OECD proposes model reporting rules for platform operators

The OECD has reported that 22 countries have now signed the multilateral competent authority agreement for the automatic exchange of information under the OECD Model Rules for Reporting by Digital Platforms. The agreement will allow jurisdictions to automatically exchange information collected by operators of digital platforms with respect to transactions and income realised by platform sellers in the sharing and gig economy and from the sale of goods through such platforms.

The OECD has released a new global tax reporting framework, the Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy (MRDP). Under these Model Rules, digital platform operators would be required to collect specific information including the income realised by sellers offering accommodation, transport and certain other personal services through their platforms and to report the information to tax authorities. The aim is to prevent a proliferation of reporting regimes at an individual jurisdiction level and promote standardisation. The release of the MRDP follows a public consultation into the model reporting framework earlier this year.

The EU Commission is also expected to put forwards its own proposals for the collection and sharing of information generated by digital platforms in the near future through a further amendment to the Directive on Administrative Co-operation.

Background

The business of online platforms facilitating a variety of transactions between users and providers of services (referred to as sellers in the MRDP) is one that is growing rapidly. The OECD notes that this change presents significant opportunities for tax administrations, as it may bring activities previously carried out in the informal cash economy onto digital platforms, where transactions and related payments are recorded in electronic form. This development provides an opportunity for tax administrations based around greater transparency and minimised compliance burdens if rules can be put in place to take advantage of the information.

Against that background, a number of jurisdictions have already introduced reporting measures requiring platform operators to communicate to the tax authorities revenues received by platform sellers, while others are planning to introduce similar measures in the near future. The OECD has therefore released the Model rules in an attempt to avoid a proliferation of different and unilateral reporting regimes, whilst helping to create a sustainable environment supporting the growth of the digital economy.

The MRDP are part of a wider strategy of the OECD to address the tax challenges arising from the digitalisation of the economy and are designed to serve as a basis for further policy developments in increasing tax transparency and were developed in response to calls for a global reporting framework for digital platforms.

The Model Rules were approved by the OECD/G20 Inclusive Framework on BEPS on 29 June 2020.

The Model Rules

Very broadly, the Model Rules are designed to target transactions, focussing on accommodation, transport and other personal services (referred to as relevant services), provided via a broad scope of platform operators and sellers to users, setting out due diligence and reporting requirements that ensure that accurate information gets reported without being overly burdensome on platform operators.

Section I defines the scope of platform operators that are subject to the rules. In defining this scope, a broad and generic definition of the term platform has been chosen to cover all software products that are accessible by users and allow sellers to be connected to other users for the provision of relevant services, including arrangements for the collection and payment of consideration on behalf of sellers.

Platform operators are defined as entities that contract with sellers to make available all or part of a platform to such sellers. They are in principle subject to the rules when they are resident, incorporated or managed in the jurisdiction adopting the rules. There are optional exclusions for small-scale platform operators, in particular targeted at start-ups, and platforms that do not allow sellers to derive a profit from the consideration received or that do not have reportable sellers.

Section I also defines the services covered by the Model Rules and covers both the rental of immovable property, as well as the provision of personal services, including transportation and delivery services. Personal services are defined as “time or task based work performed by one or more individuals at the request of a user”, but do not include services under an employment relationship. However, an employment relationship is defined on the basis of the applicable labour laws in each country and may result in arrangements being differently classified as inside or outside the scope of MRDP as countries implement the Model Rules.

Section II contains the due diligence procedures to be followed by platform operators to identify the sellers and determine the relevant jurisdictions for reporting purposes. Information to be collected on sellers would include the name, address, TIN (including a VAT/GST registration number and the jurisdiction of issuance) and the seller’s date of birth or business registration number. Platform operators must also verify the information collected based on existing internal anti-money laundering / know your client procedures, government verification services (if available) and reliable, independent-source documents, data or information. This due diligence can also be performed by a third party or another platform operator (if there is more than one platform operator with respect to the same platform caught by the rules), provided adequate assurances are obtained e.g. written confirmation or clauses in intercompany agreements.

The Model Rules and Commentary are designed to be complemented by an international legal framework to support the annual automatic exchange of information by the residence jurisdiction of the platform operator with the jurisdictions of residence of the sellers (and, with respect to transactions involving the rental of immovable property, the jurisdictions in which such immovable property is located), as determined on the basis of the due diligence procedures. Where more than one platform operator in relation to the same seller is caught by MRDP, to avoid duplicative reporting, the model rules provide for a platform operator to rely on the reporting obligation of another platform operator (to the extent the seller is resident in the same jurisdiction or a partner jurisdiction with substantially similar rules with automatic exchange of information). MRDP does not specify whether the platform operators need to be related or unrelated parties. However, the commercial and legal challenges that will need to be overcome in order to rely on the reporting obligation of another Platform Operator (e.g. sharing the seller data, and the consideration received by the seller), may make it practically impossible to operate other than in an intercompany context. This may be further clarified by local jurisdictions implementing MRDP.

The OECD also points out that the Model Rules may also provide the basis for a reporting regime that can also be used for other tax-related purposes. While the primary focus of the Model Rules is on facilitating and enhancing compliance of platform sellers with their direct tax obligations, the information reported may be equally relevant for indirect taxes, such as VAT.

Future developments

To support the implementation of the MRDP, the OECD will now take forward work on the international legal and technical framework to facilitate the automatic exchange of the information collected under the MRDP.

In the EU, the Commission is expected to shortly put forward proposals for amendments to the Directive on Administrative Co-operation (in the form of DAC 7) in relation to digital platforms. Unlike the OECD MRDP, these measures are expected to focus on both direct and indirect taxes, ensuring the tax administrations in the EU are able to collect and share information generated via digital platforms to ensure the proper collection of taxes.

Comment

Affected business, both platform operators themselves and the sellers using the platforms, will need to actively engage with the development and implementation of these rules at a local jurisdiction level to ensure that they are workable and do not result in unnecessary administrative burdens. Whilst the MRDP seeks to provide a consistent framework, each local jurisdiction may amend the definition and scope of the rules in their country e.g. expanding services to include goods, amending the exclusion criteria for platform operators which will need to be analysed. There may also be commercial and legal challenges around due diligence procedures and reporting obligations when more than one platform operator in relation to the same seller is caught by MRDP which will need to be identified and addressed.

As a result, it is highly recommended that affected businesses review the MRDP and consider whether activities are in scope or out of scope and if the latter, document the rationale for this position so it can be monitored and reassessed once the form and implementation of these rules in local jurisdictions is clear. The timing of the reporting requirements will be clarified through implementation however, affected businesses should consider their data collection and due diligence processes and procedures they will need to have in place to meet the requirements at the earliest opportunity.