Estonia / EU: EU diplomats have reached an agreement on VAT [value-added tax] rule reforms that would result in tax hikes for sharing economy platforms including Airbnb and ride-sharing service Uber after Estonia dropped its previous veto position.
Back in May, the Baltic nation, where ride-sharing app Bolt was founded in 2013, was the only country in the European Union to block a proposed law to impose up to 25 per cent VAT on sharing economy services.
The EU is aiming to digitalise invoicing for VAT and force platform services to register to pay the levy, thereby modernising the tax process for the digital economy and ensure that platforms pay their fair share of taxes across the bloc.
Under EU tax rules, any one of the 27 member states is allowed to block new laws, but all member states must find a unanimous agreement in order to change them.
Estonia’s finance minister, Mart Võrklaev, had told his counterparts at May’s Brussels meeting that the tax was not on platforms but on small- and medium-sized enterprises [SMEs] that provide services on a platform. He had shared concerns that it would make consumers pay higher prices for booking sharing economy services online, adding that it would make it harder for platforms to reclaim input taxes and that they would face “unfair” competition with direct sales.
As part of this week’s EU agreement, a redrafted text will include a longer transition period, meaning that the online platform rules will become voluntary in July 2028 and mandatory from January 2030, according to Euronews.
Consequently, online sharing economy platforms such as Airbnb, Vrbo, Booking.com or Uber will be directly responsible for registering for the tax, rather than relying on consumers / property owners / drivers etc to do so.
A spokesperson for the European Holiday Homes Association [EHHA] told Euronews: “The law will unfairly disadvantage services sold through platforms, lead to double taxation, hurt private providers seeking to supplement their income, make it nearly impossible for smaller platforms to implement, and raise prices across the board in the travel sector.”
From a VAT perspective, Brussels officials have been increasingly concerned that online platform services are not paying enough in taxes in member states where they have little physical presence.
Meanwhile, lobbyists for hotels, which already charge VAT [charged on the sale of goods and services], have denounced the perceived unfair competition for their services from digital rivals.
As well as wider tax reforms, the proposals are also designed to modernise invoicing and strengthen reporting rules in order to fight fraud.
EU finance ministers are set to convene their next meeting on 5 November when they are expected to formally endorse the new VAT measures.
