The European Commission’s VAT in the Digital Age initiative brings significant modifications to the VAT treatment of the platform economy related to the operators in the short-term accommodation and passenger transport services. Short-term is defined as a maximum of 30 days – however, to adapt to different national specificities of the sector, EU Member States should have the possibility to make short-term accommodation rental services subject to certain criteria, conditions and limitations in accordance with their national laws.
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.
The deemed supplier obligation will not apply if the underlying supplier provides their VAT number and declares responsibility for collecting and remitting the VAT due to the digital platform. Moreover, if the underlying supplier is below the VAT registration-threshold in the EU Member State where the VAT is due, that EU Member State may choose to not make the digital platform the deemed supplier.
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.
It’s been confirmed that, in order to avoid situations in which platforms are included in the special scheme for travel agents in respect of transactions for which they are considered to be the deemed supplier, those transactions are outside the scope of that special scheme (i.e. TOMS). Similarly, travel agents are not included in the deemed-supplier rule.
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).
Furthermore, by 1 July 2033, the EU Commission will submit a report to the Council evaluating the operation of these measures and the application of the VAT rules on facilitation services, including the impact on the functioning of the internal market and the effectiveness of VAT collection.
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