North America

VAT in the Digital Age: VAT treatment of the platform economy

Luca Clivati
December 21, 2022

This blog was last updated on February 28, 2025

The European Commission’s “VAT in the Digital Age” proposal brings significant modifications to the VAT treatment of the platform economy related to the operators in the short-term accommodation (max. of 45 days) and passenger transport services.

VAT treatment of the platform economy

It is worth mentioning that the ‘VAT treatment of the platform economy’ only relates to the supply of certain services via a platform. There are also a set of e-commerce rules related to the supply of goods via platforms.

The rise of the platform economy business model has triggered new challenges for the VAT system. As per the view of the EU Commission, one of these problems is VAT inequality that can be experienced if we look at:

  • The accommodation platform model that the EU Commission sees as competing directly with the hotel sector direct distribution model or
  • The transportation platform model that the EU Commission sees as competing directly with private taxi firms

We can better understand the EU view of the distortion of the competition if we look at the European Commission’s Impact Assessment report. The report outlines the growing importance of the platform economy in VAT collection and explains the studies conducted to ascertain where the EU Commission needs to take action.

In terms of numbers, the value of VAT revenue from the digital platform ecosystem is estimated at about EUR 25.7 billion per year for the Member States, i.e. 2.6 percent of total VAT revenue.

Scale of platform economy operation, by sectors (EU27, EUR billion, 2019)

 

Sector Revenue of digital platforms (EU27) Revenue of digital providers (EU27) Ecosystem Value (EU 27)
Accomodation 6.3 36.9 43.2
Transportation 7.2 31 38.2
E-commerce 16.6 93.8 110.4

Source: Extract from Commission Staff Working Document Impact Assessment Report, pag. 26

 

The total value of VAT revenue includes EUR 3.7 billion related to accommodation services and EUR 3.1 billion related to transportation services.

In these two sectors, private individuals and small businesses (i.e. underlying suppliers) can provide their VAT-free services (i.e. they do not account for any VAT) via a platform. With the economies of scale and network effect, these businesses can be in direct competition with traditional VAT-registered suppliers.

Taking into account the supporting study, the number of underlying suppliers who are not registered for VAT, can be up to 70%, depending on the type of platform.

For example, in the accommodation sector, over 50% of users of a particular accommodation platform specifically access the platform’s offering over a traditional hotel.  In Europe, the cost of accommodation offered via the accommodation platform can be, on average, some 8% to 17% cheaper than a regional hotel’s average daily rate.

In the view of the European Commission this means a distortion of competition between the same services offered via different channels.

The VAT treatment of the facilitation service

Clarifying the nature of services provided by the platform was the most supported intervention across different stakeholders.

In some Member States the treatment of the facilitation service charged by the platform is regarded as an electronically supplied service, whilst in others it is regarded as an intermediary service.

This is relevant because it can lead to different places of supply, which can lead to double or non-taxation. Therefore, clarification of these rules is necessary.

According to the proposal, the facilitation service (where the term “facilitation” extends to include short-term accommodation and passenger transport services) provided by a platform should be regarded as an intermediary service (Article 46a amending Directive 2006/112/EC). This allows for a uniform application of the place of supply rules for the facilitation service.

While this has no impact on the existing rules when the supply is carried out on a B2B basis, the same cannot be said about B2C supplies. Under this scenario, the place of supply will be where the underlying transactions takes place.

How will the VAT in the Digital Age proposal change the status quo?

According to the European Commission, the main issue with the platform economy is the inadequacy of the current VAT legal framework to ensure a level playing field with traditional businesses, specifically in the transport and accommodation sectors.

Supplies made by small underlying suppliers via a platform are not taxed and the facilitation services made by platforms are taxed differently in different Member States. This leads to difficulties for the platforms, suppliers, and Member States.

Introducing a deemed supplier model will solve these issues, by which platforms will account for the VAT on the underlying supply where no VAT is charged by the supplier. This model ensures equal treatment between the digital and offline sectors of short-term accommodation rental and passenger transport.

In addition, clarifications will be given on the treatment of the facilitation service to allow for a uniform application of the place of supply rules, and steps will be taken to harmonise the transmission of information from the platform to the Member States.

In terms of timing, EU Member States will have until 1 January 2030 to implement the deemed supplier provision (with optional implementation from 1 July 2028).

Need support?

Get in touch about the benefits an expert VAT solution partner can offer to help ease your business’s VAT compliance burden.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Luca Clivati

Luca joined Sovos in 2022 and is a senior manager of the consulting team within Compliance Services. He holds a Master’s degree in International Economics and has 13+ years of experience on cross-border transactions and international VAT and GST. Luca specializes in tax consulting advisory focusing on indirect taxes, diagnosis, solution, development and implementation of clients’ tax requirements, VAT compliance and tax due diligences within the EU and in jurisdictions outside of it (mostly Norway, Switzerland, New Zealand, Australia and Singapore).
Share this post

North America Tax Information Reporting
June 11, 2025
IRS FIRE System Sunset: What the IRIS Transition Means for Filers

This blog was last updated on June 16, 2025 The IRS has officially confirmed a plan to sunset the FIRE system, marking one of the most significant transformations in information return filing in decades. After serving as the backbone of electronic tax reporting since the 1980s, the Filing Information Returns Electronically (FIRE) system will be […]

Maine state flag over vineyard
ShipCompliant
June 11, 2025
Maine Bottle Bill to Extend to DtC Wine Shipments in July

This blog was last updated on June 11, 2025 Effective July 1, 2025, all direct-to-consumer (DtC) shipments of wine into Maine must comply with the state’s beverage container redemption program, better known as a “bottle bill.”   While wine bottles sold in Maine retail stores have long been subject to these provisions, the state is […]

E-Invoicing Compliance North America
May 29, 2025
Global E-archiving Compliance: The Essentials of E-invoice Storage

This blog was last updated on May 29, 2025 The digital business landscape is forever changing, yet one thing is certain: electronic archiving is more than a convenience – it’s a matter of compliance. As governments worldwide invest in digital tax transformation initiatives like e-invoicing and e-reporting, a complex web of e-archiving requirements that vary […]

states with no sales tax
North America Sales & Use Tax
May 27, 2025
The 5 U.S. States with No Sales Tax

This blog was last updated on May 27, 2025 In a country where sales tax is the norm, a handful of states stand out for going against the grain—they don’t impose any statewide sales tax at all. That’s right—no last-minute filings, no scrambling to collect and remit every month. At least, not for sales tax. […]

what is sales tax
North America Sales & Use Tax
May 16, 2025
What is Sales Tax? How it Works & Why It Matters

Uncover what sales tax is, how it works! This guide provides everything from rates and exemptions, to how it varies by location and product type.

See for yourself how the Sovos Compliance Cloud can meet your business' unique tax compliance challenges.
Book a Demo
© 2025 Sovos Compliance, LLC. All rights reserved.
Why Sovos?
Resources
About
Products
Indirect Tax Suite
Information Reporting and Withholding Suite
Specialty Products
Solutions
By Tax or Document Type
By Industry
By Team or Initiative
By Region