The European Commission’s action plan provides for a general review of the VAT treatment of the platform economy, which is a broad term used to describe multifaceted business models where the online or digital platform facilitates the connection between two or more distinct but interdependent sets of users (whether companies or individuals, and whether or not carrying out an economic activity).
By contrast, the current legislative proposal focuses mainly on short-term accommodation rental and passenger transport activities, which according to the European Commission, account for over 70% of the platform economy (excluding supplies of e-commerce goods) in Europe.
Under the proposals, both EU and non-EU established platforms that facilitate supplies of B2B and B2C short-term accommodation rental (defined as having an uninterrupted rental period of a maximum of 45 days, with or without the provision of ancillary services) and passenger transport, would be liable for VAT as deemed suppliers. However, this would be the case only where these services are provided by underlying suppliers whose operations are not subject to VAT in the EU. The definition of facilitation, and the manner in which the deemed supplier rule operates, largely correspond to the existing e-commerce legislation in force since 1 July 2021.
The platform operator would assume the VAT liability for certain underlying suppliers including nontaxable persons (i.e., private individuals), fully exempt entities, taxpayers subject to a small and medium enterprise (SME) exemption, as well as persons who are not established in the member state of taxation and are not VAT registered anywhere in the EU (typically non-EU providers). The implementing regulation specifies that the platform operator will become liable for VAT in all cases where the underlying supplier has not provided a valid VAT number to the platform operator, meaning that the operator would need to establish processes to collect and validate VAT numbers for all underlying suppliers active on their platform.
As the deemed supplier, the platform operator would be required to charge VAT on the services provided by the underlying supplier to both B2B and B2C recipients, as if they were providing these services themselves. This means that the platform would need to collect and remit the relevant member state’s VAT, based on the location of the accommodation or where the transport is provided, calculated on the full amount paid by the customer. These supplies could not be exempt from VAT but could benefit from reduced rates depending on national VAT legislation in the applicable member state. The margin scheme applicable to tour operators and travel agents (TOMS) does not apply to supplies by platform operators.
To meet their new VAT obligations, platform operators would have to either register in all member states in which they have underlying operations, or register under an OSS scheme that allows them to declare and pay VAT in one member state for B2C services performed across multiple EU jurisdictions. For the underlying suppliers, the transfer of their VAT liability to the platform operator would imply that the suppliers would be deemed to render an initial service to the platform, which would be exempt from VAT without the right to deduct input VAT. Providers of short-term accommodation rental or passenger transport wishing to deduct input VAT on their associated costs could apply for VAT registration, and apply VAT on the supplies under the standard rules.
One proposal with a potentially broader application across the platform economy would be the new place of supply rule for B2C facilitation services provided by platforms; as from 1 January 2025, the place of supply of these services would follow that of the underlying transaction. Where private individuals pay a commission or fee to platforms, the VAT charged by the platform would therefore not always be based on the location of the customer, as is currently the case for digital services.
Further changes to e-commerce transactions for goods
On 1 July 2021, the VAT rules applicable to e-commerce transactions for goods changed significantly, and all B2C supplies of goods to customers in the EU are in principle taxed at the location of their destination, irrespective of their place of origin. E-commerce marketplaces facilitating supplies of goods by third party sellers have also been tasked with the collection and payment of VAT on certain types of transaction, through a deemed supplier mechanism. This ecommerce VAT package is viewed as largely successful in respect of the increased collection of VAT, although some practical areas for improvement have since been identified.
The European Commission’s proposal already predicts a significant extension of the deemed supplier rules for platform operators making supplies within the EU. Currently, this only applies to B2C supplies made by non-EU based sellers. As from 1 January 2025, platforms and marketplaces would become the deemed supplier for all supplies of goods facilitated by platforms and marketplaces, covering EU and non-EU suppliers, to both B2B and B2C recipients. An exception is provided for local marketplaces and portals that are only established in one member state and merely facilitate domestic supplies within that member state. If this extended scope is implemented, most platform operators and marketplaces would be liable for VAT on all revenue realised through their websites.
E-commerce goods originating outside the EU may also be within scope of the new rules. Marketplaces facilitating the supply of these goods, sent in consignments below EUR 150 to an EU consumer, would be required to register for the Import One Stop Shop (IOSS), which is currently an optional regime. For these transactions, marketplaces would collect VAT based on the member state of destination, which they would remit centrally through their IOSS registration on a monthly basis. This would bring increased uniformity in the import flows of these low value goods, as under the IOSS, the import transaction itself is exempt from VAT. The IOSS would not become mandatory for traders making imported distance sales through their own website. Possible further changes to improve the VAT collection for imported distance sales will be considered as part of the ongoing revision of the Union Customs Code.
A third deemed supplier mechanism provided in the European Commission’s proposal concerns the movement of goods belonging to third party sellers from one member state to another (intra-Community transfers). This is a common situation in e-commerce businesses, where goods are stored in multiple fulfilment centres with a view to reducing delivery times and improving customer choice. Where taxable persons facilitate the movement of these goods through the use of an electronic interface, they are deemed to have received those goods at the point of dispatch from the third party seller, which means that the cross-border movement is treated as a movement of their own goods. These taxable persons must therefore report the relevant own goods transactions for VAT purposes, either through their VAT registration in the member state involved, or through a newly created OSS scheme for the transfer of own goods (see below).