(PDF) Taxation of the Platform Economy: Challenges and Lessons for Social Security

Taxation of the Platform Economy: Challenges and Lessons for Social

Security

(forthcoming in Social Law 4.0: New Approaches for Ensuring Financing Social

Security in the Digital Age, U. Becker and O. Chesalina (Eds.), Nomos

Verlagsgesellschaft 2021)

Katerina Pantazatou

I. Introduction

II. Platform-Related Issues and International Initiatives

1. Relationship of Platform and Work Status

2. Labour-Related Tax Incentives for Platforms

III. Tax Issues and Employment Relationship: National Responses

IV. What can we Learn from Taxation?

1. Double Tax Treaties and the OECD MC

2. Can VAT Provisions be of any Help?

a) Carrying Out Activities “Independently”

b) Taxable Person

c) Economic Activity/ Income Definition

3. Enforcement and Collection

V. Conclusion

I. Introduction

This contribution aims to shed some light on issues arising from the taxation of the

platform economy. While it is rather obvious that the purposes of labour law,

social security law and tax law differ, this chapter will attempt to answer the

question whether any lessons can be learned for social law from the treatment of

platforms and platform workers in tax law.

The digital economy encompasses various different business models mediating

technology in multi-sided markets (such as social networks, online marketplaces,

and sharing economy platforms) and highly specialised services in single-sided

markets (for example, cloud computing, diagnostics, etc.).

1

The platform economy

constitutes a sub-area of the digital economy. Variously called the platform,

sharing, collaborative, gig or “peer-to-peer” (P2P) economy, and sometimes

described as collaborative consumption or crowd-based capitalism,

2

all terms

intend to describe an economic model in which individuals are able to borrow or

rent assets owned by someone else.

3

As will be discussed, tax law, both at an international and EU level, has focused

mostly on how to ensure that the profits of the platforms are taxed where they

should.

4

Similarly, it is the taxation of the digital economy, and not the sub-area of

the platform economy, that is in the spotlight in the discussions of policy makers.

These two facts taken together have contributed to the absence of clear proposals

as to the taxation of the platform economy, and more specifically the taxation of

“platform workers”. While some discussion at policy level has been initiated

recently,

5

the approaches and solutions rest with individual countries and are very

far from being coordinated.

The present chapter will provide an account of the main problems arising from a

tax law perspective in the taxation of platform workers, it will highlight the

importance (or lack thereof) of the taxation of the platform, and will examine some

solutions put forward in different jurisdictions. It will conclude by attempting to

answer whether there is anything for social law to learn from tax law and whether

taxation, one of the main sources of financing social protection, is adequately

prepared to deal with the platform economy challenges.

1

Kofler, Georg/Mayer, Gunter/Schlager, Christoph, Taxation of the Digital Economy: A

Pragmatic Approach to Short-Term Measures, in: European Taxation, 58 (2018) 4, p. 123.

2

This term was coined by Sundararajan, Arun, The Sharing Economy: The End of Employment

and the Rise of Crowd-Based Capitalism, Cambridge: MIT Press 2016, p. 27.

3

Schneider, Henrique, Creative Destruction and the Sharing Economy: Uber as Disruptive

Innovation, Cheltenham: Edward Elgar Publishing 2018, p. 6. Throughout this chapter, these

terms, and in particular the terms “sharing economy” and “platform economy” are used

interchangeably.

4

The place of the taxation of these profits is a debatable issue in taxation. Several concepts have

been put forward to substitute the required physical presence of the platform as a nexus for

taxing. One of those is “value creation”.

5

See for instance Milanez, Anna/Bratta, Barbara, Taxation and the Future of Work: How Tax

Systems Influence Choice of Employment Form, in: OECD Taxation Working Papers, 41

(2019), https://doi.org/10.1787/20f7164a-en.

II. Platform-Related Issues and International Initiatives

Despite the challenges it poses, the taxation of the platform economy has received

little attention in the recent EU and international proposals that focus primarily on

the taxation of the digital economy. The recent proposals aim to find ways to tax

the big multinational corporations operating in the digital economy, like Facebook

and Google,

6

which are usually taxed in their place of residence (which is often the

US) yet escape taxation in other places where they create profits. It is obvious that

the potential of taxing Facebook in other states on the basis, for instance, of its

number of users there will bring much more revenue to those states, as opposed to

the taxation of the “platform workers”.

Placing this in the context of the platform economy, it comes as no surprise that

both the OECD and the EU focus on how they can tax the profits of Airbnb and

Uber instead of the Airbnb host and the Uber driver.

7

Consequently, it is the

taxation of the platform itself that has attracted the focus of international proposals

and recommendations, and notably the question where to tax the profits of the

platforms operating in the digital economy, in absence of a physical presence in the

countries where they operate.

8

But even in this case, a uniform definition of a

platform does not exist, as each one of them employs different business models.

The question is not merely rhetorical as one common definition encompassing a

number of those models would allow for a common tax treatment of the different

platforms and platform workers.

9

6

Note, for instance, the GAFA tax (Google, Apple, Facebook and Amazon) adopted in France in

July 2019, which imposes a 3% levy on the total annual revenues of the largest technology firms

providing services to French consumers.

7

The different proposals are discussed in the last sections. Among the different solutions put

forward is the suggestion to tax the platform’s profits where “value is created”, that is where the

profits arise and where the service is provided, instead of the place of the tax residence of the

corporation.

8

See for instance, OECD, Tax Challenges Arising from Digitalisation – Interim Report 2018:

Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, Paris:

OECD Publishing 2018, (hereinafter “2018 OECD Interim Report”) p. 196,

http://dx.doi.org/10.1787/9789264293083-en; European Commission, Proposal for a Council

Directive laying down rules relating to the corporate taxation of a significant digital presence,

COM (2018) 147 final (hereinafter “2018 SDP Directive Proposal”).

9

Pantazatou, Katerina, The Taxation of the Sharing Economy, in: Haslehner, Werner/Kofler,

Georg/Pantazatou, Katerina/Rust, Alexander (eds.), Tax and the Digital Economy: Challenges

and Proposals for Reform, Alphen aan den Rijn: Wolters Kluwer 2019, pp. 215-236, at 217.

EU and international initiatives have focused on how to allow Member States (or

third countries) to tax the profits of companies that have no physical presence in

the respective country; yet, they certainly contribute to value creation. By allowing

for the fiction of the “digital presence” or “significant economic presence

evidenced via digital technology and other automated means”

10

and by ensuring

that taxation will arise wherever a Multinational Enterprise (MNE) has a “virtual

permanent establishment”,

11

the recent proposals aimed to thwart the outdated idea

that an enterprise needs to be physically present in a country to supply goods or

services in that market. However, the proposals as to how to best tackle this issue

were many, each one of them coming with its own set of problems, such as the

allocation of profits across countries.

12

In 2018, the Commission followed the

OECD’s initiatives and published proposals for two Council Directives on the

taxation of the digital economy

13

and one (non-binding) Commission

Recommendation relating to the corporate taxation of a significant digital presence

(SDP).

14

These proposals have now been put “on hold” in favour of the OECD’s

suggested “Unified Approach”.

15

In 2019, the OECD attempted to find the

commonalities among the different proposals and agree on a “Unified Approach”

towards the tax challenges raised by the digitalisation of the economy.

16

10

OECD, Addressing the Tax Challenges of the Digitalisation of the Economy. Public

Consultation Document. 13 February – 6 March 2019, https://www.oecd.org/tax/beps/public-

consultation-document-addressing-the-tax-challenges-of-the-digitalisation-of-the-economy.pdf.

Accessed 10 July 2020.

11

OECD, 2018 OECD Interim Report, p. 160 (see fn. 8). [I think the footnote is right, I am

referring in ft 8 on the ‘2018 OECD Interim Report’

12

These proposals included the “user participation”, “marketing intangibles”, and “significant

economic presence” proposals.

13

European Commission, Proposal for a Council Directive on the common system of a digital

services tax on revenues resulting from the provision of certain digital services, COM (2018) 148

final as well as 2018 SDP Directive Proposal (see fn. 8).

14

European Commission, European Commission Recommendation of 21 March 2018 relating to

the corporate taxation of a significant digital presence, COM (2018) 1650 final.

15

OECD, Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar

Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy,

January 2020, https://www.oecd.org/tax/beps/statement-by-the-oecd-g20-inclusive-framework-

on-beps-january-2020.pdf. Accessed 10 June 2020.

