EUROPEAN COMMISSION Brussels, 15.7.2020 SWD(2020) 131 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Tax fraud and evasion – better cooperation between national tax authorities on exchanging information













Accompanying the document Proposal for a Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation {COM(2020) 314 final}

{SEC(2020) 271 final}

{SWD(2020) 129 final}

{SWD(2020) 130 final}



Table of contents 1 Introduction: Political and legal context 2 Problem definition 2.1. What are the problems? 2.2. What are the problem drivers? 2.2. How will the problem evolve? 3 Why should the EU act? 3.1 Legal basis 3.2 Subsidiarity: Necessity of EU action 3.3 Proportionality: Added value of EU action 4 Objectives: What is to be achieved? 4.1 General objectives 4.2 Specific objectives 5 What are the available policy options? 5.1 - Baseline 5.2 - EU non legislative intervention to recommend the implementation of a global standard 5.3 – EU legislative intervention 5.4 – Follow up to the DAC evaluation: Strengthening administrative cooperation

5.5 - Options discarded at an early stage 6 What are the impacts of the policy options? 6.1 Overview of options 6.2 Economic impacts 6.3 Social and environmental impacts 7 How do the options compare? 8 Preferred option 9 How will actual impacts be monitored and evaluated? 9.1 Indicators for monitoring and evaluation 9.2 Monitoring and reporting Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: The OECD Model Rules for sellers in the sharing and gig economy Annex 6: Overview of Platform Reporting Obligations at National Level Annex 7: Bibliography Annex 8: 2019 Evaluation of the Directive on Administrative Cooperation (DAC)





Glossary Term or acronym Meaning or definition BEPS Base Erosion and Profit Shifting CCN Common Communication Network COVID-19 New coronavirus disease CRS The Common Reporting Standard (CRS), developed by the OECD, calls on financial institutions to report information to tax administrations and on the latter to exchange automatically that information with each other. It has been implemented in the EU through the first amendment to the Directive on Administrative Cooperation, in 2014, the so-called DAC2 Directive. DAC Directive on Administrative Cooperation, Council Directive 2011/16 EU Consolidated version: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02011L0016-20170605 E-commerce Electronic commerce, the activity of electronically buying or selling products on online services or over the Internet. FPG Fiscalis Project Group: a cooperation activity between tax administrations to develop common projects, supported by the Fiscalis 2020 programme. FPG/097 The Fiscalis Project Group on ‘Digital and Data’: a cooperation activity between 18 Member States who worked together to prepare a report (not public) on a common EU model for exchanging data, gathered from platforms. G20 The Group of Twenty GDPR General Data Protection Regulation OECD Organisation for Economic Co-operation and Development SMEs Small and medium-sized enterprises TADEUS Tax Administration EU Summit TFEU Treaty on the Functioning of the European Union TIN Tax Identification Number



