The growth of the Internet-based economy has led to the emergence and widespread use of applications and electronic interfaces – Internet platforms – that facilitate interaction between different groups of users. One party to the platform (the service provider or primary seller) may offer services to the other party (the customer) in exchange for monetary consideration, while the platform typically charges a fee for facilitating the transaction.[1]

Before the emergence of platforms, individuals and small businesses with tax-exempt status were essentially unable to influence competition between market players, but now they can compete directly with ‘traditional’ service providers by taking advantage of the advanced technological infrastructure and network effect that platforms provide. An individual who advertises his or her city centre apartment on Airbnb can reach millions of users through the platform and easily attract hotel guests with low prices. Competition would not necessarily be a problem in itself, but the fact that a small business owner who opts for an exemption could avoid paying VAT on his service could lead to distortions of competition.

Recognising all these problems, the Commission’s package of proposals to amend the EU VAT Directive, entitled “VAT in the Digital Age”[2] (the “Proposal”), would ensure a level playing field through new rules and create a single set of rules at Community level for certain services provided through platforms. The main elements of the proposed legislation are summarised below.

The sectors covered by the regulation
The rules of the proposed new Directive would apply to short-term accommodation and passenger transport services where these are facilitated by an electronic platform and the primary supplier does not charge VAT on the transaction (e.g. because of its exempt status).

The deemed supplier model
The proposal would ensure a level playing field for VAT by introducing a deemed supplier model, familiar from the EU e-commerce reform: the platform would be treated for VAT purposes as if it had received and resold the service itself, regardless of whether this is based on a civil law contractual relationship. The final consumer will therefore receive from the platform a taxable supply of a service similar to a hotel or passenger transport service.

The primary seller and the platform transaction
The service provided by the primary vendor to the platform is a tax-free supply without deduction and the platform will charge VAT on the service provided by the platform to the actual recipient. The proposed regulation explicitly states that services for the sale of short-stay accommodation are similar in nature to hotel services, i.e. they are not exempt.


Diagram of how the hypothetical sales model works

Reporting obligations
For those transactions that would fall outside the deemed supplier model (e.g. because the sale by the primary vendor is also taxable), the proposal imposes an additional record-keeping obligation, as the data held by platforms as intermediaries can still provide very valuable information for tax authorities. Detailed and harmonised rules for these registers will be laid down in separate EU legislation.

When do the new rules come into force?
The new rules for platforms would come into force on 1 January 2025, but it is important to note that the proposal was published earlier, in 2022, and the relevant EU legislative process is significantly delayed (some provisions should have come into force this year).

The proposal is currently on the Council’s agenda and a decision on the adoption of the amendments contained in the proposal is expected to be taken at its meeting on 14 May. We will be following the EU legislative process and will report in detail on the additional VAT rules if the proposal is adopted.

[1] Based on the definition of the Commission proposal on “VAT in the digital age”

[2] Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards VAT rules for the digital age (COM/2022/701)

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