16

OECD, Public Consultation Document: Secretariat Proposal for a “Unified Approach” under

Pillar One, November 2019, p. 4, https://www.oecd.org/tax/beps/public-consultation-document-

secretariat-proposal-unified-approach-pillar-one.pdf. Accessed 10 July 2020.

In January 2020, the OECD came up with a new proposal on a “Unified

Approach” hoping that consensus will be reached among the participating

countries regarding the best way to address the challenges arising from the taxation

of the digital economy.

17

The proposal focused on the taxation of the platforms and

advocated, inter alia, the creation of a new nexus for the taxation of the platforms’

profits, not dependent on physical presence but largely based on sales, a profit

allocation rule and mechanisms to ensure greater legal certainty.

18

While the aforementioned reports and proposals have been inadequate in tackling

the taxation of the platform workers, the 2018 OECD Interim Report

acknowledged that the focus, with regard to the sharing economy, should be placed

on the contractual relationship between the platforms and the service providers, as

the grey zones that can be found therein could lead to a minimisation of both tax

liability and the tax base.

19

In the context of the platform economy, focusing on the

platform worker would indeed make sense, as on average, the “service provider”

rather than the platform receives over 85% of the transaction value.

20

Nevertheless, as the sections below will show, the platform and its taxation does

play a role in the taxation of the platform workers. One way this may happen is

through its classification and placement in the appropriate legal and regulatory

environment, which, in turn, may affect the employment relationship between the

platform and the platform workers and, thus, their taxation. Another way is by

providing tax incentives to the platform to create or opt for a particular work status

of its workers (whether this is an employment status or an independent contractor’s

status). I now turn to explore these two possibilities.

1. Relationship of Platform and Work Status

17

OECD, Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar

Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy (see fn.

15).

18

Ibid.

19

OECD, 2018 OECD Interim Report (see fn. 8).

20

Elliot, Carrie Brandon, Taxation of the Sharing Economy: Recurring Issues, in: Bulletin for

International Taxation 72 (2018) 1: Platform revenue models vary significantly, even within the

same commercial sector, but most adopt a fixed or variable commission approach, with

commissions ranging from 1% to 2% of transaction value for crowdlending, to as high as 20%

for ride-sharing.

This section will attempt to explain how the classification of the platform may

influence the work status of “gig workers” and, in turn, their taxation. As will be

argued, the “worker classification” question relates (also) to the classification of

the platform. An Uber driver does not necessarily need to be classified for tax

purposes in the same way as an Airbnb host or a “BlaBlaCar” driver. The

classification, for example, of an Uber driver as an independent contractor, a

worker or an employee, cannot be considered independently of the classification of

the platform and the nature of the services it requires.

21

Consequently, one would

have to start by understanding and classifying the services provided by the

platforms in the sharing economy, in an attempt to understand the legal

relationship between the platform workers and the platform. Two recent CJEU

Grand Chamber non-tax-related judgments aimed to shed some light on this

problem, examining, inter alia, the types of services provided by the two “flagship”

platforms in the sharing economy, Uber and Airbnb.

The CJEU dealt first with the Uber case,

22

where it found Uber to be a

transportation service provider, instead of a digital platform, as the intermediation

service provided by the platform was inherently linked to a transport service.

23

In

its recent case Grand Chamber Airbnb Ireland

24

the CJEU emphasised that Airbnb

was different from Uber. In contrast to Uber, the services provided by Airbnb

could be classified as “information society services” within the meaning of

Directive 2000/31. In reaching this conclusion, the CJEU considered that even

though “the purpose of the intermediation service provided by Airbnb Ireland is to

enable the renting of accommodation […] the nature of the links between those

21

ECJ of 20 December 2017, Case C-434/15, Asociación Profesional Elite Taxi,

EU:C:2017:981.

22 Ibid.

23

Ibid., para. 48: The services Uber provides “[…] must be interpreted as meaning that an

intermediation service such as that at issue in the main proceedings, the purpose of which is to

connect, by means of a smartphone application and for remuneration, non-professional drivers

using their own vehicle with persons who wish to make urban journeys, must be regarded as

being inherently linked to a transport service and, accordingly, must be classified as “a service in

the field of transport” within the meaning of Article 58(1) TFEU. Consequently, such a service

must be excluded from the scope of Article 56 TFEU, Directive 2006/123 and Directive

2000/31.”

24

ECJ of 19 December 2019, Case C-390/18, Airbnb Ireland, EU:C:2019:1112.

services does not justify departing from the classification of that intermediation

service as an ‘information society service’ and therefore the application of

Directive 2000/31 to it.”

25

However, in the Court’s view and unlike its judgment in

Uber, in this case, the intermediation service is so strong and essential that it

“cannot be separated from the property transaction itself, in that it is intended not

only to provide an immediate accommodation service, but also […] to provide a

tool to facilitate the conclusion of contracts concerning future interactions. It is the

creation of such a list for the benefit both of the hosts who have accommodation to

rent and persons looking for that type of accommodation which constitutes the

essential feature of the electronic platform managed by Airbnb Ireland.” (emphasis

added).

26

In reaching this conclusion the Court considered the essential features of each

platform, the indispensability of the platform in the delivery of the underlying

service as well as the setting or the “capping” of the price to be charged to the

guests. Under all these criteria, the Court found that Uber and Airbnb were

different.

27

The question of the services (and their ancillary or essential character) provided by

each platform is fundamental in the assessment of the taxation of both the platform

and the Uber driver or the Airbnb host. With regard to the former point, the nature

of the services provided by the platform is relevant for the assessment of the VAT

to be paid, notably the definition of the place of supply of the service, which

decides, inter alia, where the VAT will be paid. This concerns both the B2B

relationship between the platform and the “supplier”/platform worker as well as the

B2C relationship between the platform and the consumer. In turn, the place of

supply of the service at issue “to a taxable person acting as such shall be the place

25

Ibid., para. 52.

26

Ibid., para. 53.

27

For more on the comparison of the two cases see Beretta, Giorgio, Airbnb is Not Uber: VAT

Reflections on the Airbnb Ireland Case (C-390/18), Blogpost on LinkedIn, 22 December 2019,

https://www.linkedin.com/pulse/airbnb-uber-vat-reflections-ireland-case-c-39018-giorgio-

beretta/. Accessed 10 July 2020; and Loquet, Erwan/Karoutis, Dimitrios, European Union –

VAT Considerations on ECJ’s Ruling that Airbnb is Not a Real Estate Agent, in: International

VAT Monitor, 31 (2020) 4.

where that person has established his business.”

28

For instance, if the service at

issue were to be classified as a transport service, then the place of supply (and the

place where VAT would be payable) would be where the transportation takes

place, pursuant to Article 48 of the VAT Directive.

29

With regard to the second ramification, the legal framework to which the platform

is subject will be defined by its classification. In other words, if Uber is classified

as (mainly) a transportation service, then it will be subject to the transport policy-

related directives. This categorisation may inform other important features in the

systematisation of the work status of the “service-providers” on the platform, such

as control (i.e. ensuring that the requisite standards of safety and quality are met)

or the influence the employer has to exercise over the service-provider and the

quality of the services (s)he provides.

30

2. Labour-Related Tax Incentives for Platforms

When looking into the platform economy, one should not overlook that, in general,

brick and mortar companies tend to opt for contracting self-employed workers

instead of hiring standard employees, because they face lower tax burdens per

worker hired. Indeed, tax incentives may play an important role in platforms’

preferences as to what kind of contracts they would like to conclude with their

28

Article 44, Directive 2006/112/EC on the common system of value added tax (6th Recast VAT

Directive). On the definition of the taxable person, see infra, under IV. 2. B.

29

See Beretta, Giorgio, Airbnb is Not Uber: VAT Reflections on the Airbnb Ireland Case (C-

390/18) (see fn. 27).

30

Indeed, the degree of the influence and control of the platform to the “service providers” was

decisive in their classification as an “information society services” platform for Airbnb and as a

transportation services platform for Uber. In the words of Advocate General Spzunar: “It should

be noted, in that regard, that Uber exercised control over the quality of the vehicles and their

drivers and also over the drivers’ conduct by reference to the standards that Uber itself had

determined. On the other hand, as is apparent from points 27 and 29 of this Opinion, the control

exercised by Airbnb Ireland concerns users’ compliance with standards defined or, at the very

least, chosen by those users. In any event, as regards Uber’s activity, the exercise of the power of

administrative control was only one of the factors that led to the assertion that that provider

exercised decisive influence over the conditions under which the transport services were

provided.” See ECJ of 19 December 2019, Case C-390/18, Airbnb Ireland, EU:C:2019:1112,

para. 76.

workers. Besides not having to pay social security contributions for independent

contractors, tax incentives may consist of deductions from Corporate Income

Taxes (CIT) or the absence of the obligation to pay certain taxes (such as payroll

taxes), or reduced administrative costs for the platforms. Consequently, taxation

may be decisive for the preferences of the platforms as to the “work status” they

want their workers to have.

