On 8 December 2022 the EU Commission published its proposals on VAT in the Digital Age. This also included additions to the deemed supply rules for the Platform Economy. The respective changes are discussed in this article.
The business world is changing rapidly, and online sales models are the new normal even in traditional business sectors like passenger transportation and accommodation rental.
According to the “VAT in the Digital Age” study up to 70% of the suppliers using an online platform are not registered for VAT. Since traditional hotels and taxi operators have been obliged to charge VAT on their supplies, there is a clear and increasing VAT inequality where the new VAT in the Digital Age (ViDA) EU proposal intends to level the playing field.
What will change?
The EU ViDA proposal for the platform economy, which could come into effect as early as 1 January 2025, includes the following:
A deemed supplier regime will be introduced where a taxable person facilitates, through the use of an electronic interface such as a platform, portal or similar means, the supply of short-term accommodation rental or passenger transport (New Article 28a Council Directive 2006/112/EC).
The deemed supply rules shall be applicable when the underlying seller does not charge VAT, for example:
- as private individual or
- as non-established and not EU VAT registered person or
- under the special scheme for small enterprises.
For clarification purposes the EU Implementing Regulation (282/2011) will be amended, using the provision of a valid VAT ID number as identifier for both the underlying seller and the underlying customer. In addition, a definition for the “electronic interface” in connection to short-term accommodation rental and passenger transport will be included in the Implementing Regulation.
The EU has further clarified that the uninterrupted rental of accommodation for a maximum of 45 days shall be regarded as having similar function to the hotel sector. Therefore, the supply cannot be exempt from VAT similar to traditional hotel accommodation.
Further, in case the deemed supply rules for short-term accommodation rental or passenger transport are not applicable, the platform will still be obliged to keep and transmit records relating to facilitated B2B and B2C supplies.
Deemed supply rules for short-term accommodation rental or passenger transport
The deemed supply between a seller and a customer is split into two transactions for VAT purposes:
- The underlying seller is deemed to have sold the short-term accommodation rental or passenger transport to the platform.
This supply is exempt from VAT without deduction right.
- The platform is deemed to have sold the short-term accommodation rental or passenger transport to the customer.
This supply is regarded as intermediary service allowing for the uniform application of the place of supply rules. I.e. the platform will be responsible for collecting the VAT due on the sale from the customer and remitting the VAT to the tax authorities, as appropriate. Note, this supply should not impact the VAT deduction right of the platform.
This will ensure a level playing field between platforms offering services and other traditional suppliers qualifying as taxable persons, while not imposing a burden on the underlying sellers operating through the platform.
A brief outlook on platform taxation in Switzerland
The Swiss Parliament is also discussing new electronic platform regulations in the context of the partial revision of the Swiss VAT law. It is planned that any electronic platform becomes subject to Swiss VAT. Similar to the EU rules suppliers are deemed to make a (VAT exempt) sale to the platform and the platform is deemed to sell the products to the customers (collecting VAT from customers and remitting VAT to the Swiss Federal Tax Administration).
Initially, the platform regulation was only supposed to apply to the supply of goods. However, the consultation on the platform taxation was suspended in particular to review the possibility of extending the application also to electronic services and thus including more supplies than the EU.
If the National Council and the Council of States can agree on a joint text, a public referendum may take place in the final stage. Therefore, the revision of the VAT law might enter into force on 1 January 2024 at the earliest.