Increased reporting obligations for digital platforms
Increased reporting obligations for digital platforms
The following article is taken from Taxamo.com
Digital platforms face an ever-increasing workload and responsibility when it comes to adhering to reporting obligations from a growing number of tax administrations worldwide. The key recurring phrase used by tax administrations introducing such reporting obligations is ‘transparency’.
While these platforms have become accustomed in recent times to ever-increasing responsibilities- first, collecting VAT on digital services, and then to support obligations in terms of low value goods sales. It is not the end. As tax authorities begin to realize the huge advantage they can derive by relying on digital platforms and the wealth of commercial information to which these platforms have access in the normal course, no doubt an increased workload in relation to additional reporting obligations is hovering on the horizon.
The vessel for many of these obligations is the latest Directive on Administrative Cooperation (or DAC7), which was adopted on March 22 this year by the European Union (EU) Council. These reporting obligations, however, are not limited to DAC7: today we already have similar obligations in, for example, German law where digital platforms must request VAT certificates from the sellers of goods on digital platforms.
Other reporting obligations have been adopted by Mexico to include withholding responsibilities, and there are city taxes that specifically target digital accommodation platforms (e.g. AirBnB).
Why are tax administrations seeking more reports from digital platforms?
The dramatic increase in the sharing and gig economy has been a windfall for many that sell goods and provide services via digital platforms to customers worldwide. This windfall has led to concerns that not all the sales are being reported and, therefore, potentially significant tax revenue is lost. Tax administrations now want to know more, specifically who (e.g. sellers on digital platforms) is making money from these sales and, crucially, where (e.g. in what jurisdiction) they are doing so. It is believed that this information, together with expected significant information sharing among jurisdictions, will allow tax administrations to identify gaps in their tax collection systems.
The background to, and rationale behind, this increased demand in reporting obligations for digital platforms can be understood on multiple levels. Tax administrations, especially in these pandemic times, believe there is significant leakage of tax revenue and want more information on the business performances of sellers on digital platforms to address this issue. In addition, tax administrations are still playing catch-up with outdated tax collection systems coming to terms with the digitalisation of the economy while there is also the perpetual attempt to level the playing field between traditional local brick-and-mortar businesses and remote digital platforms.
Tax administrations have also realised that they have no visibility on sales by multiple vendors across borders when digital platforms operate in numerous jurisdictions. By introducing new reporting obligations for such digital platforms, tax administrations are attempting to increase their knowledge of the selling activities on these platforms. This knowledge, and increased transparency, is aimed at the more efficient and effective collection of taxes, such as VAT, and mitigation of potential tax evasion.
OECD’s model rules for reporting
With more and more activity on this front, the Organisation for Economic Cooperation and Development (OECD) last year published a report titled ‘Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy’.
The aim of this report is to provide interested tax administrations with guidance on how “to collect information on transactions and income realised by platform sellers, in order to contain the proliferation of different domestic reporting requirements and to facilitate the automatic exchange agreements between such interested jurisdictions.”
The situation has led to EU member state tax administrations agreeing to exchange more information. This exchange of information approach is effectively cemented in DAC7.
In a recent communication, the European Commission stated DAC7 attempts to ensure that EU member states “automatically exchange information on the revenues generated by sellers on digital platforms, whether the platform is located in the EU or not.”
On April 19, the OECD issued an additional report building on the body of work in the ‘Model Rules’. This report, ‘The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration’, is the result of an inclusive consultation process "with more than 100 delegations from countries, jurisdictions and international organisations, as well as representatives from the business community and academia through the OECD Global Forum on VAT."
The ‘Model Rules’ are referenced in Annex C of this report which emphasises how digital platforms should first report to their jurisdiction of residence and then to the jurisdiction where the sellers are located. The reporting is to include data such as:
- Seller’s name
- Primary address
- Tax Identification Number (including a VAT/GST Registration Number issued by the jurisdiction of the Primary Address of the Seller) and
- Date of birth
Impact on VAT collection is inevitable
Interestingly, the scope of DAC7 was said to not include VAT. However, in practice, it does relate to VAT as the information exchanged can (and likely will) be used by tax administrations to determine whether VAT (as well as income taxes) has been collected correctly.
Indeed, the OECD report mentioned earlier stated that “the information reported may also have relevance for other domains, such as indirect taxes . . . such information, which includes the consideration received and the types of services provided in addition to the seller’s tax identification data, is likely to be relevant for VAT/GST compliance purposes in the jurisdictions receiving the information.”
The OECD report focuses on the use of Tax Identification Numbers (TIN), a VAT/GST registration number, in such reporting obligations. It recommends that reporting digital platforms “should also report any other TIN issued by the jurisdiction of residence of the Seller, including the jurisdiction of issuance.”
