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Policing Platform users' compliance: new international reporting rules

The OECD and European Commission have published proposals for online platforms to conduct due diligence on users and make annual reports of the data collected to tax authorities. While it may impose a heavy compliance burden (especially for smaller operators), the introduction of a harmonised set of rules to replace divergent local regimes has upsides and may be more palatable for platforms than other options on the table.

What’s this all about?

Online platforms raise a variety of tricky tax issues for tax authorities. Since we last wrote about this (‘Tax issues for online platforms’, Tax Journal, 23 October 2018 - see here), there have been significant developments in how platforms themselves are taxed – both in the form of new digital services taxes and the development of the OECD’s proposals on the taxation of the digitalised economy (or ‘BEPS 2.0’). The latest move, while proposing obligations for the platforms, shifts the focus to platform users’ tax compliance.

What are the latest proposals?

There are two sets of proposals, one from the OECD and one from the European Commission.

  • The OECD’s are a set of ‘model rules for reporting by platform operators with respect to sellers in the sharing and gig economy’ (the ‘model rules’). These have been approved by the OECD/G20 Inclusive Framework on BEPS and were published on 3 July 2020. Like the OECD model tax treaty, the model rules are accompanied by an official OECD commentary.
  • The Commission’s proposal is a new set of revisions (‘DAC 7’) to Council Directive 2011/16/EU on administrative cooperation in the field of taxation. These proposals were published on 5 July 2020 and form one of three main initiatives in a new package of anti-avoidance measures.

Although there are some differences between the proposals, discussed further below, there is also substantial overlap: both require platforms to collect, check and pass on to tax authorities information about the sellers who use those platforms and the transactions carried out on them. The information is then to be shared automatically between tax authorities.

What is this intended to achieve?

Platforms have many advantages. They can allow small businesses or individuals to attract customers they might not otherwise have the scale to reach. They can also provide a more flexible means of making a living outside the constraints of a typical employment relationship. But those characteristics can cause headaches for tax authorities. In the absence of an employment arrangement, the normal payroll processes of tax withholding and reporting do not apply. Nor are small scale sales via platforms always easy for tax authorities to identify. Tax authorities rightly worry there are high levels of non-compliance by platform sellers. These proposals are intended to help by providing tax authorities with information about the sellers using, and the sales they make through, platforms.

The global (or EU-wide) nature of the proposals is also important. From the tax authority side, it’s intended to avoid difficulties over enforcing compliance by platforms: platforms will generally need to report in jurisdictions with which they have some nexus, with automatic information exchange with other jurisdictions. For platforms, the aim is to ease the compliance burden by replacing a patchwork of different rules with a coherent, single system of reporting and a clear legislative basis for the information to be provided – in effect, a common reporting standard for platforms.

Both sets of proposals follow on from the March 2019 report by the OECD’s Forum on Tax Administration, The sharing and gig economy: effective taxation of platform sellers. This was itself a partial response to a 2018 OECD interim report Tax challenges arising from digitalisation, which led to BEPS 2.0. In a broader sense, the model rules and DAC 7 can therefore both be seen as a further step in tax authorities’ ongoing struggle to engage with digital businesses and design legislation fit for new and evolving business models.

To whom does this apply?

Helpfully, the two sets of rules have an almost identical architecture and, in many places, identical wording – ‘copy and paste’ was clearly a well-used tool when preparing the proposals.

The basic requirements under both regimes are that ‘reporting platform operators’ have to collect (and check) certain information in relation to ‘sellers’. Where the seller is a ‘reportable seller’ specified information has to be reported to the relevant tax authority. In both cases, the concept of ‘relevant services’ (under the model rules) or ‘relevant activity’ (under DAC 7) are key to defining the scope of the rules.

The table attached at the link at the end of this article provides more detail on the meaning of these key terms. To draw out a few points:

Reporting platform operators

The basic definitions of platform operators in the two proposals are similar, and broad: they catch pretty much any digital interface that puts sellers of relevant services/relevant activity in touch with potential buyers. Both definitions exclude (broadly) search engines, pure listings sites and pure payment processors. However, the model rules give the option for further exclusions for platforms for non-profit sellers (e.g. ride-sharing apps) or platforms with no reportable sellers. They also offer the option of an exclusion for smaller platforms – though, with the threshold at €1m of platform sales per year, this may be of limited assistance to many start-ups.

To be subject to the due diligence and reporting requirements, the platform operator must also be a reporting platform operator. Essentially this brings in a geographical nexus requirement. Under the basic model rules, that is a tighter requirement: a platform operator is only within scope of a particular jurisdiction’s rules if it is tax resident there (or, if it not tax resident anywhere, is incorporated or has a place of management there). DAC 7 is more inclusive: a platform operator can be brought within scope if it has any one of the specified connections with a member state (being tax residence, incorporation, place of management or permanent establishment), or facilitates activity by sellers resident or renting immovable property in a member state.

