Diving In: Platform Transactions and the OECD Digital Economy Effort; How the Model Rules address tax considerations related to the gig and sharing economy.

• Author: Chase, Robb

Although much of the tax world has been focused on the Organisation for Economic Co-operation and Development's two-pillar framework for addressing the tax challenges arising from the digitalization of the economy, a separate OECD effort with a potentially even broader reach is well underway.

On February 19, 2020, the OECD released its public consultation document, "Model Rules for Reporting by Platform Operators with Respect to Sellers in the Sharing and Digital Economy" (hereafter "the Model Rules"). The Model Rules follow a 2019 report prepared by the OECD Forum on Tax Administration, titled "The Sharing and Gig Economy: Effective Taxation of Platform Sellers," which made recommendations for further work in the area, including the development of model rules for compliance and information sharing. The Model Rules, and similar efforts in the United States in the wake of the Supreme Court's decision in South Dakota v. Wayfair, Inc., (1) will have a direct impact on the obligations of platform operators and participants on online platforms. These rules could indirectly affect all taxpayers engaged in cross-border transactions by eroding current barriers to the extraterritorial reach of tax administrations.

This article discusses briefly the general tax considerations leading to specific tax proposals for the gig and sharing economy. It also discusses existing federal rules in the United States that impose information-reporting obligations on platform operators. Finally, the article tackles how the Model Rules propose to address tax considerations related to the gig and sharing economy, and what companies can and should do now in anticipation of further developments with respect to the taxation of platform companies and their users.

Taxes and the Gig and Sharing Economy

The "gig and sharing economy" is a term generally used to refer to transactions that take place directly between users of an online platform. The platform operator provides a service by connecting purchasers of goods and services with sellers, for which the platform operator receives a fee. (2) Well-known examples include ride-sharing apps, such as Uber and Lyft, and property-sharing services, such as Airbnb and Vrbo. A distinct feature of transactions in the gig and sharing economy is that the platform provides only a service to sellers and purchasers. For legal and tax purposes, the company is neither the seller nor the purchaser of the products and services sold on the platform.

The gig and sharing economy significantly expands opportunities for small businesses to sell products and services, and it tends to shift roles historically performed by employees to self-employed persons. The Model Rules recognize that this shift in roles also affects tax administration. Historically, tax administration has relied heavily on employee withholding and information reporting, tasks generally imposed on employers. Because platform transactions occur directly between sellers and purchasers, these transactions may not be visible to tax administrations under existing rules, particularly if the transactions cross borders. The expressed concern is that if platform transactions are not subject to reporting, taxpayers may reduce the taxable income they declare, distorting competition in the marketplace.

U.S. Federal Reporting Obligations for Platform Transactions

Concern about tax reporting of platform transactions is not new. In 2008, Congress enacted Section 6050W of the...