For instance, it has been reported that in the Netherlands, the tax cost of hiring an

independent contractor is 37% lower compared to the cost of hiring a standard

employee, reflecting substantial labour cost savings for firms.

31

This is because the

employer of an independent contractor is not liable for social contributions for the

worker. Similarly, the employer/platform can deduct from its corporate income

liability labour-related costs or make use of “labour-related” tax allowances and

credits against its total CIT liability.

32

These deductions and allowances obviously

vary from country to country and depend on the respective employment. For

instance, in Argentina, corporations (and platforms) are allowed to deduct from

their CIT base labour costs, including wages, employer social security

contributions and employee non-tax compulsory payments (NTCPs) for standard

employment contracts.

33

In contrast, in Italy, according to the OECD Working

Paper, firms are able to deduct the overall employment cost (gross wage plus

profits) both when computing the CIT and the IRAP, also when they “employ”

independent contractors.

34

In the same vein, the contractors are entitled to make certain deductions, which

vary from country to country, from their income tax, lowering both their own tax

burden and their employer’s.

35

When firms/platforms can save a lot on tax-related

labour costs by hiring contractors, and when contractors are also in a tax-beneficial

31

Milanez, Anna, Gig Workers and the Tax Web, in: OECD Observer, 319 (2019) Q3,

https://oecdobserver.org/news/fullstory.php/aid/6278/Gig_workers_and_the_tax_web.html.

Accessed 10 July 2020.

32

Such can be the case, for instance, when an employer hires a person with disabilities.

33

Milanez, Anna/ Bratta, Barbara, Annex – Taxation and the Future of Work: How Tax Systems

Influence Choice of Employment Form, in: OECD Taxation Working Paper Series, 42 (2019), p.

19, https://doi.org/10.1787/6b20cce5-en.

34

Ibidem, p. 66. Similarly, for the Netherlands, p. 79: “[E]mployer’s labour costs are deductible

from the CIT base, irrespective of the type of worker.”

35

Milanez, Anna, Gig Workers and the Tax Web (see fn. 31).

position if they are not classified as employees, it is obvious that the tax system at

issue promotes demand for independent work.

The recent OECD Working Paper highlights how tax systems may offer tax

incentives to both platforms and workers to distort the employment relationship.

36

Taking the Netherlands as one of the case studies, the OECD Working Paper

explains how the Dutch tax system entitles unincorporated self-employed workers

to two deductions from personal income tax allowing them to pay less tax than

employees.

37

Consequently, unincorporated self-employed workers have the lowest

payment wedge, both at the average wage but also across the wage spectrum.

38

Indeed, the degree of variation between payment wedges across different

employment forms is considerable among the countries studied in the OECD

Working Paper.

39

As the authors note, in countries like Hungary, Italy, Sweden and

the United States the payment wedges are rather “clustered” reflecting little

incentive to shift between employment forms for tax reasons (individual or firm-

related), whereas in countries like the Netherlands and Argentina payment wedges

vary greatly, reflecting the opposite outcome.

40

In this latter scenario, “[t]his

translates into a tax system incentive for firms to contract labour rather than offer

standard employment contracts, potentially misclassifying workers in the process.

It also implies a tax system that incentivises individuals to become self-

employed.”

41

III. Tax Issues and Employment Relationship: National Responses

36

Milanez, Anna/ Bratta, Barbara, Taxation and the Future of Work: How Tax Systems

influence Choice of Employment Form (see fn. 5).

37

Ibid., p. 60: “In summary, in the Netherlands, this analysis shows that the tax system provides

an incentive for a firm to hire an unincorporated self-employed worker, as by doing so it pays a

total employment cost of EUR 40,911 instead of EUR 64,960 for a standard employee or EUR

53,074 for an incorporated self-employed worker.”

38

Ibid. The paper defines the average compulsory payment wedge (“payment wedge”) as the net

amount that government receives as a result of taxing income from work, inclusive of social

contributions (SSCs and NTCPs), over the total employment cost of the worker under

consideration.

39

Ibid., pp. 55f.

40

Ibid.

41

Ibid., p. 66.

The classification of platform workers is crucial not only for social security

contribution purposes, but also for tax purposes. When someone qualifies as an

employee, it is the employer that has to withhold (at least part) of the taxes from

the employee’s salary. In contrast, when someone qualifies as self-employed or as

an independent contractor, he/she is responsible for declaring his/her income and

for paying taxes (and social security contributions) accordingly, saving the

company significant administrative costs. There are certainly variations with

regard to the applicable tax rates, the minimum taxable income, the deduction of

business expenses etc. Usually, in addition to paying income tax, a self-employed

person who provides some sort of services is liable to pay VAT.

Thus, the definition of the work status of the service providers/suppliers becomes

essential, equally for labour law, social law and tax law. Obviously, such a

universal or pan-European allocation of work status in the sharing economy or per

platform does not exist, not least because such rules do not even exist even for the

traditional forms of work. A lawyer, a plumber and an artist are taxed differently in

different countries, depending on how much they work, where they work, whether

this is their main or ancillary activity and considering many more factors. Equally,

this difference in taxation may be expressed via different applicable tax rates,

different tax bases (the income to be taxed) and as such, different allowances and

deductions. Things get even more complex when we consider a cross-border

scenario, even in the traditional (non-digital) understanding of work.

The context of the collaborative economy makes it even more difficult to answer

the crucial questions of who should pay/withhold taxes, where taxes should be paid

and what kind of taxes should be paid. There are several reasons for that; 1) the

uncertainty as to the qualification of the type of work performed. For instance, the

Uber driver may have a different status in different countries ranging from an

employee to an independent contractor. This classification affects not only the

direct taxes he will have to pay but also the requirement of VAT registration and

payment. Similarly, his status may change if he works for “BlaBlaCar”. 2) The

nature of services provided in the sharing economy and the lack of reporting

standards make it easier for the shadow economy and undeclared work to

flourish.

42

3) The majority of platform workers work in at least one more job,

resulting in the fragmentation of their income.

43

For instance, someone may be

resident in France, rent out an apartment he has in Portugal via Airbnb and, at the

same time, provide online consultancy advice to a company in Belgium. In such a

multi-state scenario, it is possible that the person at issue does not even know

where to report the income he made from the use of different platforms.

A question that arises frequently is who has the final say in this classification.

There is no obvious or clear answer to this question that would allow for a coherent

legal framework. Reis and Chand provide for a good account of recent judgments

in different countries that found Uber drivers to be either employees or

independent contractors, considering a number of (similar) criteria.

44

For example, the UK employment tribunal dealt with a case about the employment

status of Uber drivers.

45

That tribunal was asked whether Uber drivers qualified as

self-employed/independent contractors or as employees/workers. In defining

whether Uber drivers should be treated as contractors, the tribunal looked into

whether income tax and UK national insurance were deducted from their pay.

Conversely, to determine their tax liability, the “tax test” would have had to look at

their holiday pay, sick pay and pension rights.

46

The UK employment tribunal

42

See for instance, OECD, Shining Light on the Shadow Economy: Opportunities and Threats,

2017, p. 19, https://www.oecd.org/tax/crime/shining-light-on-the-shadow-economy-

opportunities-and-threats.pdf. Accessed 10 July 2020; where one of the main issues tax-related to

the sharing economy was identified as: “since there is usually no traditional employer, payments

received will not generally be visible to the tax administrations in the way, for example, that they

are for salaried employees in many countries.” I will come back to this point in section IV. 3.

43

See for instance, OECD, Automation and Independent Work in a Digital Economy, Policy

Brief, May 2016, p. 4, https://www.oecd.org/els/emp/Policy%20brief%20-

%20Automation%20and%20Independent%20Work%20in%20a%20Digital%20Economy.pdf.

Accessed 10 July 2020: “As workers in the “platform economy” are more likely to have multiple

jobs and income sources, the role and meaning of traditional labour market institutions are being

challenged.”

44

Reis, Ariene/Chand, Vikram, Uber Drivers: Employees or Independent Contractors?, in:

Kluwer International Tax Blog, 3 April 2020, http://kluwertaxblog.com/2020/04/03/uber-drivers-

employees-or-independent-

contractors/?doing_wp_cron=1591797547.0120589733123779296875. Accessed 10 June 2020.