Relevant services versus relevant activity

This is probably the most important concept in the proposals, and the most significant point of difference between them. ‘Relevant services’ (as used in the model rules) is limited to immovable property rentals and the provision of time or task-based services by individuals at the request of a user (referred to as ‘personal services’). ‘Relevant activity’ (as used in DAC 7) covers that ground, but also captures sales of goods, transport rentals and crowdfunding.

The reason for that distinction isn’t clear from the proposals but, as drafted, the impact would be significant. Under the EU proposals, not only are platforms like AirBnB, Uber and TaskRabbit within scope, so are businesses like eBay and Amazon Marketplace, Turo, and Seedrs. But that’s not to say DAC 7 catches everything: surprisingly it’s not clear apps to rent electric scooters like Lime are in scope (even though they rely on gig workers). Nor would, for example, clothes rental apps. It’s also important not to overstate the distinction. The model rules could still catch transactions that on the face of it look like sales of goods. For example, where customised products are sold via platforms like Etsy, that could engage the personal services concept. Apps such as Deliveroo are also clearly intended to be within scope due to the delivery element, even though what is actually being received by the customer is goods. Also, given the OECD suggests jurisdictions may want to allow for new categories to be added to relevant services via secondary legislation on an ongoing basis (and specifically contemplates the extension to sales of goods, rental of moveable assets and peer-to-peer lending), the gap may quickly close.

Reportable sellers

Again, the concepts are similar, but the model rules are narrower. The OECD proposals would exclude lower-risk categories of sellers; both listed sellers and larger hotel businesses (making over 2,000 supplies of immovable property a year through the platform) would be outside scope. The latter exclusion could assist hotel franchise operators as well as holiday platforms like Expedia. Under the proposals, it’s not clear that a hotel group that operates a franchise model wouldn’t be a platform operator: the exclusion for larger sellers could take them outside the OECD proposals.

It is also in the reportable sellers concept that further geographical nexus requirements are found. The model rules just look to the seller’s primary address (primary residence for individuals or registered office for others). DAC 7 is broader: a seller is within scope to be reported not only by reference to the place where it has its primary residence or registered office, or rents immovable property, but also anywhere it has a branch or a tax/VAT identification number (TIN). That said, DAC 7 could have gone further: given the overlap with VAT (which is moving to taxation on the basis of consumer destination system for B2C supplies), it is perhaps surprising that the Commission did not try to extend ‘reportable seller’ further to include online services provided by a seller outside of the EU but to a customer in the EU.

What do in-scope platforms have to do?

A reporting platform operator has two main obligations: due diligence and reporting.

Due diligence

Platform operators that are in scope are obliged to collect certain information (such as name, address, date of birth/ business registration number and TINs) on sellers that use their platform. It’s envisaged that in some cases this could be collected via a government verification service. Platform operators will also need to collect details of any immovable property being rented via the platform.

Importantly, platform operators must then determine whether that information is reliable. What that will entail will vary between sellers:

  • General rule: Generally, the verification process will involve checking the platform’s electronically searchable records, as well as verifying TINs using any publicly available electronic databases. In principle, that will need to be done by 31 December each year (but once done for a particular seller, it only needs to be refreshed every three years, unless the platform operator knows the information has become unreliable or inaccurate).
  • Existing sellers: Where the sellers were signed up to the platform before the relevant rules came into effect (or before a platform operator comes within the scope of the rules), there is some leeway: the verification can be carried out using only the platform’s existing electronically searchable records and platform operators get an extra year to do that.
  • Inaccurate information: Where a tax authority has indicated that information that has been provided by a seller may be inaccurate, the platform operator will need to verify the information using reliable, independent-source evidence. DAC 7 envisages this would be requested from sellers and might take the form of government-issued identity documents or tax residence certificates.

Whilst many platforms will already perform some KYC/AML checks on sellers, the obligation to verify the information received (and the possible further checks) are likely to add a significant additional compliance burden. Outsourcing to third parties is permitted but will of course come at a cost. Nor will extracting the relevant data necessarily be a straightforward exercise for platforms whose systems weren’t set up with these requirements in mind.

It’s also worth noting that there could be difficult verification questions even outside the scope of the prescribed due diligence. For example, determining under the model rules whether services provided by a seller in connection with a supply of goods amount to personal services (and so are within scope) is likely to be a fact specific question. The Etsy example illustrates that well: Etsy sellers often personalise goods, but Etsy cannot possibly consider every item to assess whether the service element is purely ancillary to the supply of goods. No easy solutions are proposed.


