by 31 December of each reportable period.  It would also have to send data to the tax administration of its residence jurisdiction by 31 January of the year following the calendar year in which a seller is identified as being subject to the rules.

Guidance for administration and enforcement of the Model Rules provide that if a Reporting Platform Operator does not comply with the rules, then a jurisdiction could use existing rules to impose fines or other penalties.

Next steps
While the Model Rules would only apply to gig and sharing economy platform operators, one of the stated objectives of the rules is to provide a reporting regime that can also be used for other tax-related purposes.  Information collected, which includes the consideration received and the types of services provided in addition to the seller’s tax identification data, is likely to be relevant for VAT compliance purposes.

Potentially affected companies should assess their internal processes, to ensure correct due diligence mechanisms are in place to collect the relevant data and present it in the required format when reporting.  This may include bolstering existing background information sought by Platform Operators with respect to sellers and getting in front of this new potential reporting regime.

It is recommended that companies should engage with the framework and consider whether their activities are in scope or out of scope of the Model Rules.  If a company deems itself to be outside the scope, it should document the rationale for this position so it can be reviewed and reassessed once the form and implementation of these rules in local jurisdictions is clear.

This article was authored by Mark O'Sullivan and Shane Creamer.