45

UK Employment Tribunal Judgement of 28 October 2016, Case No. 2202550/2015, Aslam

and Farrar and Others v. Uber BV, Uber London Ltd and Uber Britannia Ltd (hereinafter “UK

Uber Case”).

46

Sayliss, Leigh, Be Careful What You Wish for, in: Taxation, 178 (2016) 4579.

concluded that Uber’s drivers were to be classed as workers with access to

minimum wage, sick pay and paid holidays, although they treated themselves as

self-employed persons for tax purposes.

47

The decision was also upheld by the

Employment Appeal Tribunal

48

and the Court of Appeal.

49

The case highlights the distinction between labour law, social security

contributions and tax law in the sharing economy and raises the question of

whether there is a need to coordinate these interrelated policy areas. The 2018

OECD Interim Report identified this distinction as one of the thorniest issues in the

sharing economy context.

50

As different states provide for different tax incentives

or disincentives, depending on the type of labour contract at issue, sharing

economy features (and uncertainties) within the tax system could lead to tax

revenue losses if there are large shifts in working patterns and taxable status.

51

Another pertinent question is who decides on the qualification of the status of the

“worker”. For instance, the judgment of the UK employment tribunal seemed to

cross-cut between the tax treatment of Uber drivers, which is, in turn, informed by

the drivers’ access to certain social security benefits. In some countries, it appears

that “priority” is given to the designation made by the tax authorities and whether

the Uber driver, for instance, falls within the given tax definition.

52

The problem is

circular in that, if the definition is informed by, for instance, the access to social

security benefits, as happened in the Uber UK case, then the different criteria and

classifications may lead to contradictory results. What if, for example, one is

classified for tax purposes as an employee but his employer does not pay for social

security contributions? Which classification will take precedence and how will the

classification for labour law purposes be made?

47

UK Uber Case, para. 65 (see fn. 45).

48

UK Employment Appeal Tribunal Judgement of 10 November 2017, Appeal No.

UKEAT/0056/17/DA, Aslam and Farrar and Others v. Uber BV, Uber London Ltd and Uber

Britannia LTD.

49

UK The Court of Appeal Judgement of 19 December 2018, Case No. A2/2017/3467, Aslam

and Farrar and Others v. Uber BV, Uber London Ltd and Uber Britannia LTD.

50

OECD, 2018 OECD Interim Report, p. 196 (see fn. 8).

51

Ibid., p. 196.

52

Such an example is Denmark.

In Switzerland, there seems to be general consensus that Uber drivers should be

classified as employees.

53

The French Cour de Cassation also agreed that Uber

drivers should be characterised as employees on the premise that they do not have

independence in fixing their price or building their clientele.

54

In the US, the classification of “gig workers” has created a lot of tension between

platforms and workers, upon the delivery of the famous judgment of the California

Supreme Court.

55

The judgment dealt with the applicable standards in determining

whether workers should be classified as employees or as independent contractors

for purposes of California Wage Orders.

56

Pursuant to the judgment that suggested

a new presumption that all workers be employees instead of contractors, unless the

employer proves otherwise under the newly adopted “ABC test”,

57

the State of

California approved, with effect from 1 January 2020, the California Assembly Bill

5 (“AB-5”) incorporating the “ABC test”.

58

Under this test, for a worker to be

classified as a contractor, the employer will have to prove that: (A) the worker is

free from the control and direction of the hiring entity in connection with the

performance of the work, both under the contract for the performance of the work

and in fact; (B) the worker performs work that is outside the usual course of the

hiring entity’s business; and (C) the worker is customarily engaged in an

independently established trade, occupation, or business of the same nature as the

work performed. The three criteria are cumulative, therefore, if one of the three

53

With regard to that see Reis/Chand (see fn. 44); the references made there to SUVA, SECO

and UNIA and judgments by domestic courts.

54

Arrêt n°374 du 4 mars 2020 (19-13.316), Cour de Cassation – Chambre Sociale,

FR:CCAS:2020:SO00374,

https://www.courdecassation.fr/jurisprudence_2/chambre_sociale_576/374_4_44522.html, or in

English: https://www.courdecassation.fr/IMG/20200304_arret_uber_english.pdf. Both Accessed

15 May 2020.

55

Win, Suzin, The Bill That Disrupted the Gig Economy: AB-5 and Uber’s Troubling Response,

in: GGU Law Review Blog, 2 March 2020, https://ggulawreview.com/2020/03/02/the-bill-that-

disrupted-the-gig-economy-ab-5-and-ubers-troubling-response/. Accessed 10 June 2020.

56

Supreme Court of California Judgement of 30 April 2018, Dynamex Operations West, Inc. v.

Superior Court of Los Angeles, https://law.justia.com/cases/california/supreme-

court/2018/s222732.html. Accessed 10 June 2020.

57

Ibid.

58

For the text of the Bill, see California State Legislature, Worker Status: Employees and

Independent Contractors, 19.09.2019, https://leginfo.legislature.ca.gov/faces/billNavClient.

xhtml?bill_id=201920200AB5. Accessed 13 July 2020.

conditions is not met then an employment relationship between the employee and

the worker will be established.

As it appears very likely that an Uber driver (though not an Airbnb host) will not

meet the ABC test, and, hence, will be qualified as an employee, the Bill has

sparked reactions from Uber and like companies. In the fear that approximately

$500 million a year will be added to Uber’s labour costs and payroll taxes Uber

filed a lawsuit in federal court challenging the constitutionality of AB-5 and sent

an email to more than 150,000 California drivers and millions of passengers,

notifying a change in the way they conduct the service.

59

These changes consist in

giving more freedom to the drivers to select their passengers and destinations to

escape condition (A).

Despite these positive changes for gig workers at domestic or regional level,

several other institutions and organisations have classified Uber drivers as

independent contractors.

60

Among the factors considered towards such a finding,

the control of the drivers over their workload (how much, how often, when they

can perform their work) was fundamental.

IV. What can we Learn from Taxation?

A common definition, or at least a common understanding of what constitutes an

employment relationship, would facilitate the taxation of “platform workers”. As

highlighted, however, such a definition is lacking across countries, or at a

59

Win, Suzin, The Bill That Disrupted the Gig Economy: AB-5 and Uber’s Troubling Response

(see fn. 55).

60

According to Reis and Chand, Uber Drivers: Employees or Independent Contractors? (see fn.

44) such examples include the District Court of Pennsylvania in the US, United States District

Court for the Eastern District of Pennsylvania, Ali Razak, Kenan Sabani and Khaldoun

Cherdoud v. Uber Technologies Inc., Civil Action n. 16-573, 11.4.2018; the State of Florida in

the US, Third District Court of Appeal of State of Florida, Darrin E. McGillis v. Uber, N. 3D15-

2758, Lower Tribunal N. 0026283468-02, 1.2.2017 and the Brazilian Superior Labour Court that

pronounced Uber drivers are contractors. In Australia in June 2019, the Fair Work Ombudsman

decided to qualify Uber drivers as independent contractors, https://www.fairwork.gov.au/about-

us/news-and-media-releases/2019-media-releases/june-2019/20190607-uber-media-release.

Accessed 10 June 2020.

supranational level, and even across inter-related sub-disciplines (labour law, tax

law, social security contributions). Given the importance of the classification of gig

workers either as employees or independent contractors, the lack of common

criteria and the complex legal relationships in the platform economy have led to

the paradoxical situation that one and the same person, the Uber driver for

instance, may for labour law purposes be classified as an independent contractor,

whereas for tax law and/or social security law purposes as an employee. The

situation is even more complex when driving the Uber car is only an ancillary

activity, and the Uber driver’s main income is generated through different

activities. Similarly, when the Airbnb host is resident in France and he rents out his

villa in Portugal for 2 months per year. This section will examine the contribution

of taxation in deciphering this complicated relationship in the context of the

platform economy.

In a cross-border scenario, a worker’s income may be taxed in multiple countries,

the country/ies where he works (source state(s)) and the country where he resides

(residence state). In order to limit or eliminate double taxation, countries usually

conclude Double Tax Treaties (DTTs). In a non-cross-border scenario where an

employee resides and works in the same place, obviously there would not be much

doubt as to where his income from employment should be taxed, although in the

context of the platform economy his work may not be visible to the tax authorities.