Requests for VAT/GST registration numbers to be included in such reporting will no doubt mean further tax obligations (perhaps income tax and VAT/GST) for sellers on digital platforms that are included in reports.
The reporting requirements that we have touched on in this article are really just the tip of the iceberg. We are also confident that additional requirements will appear in the near future as jurisdictions battle with reduced tax revenues.
Affected digital platforms should note that the adoption of the DAC7 reporting obligations is the responsibility of EU member states with a deadline to do so by December 31, 2022. The new rules apply from January 1, 2023, onwards with the filing of the first reports for the year 2023 required by January 31, 2024.
Making Tax Digital for VAT
Following a failed weekend upgrade to HMRC systems, we are advised that they are not currently able to accept MTD submissions. HMRC hope to have the system functioning again by Thursday 18 March.
4 Eyes Ltd act as VAT agent for non-UK businesses requiring UK VAT registrations and submit VAT returns on their behalf using our bridging software. Please contact us if this service is of interest to you.
UK imports - Postponed VAT accounting (PVA)
UK Imports - Postponed VAT accounting
HMRC has updated its guidance relating to difficulties obtaining Monthly Postponed Import VAT Statements (MPIVS) which are needed to account for import VAT on VAT returns.
This article is of interest to all GB VAT registered businesses that are importing goods into the UK from anywhere in the world. Those goods, when they enter the UK, will be subject to import VAT.
Broadly speaking, the importer to the UK will pay the import VAT. This may be the UK company or may also be the overseas supplier, depending on delivery terms. Where the overseas supplier is liable for the import VAT, it would generally require a UK VAT registration. Its UK client would therefore pay input VAT on the supply to it.
In most other situations when buying goods from the EU or the rest of the world, the supplier won’t be registered for GB VAT. In that case, the UK buyer will be liable for import VAT. (Typical delivery terms are Delivery at Place (DAP), Ex works or Free Carrier At (FCA)).
There are three options for dealing with the import VAT:
- Freight agent pays the duty/VAT to release the goods and then recharges the duty/VAT back to the buyer, plus an admin fee.
- Buyer has their own deferment account and freight agent uses the buyer’s deferment account to release the goods without payment and HMRC takes the duty/VAT by direct debit around 45 days later.
- Buyer is using Postponed Import VAT Account (PIVA) and instructs freight agent that PIVA is to be applied when goods enter the UK, goods are released with freight agent or buyer paying HMRC and buyer accounts for import VAT on their VAT return
All of the above are possible but require the buyer to communicate with the freight agent, so that the freight agent knows what instructions to follow. If the buyer is not responsible for the shipping, then the buyer needs to ensure the supplier instructs the freight agent as to what basis import VAT will be settled.
Enrol for Postponed Import VAT Accounting
You need to register for Customs Declaration Service (CDS). This can be done via the following link: enrol for the service or through your government gateway account
If the enrolment fails, it is usually because the address or postcode doesn’t match HMRC’s records, so check your VAT certificate to confirm the address and postcode.
Once enrolled, HMRC will send a reminder email each month and the MPIVS will appear on your government gateway home page.
How to use postponed Import VAT Accounting
First, ensure the freight agent knows you want to use it, if they don’t know they will not necessarily default to using it, so avoid surprises by ensuring clear instructions given (to the supplier as well if they are arranging shipping).
Once a month, HMRC will produce your Monthly Postponed Import VAT Statement (MPIVS) which lists all the imports in the previous month, for example, imports in January will appear on the portal from the third week of February.
The MPIVS shows the import VAT that has been “postponed”, and this is declared in box 1 of the VAT return. The figure is also declared in box 4 of the VAT return so the effect of this is VAT neutral, the benefit to the business is no cashflow implications as the VAT is declared and reclaimed on the return. If the business is partially exempt, then box 4 will be subject to the partial exemption calculation. Box 7 (purchases excluding VAT) is populated with the net value of the goods.
Entities within a VAT group may have their own GB EORI numbers. In such cases to produce a group VAT return may involve downloading the MPIVS from each VAT group entity, and combining them into a single VAT group return.
There may be occasions where the MPIVS are not available or VAT returns periods not aligned with MPIVS, HMRC does allow the import VAT to be estimated, but the figure should be corrected on the following VAT return once the correct amount is known.
The MPIVS should be downloaded from the portal and stored carefully, as they are your only record of the import VAT that has been postponed, without the MPIVS statement, your box 1 and 4 figures will not be correct.
The statements are only available online for six months, so it is important they are downloaded in a timely manner.
The business may still receive forms C79. These are produced when import VAT is not postponed and instead, paid upon arrival by the freight agent or business’ own deferment account. A business may typically see some imports postponed/MPIVS and some imports paid by freight agent/C79.
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