UK implementation of OECD Model reporting rules for digital platforms

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 UK government has published for consultation draft regulations for implementing the OECD Model Reporting Rules for Digital Platforms in the UK with effect from 1 January 2024. The draft regulations follow on from the Summary of Responses to the 2021 consultation and are available for comment until 13 December 2022.

The draft regulations rely heavily on and incorporate by reference much of the text of the Model Rules themselves, including many of the basic definitions, such as platform, platform operator and reportable seller.

Background

In 2020, the OECD published Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy. Very broadly, the Model Rules are designed to require platform operators to collect and report information on certain transactions carried out via those platforms. Those transaction were focussed on accommodation, transport and other personal services. For more information on the Model Rules see our article, OECD proposes model reporting rules for platform operators.

In June 2021, the OECD published an optional extension to the model rules that allows jurisdictions to implement them with an extended scope to also cover the sale of goods and the rental of transport. This extension will be adopted by the UK.

The UK consulted on the implementation of these rules in July 2021 and a summary of responses was published in July 2022 confirming that the government would implement the rules from 2024.

Broadly, the OECD model rules work as follows:

• platforms must collect certain details about their sellers, including information to accurately identify who the seller is and where they are based, as well as how much they have earned on the platform over an annual period
• platforms must verify the seller’s information to ensure it is accurate
• platforms must report the information, including the seller’s income, to the tax authority annually by 31 January
• platforms must also give that information to the sellers, so that they can use it to help them complete their tax returns
• tax authorities then exchange information with other tax authorities where the sellers are resident (or rental property is located)
• the information is used by tax authorities to ensure that sellers are complying with their tax obligations and to tackle non-compliance if they are not
• tax authorities must enforce the rules and see that platforms are operating them correctly, and there may be penalties for non-compliance.

Draft regulations

The UK government has now published draft regulations for implementing the OECD Model Rules with effect from 1 January 2024.

The draft regulations provide for due diligence and record keeping requirements for reporting platform operators. These will require reporting platform operators to collect information about sellers and property listings, verify that information and identify reportable sellers for each reportable period (based on calendar years). The regulations import the due diligence procedures set out in section II of the Model Rules for these purposes. In addition, the regulations require reporting platform operators to keep a record of the steps they have taken to comply with these rules and the information they have collected in the course of applying the due diligence procedures. These records must be retained for a period of five years from the end of the reportable period to which they relate.

Having collected information, the reporting platform operator must then make a report to HMRC on or before 31 January following the end of the reportable period containing the information required by the Model Reporting rules concerning both the reporting platform and each reportable seller. In addition, the rules will require the reporting platform to report the information provided on a seller to that seller by 31 January. The regulations anticipate that an electronic reporting system to be specified by HMRC must be used for this purpose.

Reporting platforms must give notice to HMRC that they fall within the rules by 31 January following the end of the first reportable period. In addition, any platform that considers that it is an “excluded platform operator” must also give notice to HMRC of that fact. Excluded platforms are those whose entire business model is such that they do not allow sellers to derive a profit or do not have any reportable sellers. The UK has decided not to implement the optional exclusion relating to platforms which do not have aggregate annual consideration of €1m.

There are exclusions from the reporting obligations where a reporting platform operator reasonably believes that another platform operator is required to and will report that information either to HMRC or to another jurisdiction under substantially similar rules.

Where a platform chooses to only make reports in relation to active sellers during a reporting period, then it must make an election to HMRC by notice to that effect.

Part 3 of the draft regulations sets out the penalty provisions for breach of the rules. Penalties will be levied for late reports, inaccurate or incomplete reports, failure to provide required information, failure to comply with the record keeping requirements, failure not notify a requirement to report and failure to apply due diligence procedures. Penalties are generally in the order of £1000 to £5000 with potential daily penalties of up to £600 per day following issue of a notice of assessment. The penalty for failure to apply the required due diligence procedures is £100 per seller. A platform operator with a reasonable excuse for any failure will not be subject to a penalty.

Comment

Comments on the draft regulations should be sent by 13 December 2022 to eoi.policy@hmrc.gov.uk

The government is seeking technical feedback on the draft regulations to ensure they operate as the government intended and to identify any areas which need further clarification in more detailed guidance. HMRC indicate that they are also happy to have meetings to discuss technical concerns raised by the draft regulations.

The government has also previously indicated that it will work with affected businesses to provide guidance on the scope of the rules which is “comprehensive, clear and effective”.

The final regulations are expected to be made in early 2023 to come into force on 1 January 2024. As a result, platforms will be required to collect information on sellers from 1 January 2024, with first reports due by 31 January 2025. Platform operators will need to review their due diligence and onboarding procedures for sellers to ensure that they are in a position to collect and report in accordance with the new rules.