Things get more complex, however, in the case of frontier workers, or posted

workers, or people with multiple jobs across the globe. In these cases, usually the

DTTs aim, via their distributive rules, to “allocate taxing rights” between the

involved states. This allocation does not imply that the DTT creates a taxing right

in one state, but it rather suggests that if the income from employment has already

been taxed in state A (source state), then state B (the residence state) should refrain

from taxing the income again and provide for relief from the double taxation that

would otherwise arise.

61

In absence of a DTT, then in principle both the source

state and the residence state would have a right to tax.

61

The relief is usually provided either via the exemption method (Article 23A OECD MC) or the

credit method (Article 23B OECD MC).

These DTTs usually follow the Organisation for Economic Cooperation and

Development Model Convention on Income and Capital (hereinafter OECD MC).

62

Article 15 of the OECD MC provides that when employment is exercised in a

country other than the residence country, then salaries, wages and other similar

remuneration shall be taxed in the source state, in other words the state where

employment is performed. The double taxation that could arise may, thus, be

resolved either via the applicable DTTs or in an intra-EU scenario, by resorting to

the non-discrimination principle and the fundamental freedoms, provided some

other conditions are met.

63

1. Double Tax Treaties and the OECD MC

In social law, it has already been discussed whether the place of work rule (as a

conflict of law rule of Regulation 883/2004) is still apt for social insurance

purposes. Other options (based on the location of a platform provider or of a client)

would, on the one hand, address the problem that platform providers and clients

might try to take advantage of “a planetary labour market” in digital work,

64

where

platforms and clients can choose the cheapest platform workers (service providers)

and countries without social and tax obligations imposed on platforms or clients.

On the other hand, such options are inconsistent with the collection of social

contributions at the source.

The underlying problem in both social law and tax law is finding a nexus to tax or

to collect social security contributions in a digitalised world. It has been widely

accepted that the rules defining the legal bases upon which a State may assert its

tax jurisdiction over a particular taxpayer or an item of income (nexus rules) will

62

Developing countries usually follow the UN Model, which is similar (but not identical) to the

OECD MC.

63

There is extensive CJEU case law that requires, inter alia, that resident and non-resident

taxpayers are found to be in a comparable situation.

64

Graham, Mark/Anwar, Mohammad Amir, The Global Gig Economy: Towards a Planetary

Labour Market? in: First Monday, 24 (2019) 4.

have to be rewritten.

65

The purpose of this section is to provide for an overview of

the existing allocation rules with regard to income from employment, in order to

investigate whether they can provide a) for any useful guidance as to the

distinction between independent contractors and employees and b) whether they

are still apt for use in the context of the platform economy.

According to the OECD MC, different taxing allocation rules exist depending on

the activity of the “worker”. Thus, different provisions exist for entertainers and

sportspersons whose income may be taxed in the state where they perform (Article

17 OECD MC), pensions that are usually taxable in the state of residence of the

recipient (Article 18 OECD MC), government services (Article 19 OECD MC) and

students (Article 20 OECD MC). Of relevance for the purposes of taxation of

workers and/or self-employed persons are also Article 7 OECD MC on business

profits, as well as the definition of what constitutes a Permanent Establishment

(hereinafter PE) in Article 5 OECD MC, and when and how profits can be

attributed to it. If an enterprise carries out business through a PE, the profits that

are attributable to the PE may be taxed in the state of the PE. Such may be the

case, for instance, when a company carries out business in another state via a

dependent agent.

66

While the aforementioned provisions will at first appear rather evident as to their

application in a cross-border scenario, there are too many variables to be

considered in order to answer where the particular income will be taxed, and how it

will be taxed. These variables include factual assessments, such as the frequency

with which a frontier worker returns to his “home country” during a fiscal year;

67

as well as interpretative assessments including qualification of the particular

income,

68

residence qualification and qualification (or absence thereof) of the

“employee” status. This ensuing lack of coordination becomes all the more visible

65

Gadzo, Stjepan, New Nexus for the Digital Economy: An Analysis of Digital, Revenue-Based

and User-Based Factors, in: Pistone, Pasquale/Weber, Dennis (eds.), Taxing the Digital

Economy: The EU Proposals and other Insights, Amsterdam: IBFD 2019, p. 93.

66

For more information on the distinction between dependent and independent agent, see

paragraph 32 of the OECD MC Commentary on Article 5.

67

See, for instance, Article 15 (2) of the OECD MC.

68

For instance, does the income at issue qualify as income from employment or as business

profit? The distinction is not always clear and depends also on the qualification of the person at

issue as employed or self-employed.

in the context of the digital economy, whereby physical presence is not essential

and the type of work provided is uncertain, in terms of frequency, ancillary

character and legal definition.

However, the OECD MC could be of assistance in understanding the concept of

employment in international tax law. Article 15 (1) and (2) OECD MC read:

69

“1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other

similar remuneration derived by a resident of a Contracting State in respect of an

employment shall be taxable only in that State unless the employment is exercised

in the other Contracting State. If the employment is so exercised, such

remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a

resident of a Contracting State in respect of an employment exercised in the other

Contracting State shall be taxable only in the first-mentioned State if:

a) the recipient is present in the other State for a period or periods not exceeding in

the aggregate 183 days in any twelve month period commencing or ending in the

fiscal year concerned, and

b) the remuneration is paid by, or on behalf of, an employer who is not a resident

of the other State, and

c) the remuneration is not borne by a permanent establishment which the employer

has in the other State.”

Article 15 OECD MC includes several undefined terms, on which the Commentary

attempts to shed some light.

70

However, the concept of employment itself is not

analysed in the Commentary. Instead, the Commentary only acknowledges that

“[…] the issue of whether or not services are provided in the exercise of an

employment may sometimes give rise to difficulties which are discussed in

69

Note the change in the title of Article 15 OECD MC in 2000, from “Dependent Personal

Services” to “Employment”. The amendment followed the elimination of Article 14 OECD MC

which referred to “Independent Personal Services”.

70

For a discussion on the many undefined terms, see Peeters, Bernard, Article 15 of the OECD

Model Convention on “Income from Employment” and its Undefined Terms, in: European

Taxation 44 (2004) 2, pp. 72-82.

paragraphs 8.1 ff”.

71

Yet, one could argue that from the remaining Commentary

some valuable characteristics of what constitutes employment in this particular

context could be derived.

Subject to the limit described in paragraph 8.11 and unless the context of a

particular convention requires otherwise, it is a matter of domestic law of the State

of source (i.e. the place where the employment is exercised) to determine whether

services rendered by an individual in that State are provided in an employment

relationship and that determination will govern how that State applies the

Convention.

72

In such cases, the relevant domestic law may ignore the way in

which the services are characterised in the formal contracts. It may prefer to focus

primarily on the nature of the services rendered by the individual and their

integration into the business carried out by the enterprise that acquires the services

to conclude that there is an employment relationship between the individual and

that enterprise.

73

The Commentary then goes on to give guidance on when a formal

contractual employment relationship should be disregarded, taking into account the

relevant facts and circumstances.

74

As already mentioned, the distinction between

“employment services” and “services rendered under a contract for the provision of

services”

75

is important for the application of the relevant DTT article and the

allocation of taxing rights between the states.

76

The Commentary encourages the

involved states to solve any disagreement as to the qualification of the work

relationship having regard to the nature of the services rendered by the individual.

71

Commentary on Article 15 (1) OECD MC (2017 version). See also para. 8.1. of the

Commentary on Article 15 (1) OECD MC that provides: “It may be difficult, in certain cases, to

determine whether the services rendered in a State by an individual resident of another State, and

provided to an enterprise of the first State (or that has a permanent establishment in that State),

constitute employment services, to which Article 15 applies, or services rendered by a separate

enterprise, to which Article 7 applies or, more generally, whether the exception applies.”

72

Para. 8.4. of the Commentary on Article 15 (1) OECD MC (2017 version).

73

Para. 8.7. of the Commentary on Article 15 (1) OECD MC (2017 version).

74

See notably para. 8.11. of the Commentary on Article 15 (1) OECD MC (2017 version): “For

instance, a State could not argue that services are deemed, under its domestic law, to constitute

employment services where, under the relevant facts and circumstances, it clearly appears that

these services are rendered under a contract for the provision of services concluded between two

separate enterprises.”

75

Similar to the concept of the independent contractor.

76

In the case of the independent contractor, Article 7 OECD MC would apply whereas in the

case of employment, Article 15 OECD MC would apply. The two articles allocate in a different

manner the taxing rights of the residence and the source state.

