Income earned through gig apps, freelancing platforms, letting platforms, and other digital intermediaries presents big challenges for taxation and social insurance. People should voluntarily report income from these sources to authorities, but in practice this doesn’t always happen. For instance, only 69 taxpayers reported income from Uber and Bolt in Estonia in 2016, even though drivers numbered in the thousands. Failure to report is especially likely when people earn small sums that only supplement their main income. Reporting self-employment income typically involves cumbersome forms and procedures, so taxpayers don’t always deem it worth the effort. But together all the small income streams flowing through platforms amount to a big river that governments are failing to tax properly. Lack of reporting also means that gig workers are not properly covered by social insurance schemes like pension.
One innovative way for governments to address this problem is to obtain income data directly from platform companies, bypassing the need for self-reporting. Dr Daisy Ogembo and I had the opportunity to do a study on this last year for the European Commission’s Directorate-General for Employment, Social Affairs and Inclusion (DG EMPL). Dr Ogembo is a rising star tax law researcher and an expert on hard-to-tax professionals. We also benefited from invaluable guidance from Professor Judith Freedman, Oxford’s pre-eminent scholar of tax law and policy. The results of our work have now been published as an article in the British Tax Review. An open access pre-print version of the article is available online.
Diagram of Danish tax authority’s system for receiving platform income data. Source: Ogembo & Lehdonvirta, 2020.
To our surprise, we found that some EU countries were already in advanced stages of rolling out systems to obtain income data directly from platform companies. For instance, Denmark has built an API that platform companies can ping with data every time someone earns income. The objective is to make it as easy and frictionless as possible for platforms to provide data to government. The system is currently being tested with several platform companies. The technical development work is accompanied by new legislation, which makes it mandatory for certain types of platforms to share their data. Some platform companies demanded to be included in the system, because they wanted to be seen as responsible corporate citizens and also to reduce their users’ form-filling burden.
However, an issue that we see on the horizon is that if every EU member country builds their own data API, then platform companies trying to operate across the EU will be asked to integrate with 27 different systems, imposing a big compliance cost. This would be a problem especially for European platform start-ups that lack the resources of international platform giants. In the article we consider what prospects there might be for an EU-wide Digital Single Window income data reporting facility. Such a system would have to overcome a number of challenges, including philosophical differences in what the ultimate objective of the system should be. In some countries it is to help reduce compliance costs for taxpayers, whereas in others it is to stamp out tax evasion via tighter surveillance.
Ogembo, D., & Lehdonvirta, V. (2020) Taxing Earnings from the Platform Economy: An EU Digital Single Window for Income Data? British Tax Review [2020](1): 82-101.
Abstract: This article evaluates the efforts of three European Union member states – Denmark, Estonia, and France – to obtain data on platform users’ earnings directly from platform companies, including Uber, Airbnb, and domestic platforms. The authors furthermore assess the viability of scaling up the national initiatives into an EU-level “Digital Single Window” that would facilitate the automated reporting of income data by platforms, and the forwarding of that data to national tax and social security agencies for taxation and collection according to national rules.