Digital platforms and tax authorities: a great VAT partnership

We have witnessed an increasingly widespread trend in the field of EU VAT and other indirect taxes worldwide in recent years: the growing responsibility placed on digital platforms that facilitate certain supplies of goods and services when it comes to charging, collecting, and remitting VAT to tax authorities.

Regarding platforms that facilitate services, we can say that this is an effect of the so-called servitisation of the economy. This phenomenon refers to the growing trend among companies to incorporate services into their product offerings, thereby blurring the line between goods and services. This process has been accelerated by the digitalisation of the economy and the adoption of business models based on ‘access and usage’ rather than ‘ownership’. It is within these business models that the role of digital platforms, which provide users with access to these services, becomes particularly significant.

In certain cases (which are increasingly common) and under specific circumstances, these digital platforms are required to collect VAT from users – consumers of goods and services – and remit it to the tax authorities.

The truth is that there are alternative solutions that do not go as far, such as using platforms as continuous sources of information for tax administrations to act upon, or even making them subsidiarily liable for the VAT debt when it has not been possible to collect VAT from the actual supplier of the goods or services.

The way this responsibility for VAT collection and remittance is being implemented is mainly through the introduction of so-called deemed provisions (where the platform is considered the supplier of the service or the provider of the goods to the final consumer, rather than the underlying supplier) or through the application of Article 28 of the VAT Directive (where the platform acts in its own name, making it appear as if the platform provides a service to the final consumer identical to the one it receives from the underlying supplier).

In EU VAT, the number of deemed provisions has increased over time, evolving from those applicable to the supply of goods in the context of e-commerce – effective since July 2021 – to those that will come into force in July 2028 following the implementation of the VAT in the Digital Age (ViDA) reform, which extends them to services such as short-term accommodation rentals and passenger transport. It is likely that, over time, the number of situations involving deemed provisions will expand, continuing a trend that now seems almost unstoppable worldwide.

Thus, after ViDA we can say that it will be the digital platform – and not the underlying supplier – that is responsible for remitting VAT in, at least, the following situations when the platform facilitates the supply:

• All supplies of goods within the EU when the underlying supplier is not established in the European Community;

• The provision of short-term accommodation rental services;

• The provision of passenger transport services;

• The provision of electronic services where the platform acts as an intermediary and manages the fee charges for the service or sets the terms and conditions of the service; and

• Intermediation in other types of services, not necessarily electronic, where the platform acts in its own name and has not expressly identified another person as the service provider.

The above represents a considerable number of situations, which will possibly increase over time. There are several arguments in favour of this approach. One is, undoubtedly, the efficiency in VAT collection and the fight against VAT avoidance (it is easier to locate the platform than thousands of individual sellers). Another important argument supporting this trend is the goal of eliminating the disparity in VAT treatment between traditional economic models and those operating in the digital economy, which in some cases creates distortions in competition.

In light of this present and future trend, there is a risk of imposing excessive levels of compliance on platforms. It is important to remember that, as a result of these deemed provisions, platforms are required to maintain VAT records with detailed transaction information for extremely long periods. Moreover, they must provide information under other types of obligations beyond VAT, such as DAC7, or even in the case of payment service providers. In some cases, the information required by different tax authorities is the same or very similar.

Perhaps too many layers of bureaucracy are being imposed, which some platforms – especially smaller ones – may not be able to comply with.