In this bid, according to the Commentary, when the services rendered by the

individual constitute an integral part of the business of the enterprise to which

these services are provided, “it is logical to assume” that an employee will be

providing such services.

77

For that purpose, a key consideration will be which

enterprise bears the responsibility or risk for the results produced by the

individual’s work.

Additional factors and questions to be taken into account when determining the

working relationship, include:

78

- who has the authority to instruct the individual regarding the manner in

which the work has to be performed;

- who controls and has responsibility for the place at which the work is

performed;

- whether the remuneration of the individual is directly charged by the formal

employer to the enterprise to which the services are provided;

- who puts the tools and materials necessary for the work at the individual’s

disposal;

- who determines the number and qualifications of the individuals performing

the work;

- who has the right to select the individual who will perform the work and to

terminate the contractual arrangements entered into with that individual for

that purpose;

- who has the right to impose disciplinary sanctions related to the work of that

individual;

- who determines the holidays and work schedule of that individual.

These indicative factors do not provide for any clear solutions as to the

qualification of gig workers. As Reis and Chand observe, both indications of

employment (some degree of subordination and control by the company) and of

independent services (flexibility of the drivers) can be met in the case of Uber

77

Para. 8.13. of the Commentary on Article 15 (1) OECD MC (2017 version).

78

The factors as appear in para. 8.14. of the Commentary on Article 15 (1) OECD MC (2017

version). Note that the Commentary suggests that these are “additional factors [that] may be

relevant to determine whether this is really the case [i.e. a formal employment relationship or a

contract on the provision of services].”

drivers.

79

Consequently, while the OECD MC provides for some indicia that could

lead to the platform workers’ classification, the “hybridity” of many platform

models that encompass worker characteristics of both an employee and a contactor

cannot be resolved by solely relying on the Commentary. In case of no agreement

between the states, the Commentary advises to use, where appropriate, the mutual

agreement procedure (MAP) to resolve the tax dispute.

2. Can VAT Provisions be of any Help?

a) Carrying out Activities “Independently”

The payment of indirect taxes, specifically VAT, may also provide for guidance

with respect to the distinction between independent contractor and employee in the

context of the platform economy. In general, employees are not required to register

for and pay VAT, unlike independent contractors. One of the distinguishing criteria

is, once again, the exercise of activities “independently”. Article 10 of the EU

VAT Directive provides that the requirement of “independent” activity, to qualify

as a VAT “taxable person”,

80

excludes “employed and other persons from VAT in

so far as they are bound to an employer by a contract of employment or by any

other legal ties creating the relationship of employer and employee as regards

working conditions, remuneration and the employer's liability.” Therefore, the

concept of independence becomes once again essential in informing the distinction

between independent contractor and employee.

81

In the Court’s case law, the three criteria used to determine whether an activity is

carried out independently, include: a) whether it is exercised by a person who is

not organically integrated into the undertaking; b) whether the person at issue has

the appropriate organisational freedom with regard to the human and material

resources used in the exercise of the relevant activity; and c) whether the person at

issue bears any economic risk when performing the relevant activity.

79

Reis/Chand, Uber Drivers: Employees or Independent Contractors? (see fn. 44).

80

For the concept of the “taxable person” in EU VAT law see Article 9 (1) Council Directive

2006/112/EC of 28 November 2006 on the common system of value added tax (hereinafter EU

VAT Directive), https://eur-lex.europa.eu/eli/dir/2006/112/oj. Accessed 14 July 2020; analysed

right below.

81

Note, however, that the concept of “employee” is not defined anywhere in the VAT Directive.

It is obvious that an evaluation of the aforementioned criteria necessitates an ad

hoc factual assessment. The CJEU has provided guidance as to the concept of

independence in the context of the VAT Directive in several cases.

82

Applying

these criteria in the platform economy, one may note that usually “gig workers” are

not organically integrated into the platform, they have sufficient organisational

autonomy to decide whether to drive their cars or rent their properties, and that

their remuneration is not regular and secured in that it depends on the number of

transactions concluded. The “independent activity” criteria, therefore, as enshrined

in Article 10 of the EU VAT Directive are usually met. However, this does not

suffice to qualify a “gig worker” as a “taxable person” for VAT purposes. Article 9

provides for a number of further conditions, which I turn to examine now.

b) Taxable Person

According to the EU VAT Directive, the definition of a taxable person includes

any person or entity “who, independently, carries out in any place any economic

activity, whatever the purpose or results of that activity”.

83

Hence, employed and

other persons bound to an employer by a contract of employment or by any other

legal ties creating the relationship of employer and employee as regards working

conditions, remuneration and the employer’s liability, escape taxability under the

VAT Directive.

The test the CJEU usually applied to establish whether a particular activity,

including the renting out of property, fulfils Article 9 (1) of the VAT Directive

examines whether the activity is carried out for the purpose of obtaining income on

a continuing basis.

84

This criterion must be assessed on a case-by-case basis

82

See for instance, ECJ of 18 October 2007, Case C-355/06, van der Steen, EU:C:2007:615,

where the CJEU ruled that since the sole director at issue received regularly his salary regardless

of the company’s financial situation, he could not qualify as independent supplier and, hence,

was not a taxable person for VAT purposes. Also, ECJ of 12 October 2016, Case C-340/15, Nigl,

EU:C:2016:764.

83

Article 9 (1) EU VAT Directive. With regard to the second condition (i.e., independent

performance), it may be concluded that in cases where the sharing platform can be recognised as

an employer of an individual provider (for the latter, the criteria of the existence of a

subordination link, the nature of work and the presence of remuneration should be assessed

pursuant to EU law), the individual provider may not be regarded as a taxable person. In such

cases, only the sharing platform may be regarded as a taxable person instead – also with regard

to underlying supplies of goods and services.

84

ECJ of 19 July 2012, Case C-263/11, Rēdlihs, EU:C:2012:497, para. 33; ECJ of 20 June 2013,

Case C-219/12, Finanzamt Freistadt Rohrbach Urfahr, EU:C:2013:413, para. 19.

“having regard to all the circumstances of the case, which include, inter alia, the

nature of the property concerned”.

85

The term “economic activity” has been interpreted by the CJEU in very broad

terms, considering the activity per se rather than its purpose or results.

86

Along

these lines, the CJEU has repeatedly held that:

[T]he fact that [the] property is suitable only for economic exploitation will

normally be sufficient for a finding that its owner is exploiting it for the

purposes of economic activities and, consequently, for the purpose of

obtaining income on a continuing basis. By contrast, if, by reason of its

nature, property is capable of being used for both economic and private

purposes, all the circumstances in which it is used will have to be examined

in order to determine whether it is actually being used for the purpose of

obtaining income on a continuing basis (emphasis added).

87

Consequently, if the property is, due to its nature, clearly used for purposes of

obtaining income on a continuing basis, then it (the economic activity) will be

subject to VAT. If the use of the property, as matter of fact, is not clear, then a

more complex, factual analysis will be necessary to assess whether the activity is

carried out for the purpose of obtaining income on a continuing basis.

Several issues arise with respect to whether “platform workers” are (and should

be) subject to VAT. At first sight, the CJEU-made “continuity” condition seems to

be rebuttable: for instance, in the case of Airbnb rentals, if one shows that the

purpose of renting out the property for a very short period did not aim at “obtaining

income on a continuing basis”, then the activity will not be subject to VAT.

Hence, in a strictly literal interpretation of the phrase, it remains unclear whether

someone who has rented out his apartment every August for the past five years

should be assessed. Recent legislation in some countries has reduced, for non-tax-

85

Ibidem, Rēdlihs, para. 29.

86

ECJ of 12 January 2006 Joined Cases C-354/03, C-355/03 and C-484/03, Optigen Ltd,

Fulcrum Electronics Ltd, Bond House Systems Ltd v. Comm’n, EU:C:2006:16, para. 43 and ECJ

of 26 March 1987, Case C-235/85, Comm’n v. Netherlands, EU:C:1987:161, para. 8.

87

ECJ of 19 July 2012, Case C-263/11, Rēdlihs, EU:C:2012:497, para. 34; ECJ of 20 June 2013,

Case C-219/12, Finanzamt Freistadt Rohrbach Urfahr, EU:C:2013:413, para. 20.

related reasons, the number of days a service provider can provide short-term

rentals of his immovable property.

