Digital platforms should assist tax compliance efforts, OECD says

The digital platforms that have fueled the growth of the sharing and gig economies have a role to play in value-added tax (VAT) and goods and services tax (GST) compliance and administration, the OECD said in a report released April 19.

The report describes how tax administrations should be formulating their VAT/GST policy response to the disruption caused by the sharing and gig economy and how platform providers and their data can help manage the influx of new actors in the VAT/GST system.

The OECD report is intended to respond to governments and tax authorities that have asked how to protect their VAT and GST revenue considering the changing business conditions and how to minimize any economic distortion that could result from disparate treatment of providers operating in the gig and sharing economy.

The OECD report’s recommendations reflect the consensus of VAT and GST authorities worldwide and input from other key stakeholders.

Although the growth in the gig and sharing economy is still in its early stages, it has already significantly disrupted some sectors, the OECD said.

The changes have most notably affected the transportation and the tourism and hospitality industries through digital platforms like Uber and Airbnb, respectively. Other sectors, including various types of services and finance, are also starting to see notable competition from the gig and sharing economy.

Broadly speaking, the report recommends a few key steps for tax authorities.

First, tax authorities should study and understand the gig economy, including its main actors and business sectors.

Second, they should assess the need for VAT/GST policy action to protect or expand the tax base and to minimize any economic distortion.

Third, they should determine the best implementation approach, which should likely involve a role for digital platforms in sharing data and/or collecting the VAT/GST.

Significantly expanding the VAT/GST base to a wide swath of new gig/sharing providers, like Uber drivers, for instance, will likely create compliance burdens for both the providers and the digital platforms, as well as administrative challenges for the tax authority.

With that in mind, tax authorities might want to start with simply monitoring the economic shifts or taking measures that limit the number of new entrants into the VAT/GST system, the OECD suggested.

Measures to simplify compliance obligations might include thresholds for VAT/GST registration and/or collection, accounting and reporting simplifications, withholding mechanisms, third-party reporting to assist compliance monitoring, and taxpayer education and outreach activities.