Both regimes envisage annual reporting to tax authorities (by 31 January each year) of both the due diligence information collected about sellers, and information on the sellers which will allow tax authorities to assess sellers’ tax compliance, including:

  • financial (bank and non-bank) account details;
  • where the seller is resident (a concept that covers the jurisdiction of the primary address or any permanent establishments and the issuer of any TINs);
  • total consideration paid to the seller on a quarterly basis;
  • any fees, commissions or taxes deducted or withheld or charged by the platform; and
  • (in the case of immovable property) the address and land registration number of the property and the rentals made.

Both regimes contain some streamlining provisions:

  • Under DAC 7, platform operators that have a presence in multiple member states will generally elect to report to a single member state’s competent authority. Platform operators without an EU presence but which facilitate sales in the EU will be required to register with the competent authority of each member state in which they operate (but if the platform is already registered in a member state under one of the special VAT schemes for electronically-supplied services, it must register for DAC 7 purposes in that state only).
  • Under the model rules, a platform operator can rely on another platform operator’s report in respect of the same sellers (though how often there would be two platform operators reporting the same information remains unclear).

Tax authorities are then expected automatically to exchange the information collected. Under DAC 7, such exchanges would occur by the end of February each year. 


Under DAC 7, platform operators will be required to enforce the due diligence rules by withholding payments from non-cooperative sellers or by closing their accounts. The model rules are less prescriptive but also envisage similar measures.

So, is this good or bad news for platforms?

The good news is that a uniform information reporting regime may reduce the compliance burden for larger platforms (the Commission has identified 16 different regimes in the EU alone at present). It also builds on steps that some platforms have already taken to support tax compliance by users – for example, Uber’s White paper on work and social protections in Europe highlighted work it had already done to allow direct sharing of information with tax authorities in certain EU jurisdictions and the potential for technology to simplify the tax reporting process.

Further good news is that having a clear legal basis for disclosure in the EU at least may also limit platforms’ GDPR headaches when disclosing users’ data to tax authorities going forward. Presently, some platforms may be inundated with requests for users’ data without there being a clear ‘legal obligation’ to do so (a ground for the lawful processing of data under GDPR), leaving them in a tricky position.

But it’s not all good news. The due diligence requirements are extensive and require platforms to ‘police’ their users. One-off costs in the hundreds of millions of euros and recurrent costs in the tens of millions are predicted by the Commission in relation to DAC 7 alone. In addition, if non-EU jurisdictions adopt the model rules but without the modifications made by DAC 7 (e.g. to bring sales of goods in scope) or with other changes, or if existing regimes are maintained alongside the new proposals (which the current approach to the new article 242a of VAT Directive 2006/112/EC suggests might be the case), then platforms operating globally may still face a patchwork of differing obligations.

The measures could also discourage diversification (and competition). In the hotel sector, for example, traditional booking websites have begun to branch out from simply showcasing larger hotels to include smaller- scale operators. If that brings them within the rules when they would otherwise be outside scope (as could be the case under the model rules, if all the excluded platform operator options are included), that may cause them to retrench.

Overall, this is probably a good news story for most larger platforms if the proposals are adopted widely and replace existing regimes. But smaller or start-up platforms, and those more exposed to difficult boundary questions, may feel the effect disproportionately.

What next?

It is currently unclear if non-EU OECD members (and in particular the US) will choose to implement a version of the model rules, or adapt their existing rules in line with the model rules, although the global direction of travel towards tax authorities becoming more sophisticated in their handling of data suggests there may be some take-up. The model rules seem to have been heavily EU-driven, and DAC 7 – coming so swiftly after the publication of the model rules – suggests that the EU is looking to establish ‘first mover’ advantage in this regulatory space, creating the gold standard for regulation which other jurisdictions either copy or adopt. This is a tactic the EU has used before, notably with GDPR.

The suggestion seems to be that DAC 7 would apply from 1 January 2022. By contrast, the model rules will not be obligatory and so their timing is less clear; it will depend on individual jurisdictions’ responses.

What should platforms do now?

DAC 7 is very likely to be implemented in the EU, and the model rules may see widespread adoption outside of the EU. Platforms should therefore start to take action now, possibly including:

  • checking AML/KYC procedures would be up to scratch;
  • making due diligence obligations a part of user onboarding processes;
  • ensuring the relevant information could be efficiently extracted from IT systems
  • thinking about amending Ts&Cs for the sanctions / policing of users required by these rules;
  • preparing to communicate the changes to sellers; and
  • keeping an eye on the swathe of reforms that the Commission has proposed under its anti-avoidance package of measures (including proposals for the EU to change how VAT rules apply to platforms and potentially require them to collect VAT). 

The authors thank Helen Buchanan for her contribution to this article.

This article was original published in the Tax Journal on 31 July 2020.