88

Article 12 of the VAT Directive attempts to ensure that even these service

providers can be made subject to VAT: it stipulates that “Member States may

regard as a taxable person anyone who carries out, on an occasional basis, a

transaction relating to the activities referred to in the second subparagraph of

Article 9(1)” (emphasis added). While the CJEU has held that the mere exercise of

the right of ownership and the management of the private property do not

constitute economic activity,

89

it has also ruled that if the party has taken active

steps to market property by mobilising resources similar to those deployed by

producers, traders or persons supplying services within the meaning of Article 4(2)

of the [VAT] Directive, such as, in particular, “the carrying out on that land of

preparatory work to make development possible, and the deployment of proven

marketing measures,” then such initiatives go beyond mere exercise of the

management of the private property.

90

In other words, marketing or advertising the

property constitutes, in the CJEU’s view, the distinctive element that separates the

mere management of private property from its economic exploitation.

This very broad, CJEU understanding has led the Commission to suggest that:

“Given the very wide understanding of the concept of economic activity […] it can

be therefore concluded that the supplies of goods and services made through

sharing-economy platforms, such as driving customers to requested destinations or

renting out immovable property may qualify as an economic activity in the sense of

the VAT Directive irrespective of whether such supplies are delivered with clear

continuity or on a more occasional basis” (emphasis added).

91

88

In Paris, for instance, short-term rentals (Airbnb type) were reduced by law to a maximum of

120 days per year. In Amsterdam, owners will be able to rent out their property through Airbnb

only for thirty days per year.

89

ECJ of 15 September 2011, Joined Cases C-180/10 & C-181/10, Słaby & Others,

EU:C:2011:589, para. 36; ECJ of 9 July 2015, Case C-331/14, Trgovina Prizma,

EU:C:2015:456, para. 23.

90

ECJ of 15 September 2011, Joined Cases C-180/10 & C-181/10, Słaby & Others,

EU:C:2011:589, para. 39-41; ECJ of 9 July 2015, Case C-331/14, Trgovina Prizma,

EU:C:2015:456, para. 24.

91

European Commission, Question Concerning the Application of EU VAT Provisions: VAT

Treatment of Sharing Economy 6, Value Added Tax Comm., Working Paper No. 878, 22

September 2015, https://circabc.europa.eu/sd/a/878e0591-80c9-4c58-baf3-b9fda1094338/8

Indeed, under these circumstances, and as the Commission notes, it seems almost

impossible for “platform workers” to escape the “taxable person” definition. In the

Airbnb and Uber scenarios, therefore, once someone uploads an apartment for rent

or avails himself of the opportunity, through the Uber platform, to drive someone

to that person’s destination, he automatically becomes a taxable person for VAT

purposes, even if he only does so on an occasional basis.

92

Beretta lists the following as the main conditions to check whether an individual

supplier carries out an economic activity pursuant to Article 9 of the VAT

Directive: non-exclusionary membership, organisational autonomy, economic risk,

regulatory autonomy, remuneration independence and personal liability.

93

He uses

four different platforms to evaluate whether these criteria are met: Airbnb, Uber,

HomeExchange and BlaBlaCar and he notes that the assessment varies

significantly depending on the platform at issue.

94

Upon carrying out a functional

analysis, he concludes that only Uber drivers “might eventually be recharacterised

as employees of the platform” as long as they tick more than half of the criteria

listed.

95

c) Economic Activity/ Income Definition

Although one would expect that the definition of the type of work precedes the

income definition, it is noteworthy to examine the questions that pertain to what

kind of income should be taxed. To exemplify the problem, income arising from

renting property via Airbnb could be classified as either income from immovable

property or income from business.

The distinguishing criterion in answering this question is a thorny issue. The

remuneration or “income” the platform worker receives varies widely depending

78%20-%20VAT%20treatment%20of%20sharing%20economy.pdf. Accessed 14 July 2020.

92

The only obvious escape from the application of VAT in such circumstances would be the

application of the de minimis exemption from VAT reporting. In this vein, some Member States

have established a minimum annual turnover for VAT imposition (VAT registration threshold).

See subsection below.

93

Beretta, Giorgio, European VAT and the Sharing Economy, Alphen aan den Rijn: Wolters

Kluwer 2019, p. 99.

94

Ibid.

95

Ibid.

on the platform itself and the worker himself. As the Commission pointed out, such

income could range from “recovering costs (e.g.[,] for the personal use of a good

such as in ride-sharing/car sharing) to amounts comparable to business/work

activities.”

96

While the Commission suggests that “tax rules should follow national

laws and jurisprudence, which determine from which moment an activity becomes

a business activity,”

97

income is not defined in a uniform manner across the

Member States. That fact adds to the uncertainty of the definition of what

constitutes an economic activity, according to the test the CJEU employs.

Accordingly, the same activity may constitute an economic activity for VAT

purposes in one Member State and not in another because the remuneration at issue

does not qualify as income. If one adds to that situation the different thresholds

Member States apply by reference to what constitutes a “professional activity” vis-

à-vis an “occasional” activity of private individuals, the fulfilment of the

aforementioned definitions becomes even more segregated.

Another interpretation difficulty across the different Member States relates to the

exemption of “small businesses” (i.e., businesses with low annual turnover) from

VAT registration.

98

This special exemption scheme is applied in most EU Member

States, but it is not compulsory. Unfortunately, the VAT Directive does not specify

whether “small taxable persons” who participate in the sharing economy (e.g.,

somebody who occasionally rents out his apartment) can benefit from such

exemption schemes. One (administratively burdensome!) option would be to treat

them all as “full-blown taxable persons” based on “tax points”.

99

The other option

would be to extend the special rules for small businesses to the “small taxpayers”

in the context of the sharing economy.

100

96

European Commission, Communication from the Commission to the European Parliament, the

Council, the European Social and Economic Committee and the Committee of the Regions on A

European Agenda for Collaborative Economy, COM (2016) 356, p. 41 (hereinafter EU

Collaborative Economy Agenda), available at https://ec.europa.eu/transparency/

regdoc/rep/1/2016/EN/1-2016-356-EN-F1-1.PDF. Accessed 10 June 2020.

97

Ibid.

98

Articles 284-287, EU VAT Directive. Member States are allowed to exempt small businesses

from VAT registration up to a given threshold.

99

Kogels, Han/van Hilten, Markien, Never a Dull Moment, in: International VAT Monitor, 28

(2017) 2, p. 121. Tax points (or “time of supply”) for a transaction is the date the transaction

takes place for VAT purposes. Tax points can be, for instance, the date of invoice or the day the

supply took place.

100

Ibid., p. 122.

As a yardstick for measuring the level of business activity, a person’s annual

turnover, exclusive of VAT, is generally used.

101

However, registration thresholds

vary consistently among Member States. Some Member States set very high

thresholds before a person incurs VAT payment obligations. Italy for instance, sets

a registration threshold at EUR 65,000, whereas Finland and Greece do so at only

EUR 10,000.

102

It is doubtful how many Airbnb hosts would reach the Italian

threshold, and how much the market would be distorted due to these differences.

103

Some other Member States, such as Greece, grants service providers an exemption

from VAT as long as the host does not provide any services similar to the ones

offered by hotels, such as regular cleaning and linen changes.

104

A remedy against potential tax evasion that could arise from the non-payment of

VAT by platform workers is the collection of such VAT by the relevant platform

(in addition to any other taxes they collect), provided, however, that the hosts have

exceeded the threshold for VAT registration. This would presuppose an updated

and informed reporting system between the platform and the platform worker. This

way, all relevant details that would define the amount to be paid by the taxpayer

would already be available to the platform and the risk of tax evasion would be

minimised.

3. Enforcement and Collection

An additional problem that is created by blurring the boundaries between

employment and self-employment in the platform economy is the difficulty for the

authorities to “follow the money”.

105

The lack of visibility of the activity and the

101

Beretta, Giorgio, VAT and the Sharing Economy, in: World Tax Journal 10 (2018) 3, pp.

381, 414.

102

For VAT registration thresholds, see https://www.avalara.com/vatlive/en/eu-vat-rules/eu-vat-

number-registration/vat-registration-threshold.html. Accessed 14 July 2020.

103

Houlder, Vanessa, Airbnb’s Edge on Room Prices Depends on Tax Advantages. Financial

Times. 2.1.2017, https://www.ft.com/content/73102c20-c60e-11e6-9043-7e34c07b46ef, reported

that: “When you book an Airbnb room in London, around a third of the $100 saving you make

over the price of an average hotel room is due to tax advantages that favour Airbnb’s business

model.” Accessed 13 July 2020.

104

Article 111 (4) of Law 4446/2016 as amended by Law 4472/2017.

105

Mineva, Daniela/Stefanov, Ruslan, Evasion of Taxes and Social Security Contributions.

September 2018, European Platform Undeclared Work.

inability to identify potential taxpayers and their taxable income has cost the tax

authorities billions of tax revenue.

106

This obviously poses obstacles to effective

taxation and collection of taxes. The solutions for effectively taxing the sharing

economy, in the OECD’s view, should focus on improving the effective taxation of

activities facilitated by online platforms through improving taxpayer education and

facilitating self-reporting.

107

Effective taxation becomes, hence, a matter of

collaboration between the platform and the taxpayer. This recommendation has

been implemented by some Member States that have attempted to incentivise the

service providers to include their income from the sharing economy when

completing their tax returns through simplified procedures or automated, pre-

prepared tax declarations available to the service providers directly through the

platforms. In France, for example, as of July 2016, collaborative platforms have

been legally obliged to communicate to each individual providing services in the

sharing economy an annual summary of their tax situation, mentioning how to do

their tax declaration and how much they have to declare to the tax authorities.

108

Other countries, like Belgium, provide tax incentives to platform workers if the

latter enrol with a platform and register their activities.

109

Reduced taxation applies

to platform workers who provide services up to a EUR 6000 exemption threshold

per year.

110

The platform must share the income of the platform worker with the

tax administration. If the income exceeds the EUR 6000 cap, then the platform

worker must register as self-employed and be affiliated with the mandatory social

security system for the self-employed.

A commonly used example of a successful strategy for simplifying and

streamlining tax collection is Estonia. Upon working together with Uber, the

106

While estimates of lost tax revenue per country do not exist, this is a recurring theme. See for

instance, OECD, Shining Light on the Shadow Economy: Opportunities and Threats (see fn. 42);

Migai, Clement Okello/de Jong, Julia/Owens, Jeffrey, The Sharing Economy: Turning

Challenges into Compliance Opportunities for Tax Administrations, in: eJournal of Tax

Research, 16 (2018) 1 , https://www.business.unsw.edu.au/About-Site/Schools-Site/Taxation-

Business-Law-Site/Documents/The-sharing-economy-turning-challenges-into-compliance-CM-

JdJ-JO.pdf.

107

OECD, 2018 OECD Interim Report, p. 198 (see fn. 8).

108

EU Collaborative Economy Agenda, p. 43 (see fn. 96).

109

In order for the platform worker to benefit from the tax exemption, the platform needs to be

formally recognised by the Belgian authorities.

110

OECD, OECD Economic Surveys: Belgium 2020, p. 115.

Estonian Tax and Customs Board developed a (voluntary) income data reporting

system that would simplify the tax declaration process for Uber drivers. The main

idea was to minimise bureaucracy and facilitate automatic tax reporting for

businesses and entrepreneurs. Consequently, transactions between the driver and

the customer are registered by the collaborative platform, which then only sends

the data that is relevant for taxation purposes to the authorities, who in turn will

then preprepare the taxpayer’s tax forms. The main idea is to help taxpayers fulfil

their tax obligations effectively and with minimal effort. The voluntary income

reporting system has been operational since the 2017 tax year and it is not limited

to the ride sharing sector; all platform operators can use the system if they wish.

However, it remains an “opt-in” system – if the platform decides not to join, then

reporting relies on the “good will” of the platform worker.

111

Denmark has also developed an automated income reporting system that could be

used by all platforms. Currently, Denmark is testing the “technical pilot” in several

platforms in order to investigate the technical feasibility of having an automated

reporting scheme and a technology to support platforms and taxation.

112

This

reporting system necessitated a change in the Danish law in December 2018 stating

that digital platforms that facilitate the letting of property (homes, cars, etc.) should

report all income earned by users of the platforms to the Danish tax authorities.

113

Mexico is another example of successful cooperation between the tax authorities,

the platform and the service providers. By using data recording technologies that

drivers of a particular ride-for-hire service are able to use, the platform’s own

systems file and send invoices to the customers and to the Mexican Tax

Administration (Servicio de Administración Tributaria (SAT)), as well as

download them for record-keeping purposes.

114

In Australia, a consultation paper by the Treasury suggested that the reporting

“burden” should be placed either at the platform level or at the financial

111

See also Ogembo, Daisy/Lehdonvirta, Vili, (2020) Taxing Earnings from the Platform

Economy: An EU Digital Single Window for Income Data?, in: British Tax Review, 82 (2020) 1,

pp. 92-93.

112

Ibid., p. 89.

113

Ibid. The authors also note that “[g]ig work platforms were also considered but excluded from

the scope of this initial legislation because of Denmark’s complex social security legislation.”

114

OECD, 2018 OECD Interim Report, p. 201 (see fn. 8). Drivers are obliged to register with the

particular recording system of the platform.

institutions’ level.

115

Operators of sharing economy platforms should be required to

collect and report to the Australian Taxation Office (ATO) key information such as

identity details and income received by their sellers based in Australia. Some

platforms may already provide transaction information on a regular basis to their

sellers, which assists them to meet their tax or other obligations and can be used by

the ATO to match and potentially to pre-fill in tax returns. This will contribute to

reducing the compliance burden on taxpayers.

116

Alternatively, the financial

institution or the payment processors, who would be required to report the

transaction data to the tax authorities, could incur the reporting burden. Such an

“opt-in” model – with variations – already exists in Estonia.

117

In July 2020, the OECD released a new global tax reporting framework, the Model

Rules for Reporting by Platform Operators with respect to Sellers in the Sharing

and Gig Economy ("MRDP").

118

Under the MRDP, digital platforms are 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. While the model reporting rules included in the MRDP are not

compulsory for ‘interested jurisdictions’, they constitute a first consolidated effort

by the OECD to codify on a uniform basis information collection and information

reporting by specific platforms. This way, automatic exchange agreements between

such interested jurisdictions will be facilitated, and the proliferation of different

domestic reporting requirements will be contained.

V. Conclusion

115

The Australian Government Treasury, Tackling the Black Economy: A Sharing Economy

Reporting Regime – A Consultation Paper in Response to the Black Economy Taskforce Final

Report. January 2019, https://apo.org.au/node/216381. Accessed 10 June 2020.

116

Ibid.

117

For details on the “small business account”, see the relevant chapter (Estonia) in this volume.

118

OECD, Model Rules for Reporting by Platform Operators with respect to Sellers in the

Sharing and Gig Economy, available at: https://www.oecd.org/tax/exchange-of-tax-

information/model-rules-for-reporting-by-platform-operators-with-respect-to-sellers-in-the-

sharing-and-gig-economy.htm

Upon analysing the several problems and solutions provided from a tax

perspective, the question remains: how can taxation be of use for social law? The

first takeaway relates to the taxation of the platform. If platforms are tax-

incentivised to “hire” contractors, then obviously, they will resist any change in the

work relationship between them and the platform workers, as the Uber example in

California demonstrates. By contrast, if platforms receive adequate tax deductions

and credits that could set off the social security contributions they pay for

employees, then a formal employment contract would be an option for both parties.

The second question relates to the issue as to who should identify the work

relationship and under which criteria. While it is widely acknowledged that labour

law, social law and tax law serve different purposes, and that the same person may

be classified differently for social law or tax law purposes respectively, it appears

that the criteria of dependence, subordination and freedom in the way to provide

services are pertinent across jurisdictions and different legal areas, including within

taxation (VAT and OECD MC). Even though, indeed, an ad hoc assessment will

have to be performed each time, it is possible that the existing case law from these

three interrelated areas may result in convergence towards one, uniformly

applicable test. Such a coordinated approach would prevent resorting to circular

arguments including the platform worker’s tax treatment for labour law

classification purposes, which may lead to contradictory results.

Finally, the discussion at policy level appears to be slowly including the taxation of

platform workers and the revenue lost due to the platform shadow economy.

Platform workers, even when they fall under the “independent contractor” status

should be facilitated and encouraged to declare their income. A series of reporting

measures has been proposed by several countries that often requires the

cooperation of the platform, the worker and the tax authorities. Laudably, the

OECD published very recently its Model Rules for Reporting by Platform

Operators that aim to provide (in a consistent and uniform manner) guidance to

jurisdictions as to the reporting rules to be adopted and applied to platforms. A

combination of the right tax incentives at both platform and platform workers’

level, together with a simplified reporting system would contribute to ensuring

both adequate revenue to finance social security schemes as well as a framework

that would assist in fighting bogus self-employment.

Taxation of the Platform Economy: Challenges and Lessons for Social Security

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