1 Introduction: Political and legal context A tax system where everybody pays their fair share is essential in order to ensure an economy that works for people, as stressed by President von der Leyen in the political guidelines for the European Commission. Fair and efficient taxation promotes social justice and a business level playing field in the European Union (EU). Fair taxation is an important priority of the Commission and "one of the key foundations of our social market economy". The COVID-19 pandemic adds urgency to the need to protect public finances and ensure fair-burden sharing. Fair taxation requires on the one hand to step up the fight against fraud, and on the other hand to simplify tax rules in order to facilitate compliance. To translate this high-level political commitment into action, the Commission has put forward a set of actions to fight tax evasion, not only within the EU but on a global scale, and make taxation simple and easy. This initiative is part of it. It is linked to the objective to fight against tax avoidance and evasion and to ensure everyone pays their fair share and fits within the overarching EU strategy for recovery Fair taxation is not only a Commission priority, it is also shared by the Council and the European Parliament. In 2014, the European Council affirmed the urgency of fighting tax avoidance, stressing the importance of transparency. The European Parliament has in several occasions stressed the political importance of fair taxation and of fighting tax fraud, evasion and avoidance. In 2019, the Parliament pointed out that “existing tax rules are often unable to keep up with the increasing speed of the economy” and that it is urgent to act to make sure tax systems are fit for the technological challenges of the 21st century to “ensure that all market participants pay their fair share of taxes”. Previously, the Parliament overall had supported the Commission’s taxation agenda, putting forward several recommendations to stimulate further progress and action. Furthermore, also the European Economic and Social Committee has actively contributed to the debate on policy solutions for fair taxation, including in the area of digital platforms. Thanks to the support of the European Parliament and the unanimous adoption of Commission proposals in Council, in the past ten years major progress has already been made in the fight against tax avoidance and evasion, especially to expand tax transparency and cooperation. Better cooperation and a greater exchange of information between tax administrations are essential in the fight against tax avoidance and evasion. The Directive on Administrative Cooperation (DAC) frames this cooperation within the EU for the purposes of direct taxation and has been amended several times over the last years to meet new challenges. It is important to ensure that it remains fit for purpose, in an economy where new business models emerge and challenge the existing rules on administrative cooperation. This impact assessment presents policy actions to expand the exchange of information within the EU to cover income or revenue generated through digital platforms; and to further strengthen administrative cooperation between tax authorities. First, we will focus on the exchange of information in relation to money earned by users of digital platforms, either private individuals or entities. Digital platforms can be defined as providers of multi-sided digital interfaces that allow users to find other users and interact with them. The platforms facilitate the provision of underlying supplies of goods or services against monetary consideration directly between the users. Digital platforms can play a positive role for our economies. They provide opportunities for better services for consumers and suppliers alike. They also represent a significant, and growing, share of our economies. From the perspective of tax administration, digital platforms represent also an opportunity for reporting data. It has been observed that there is underreporting in the new business models and that there is space for more support from digital platforms in addressing non-compliance. Digital platform operators typically do not inform tax administrations about the income or other forms of revenues that individuals and entities providing services or selling goods via online platforms (hereinafter designated as “platform sellers” or simply as “sellers”) earn. They also generally do not collect any tax on behalf of tax authorities, as it is customary in other sectors. Often, employers provide information to tax authorities about the wages they pay to their employees. But the definition of employment status is more blurred and contentious when it comes to platform sellers. Therefore, tax administrations currently have little tools available in order to verify whether the income earned by platform sellers is declared and, if so, whether the amount is right. This is problematic. As pointed out by the European Parliament, “defining tax bases requires being in possession of a full picture of a taxpayer’s situation”. The main issue policymakers are being asked is whether or not to require digital platforms to report – in a standardised manner throughout the EU – to tax administrations how much those who use these platforms to rent an apartment, or provide transport or other services, sell goods etc. earn. The public policy objective of this reporting of information from platforms to tax administrations, and the subsequent exchange of information across tax administrations to the Member State where the seller is resident (or where his/her immovable property is located), is to check that those who earn money via platforms pay tax as they are supposed to or, to put it differently, do not evade tax. It is important to clarify that this initiative is focused on the reporting of income and revenues earned by platform sellers and the transfer of that information to the use of the Member State where the platform seller is resident. It does not cover the actual taxation of such income and revenues, which will be based on each Member State’s national rules. It does not cover either the taxation of the profit made by the platforms themselves. However, the question of fair taxation of digital platforms is not forgotten: the Commission is conducting in parallel work to ensure fair taxation of the platforms themselves, as part of the Business Taxation for the 21st century initiative. For the purposes of this report, the main features of a digital platform business model are typically considered to be: ·A platform brings together sellers and seekers and facilitates all processes between them, usually charging a fee for the facilitation of the transaction. ·A platform usually does not possess any of the assets on offer and does not provide the services via its own staff. ·For services, access instead of ownership: rather than buying an asset, the customer rents it from someone else, or engages a service via the platform. Other platforms, usually designated “marketplaces”, facilitate the sale of goods. Tax administrators have, for some time already, looked into this challenging question, trying to come up with effective and efficient solution. The aim is to reach a “win-win” solution, on the one hand being able to satisfy the information needs of tax administrations and ultimately to ensure fair taxation; on the other hand, keeping any possible, additional administrative burden for platform operators as limited as possible.

The intervention logic is similar to the one underpinning the reporting and the automatic exchange of financial account information. To address underreporting of such income, policymakers agreed first, within the EU, on the Savings Directive and secondly on a global Common Reporting Standard (CRS), implemented in the EU by the first amendment to the Directive on Administrative Cooperation (the so-called DAC2). As the evaluation of the Directive shows, initial costs to put in place this automatic reporting by financial institutions to tax authorities and the subsequent exchanges were significant. Yet, the intervention addressed the challenge of underreporting of financial accounts and put in place one single standard instead of several different national approaches. The introduction of new measures to strengthen the exchange of information framework, by extending reporting obligations to digital platforms, gathers a broad support among Member States, as was reflected both in the discussions at a Working Party IV meeting, which met in February 2020, and at the High Level Working Party meeting of March 2020. It was also supported by stakeholders, as expressed during a targeted consultation of platforms’ representatives. Tax administrations have worked on this challenge already both at the EU and at the OECD level. On the EU side, representatives of eighteen Member States’ tax administrations worked on a “Digital and data” project and delivered in 2019 a technical report (the “digital and data report”), which provides a sound basis for the options put forward in this impact assessment. The heads of the EU tax administrations welcomed this report at their meeting of September 2019 in Helsinki. On the OECD side, work is ongoing to deliver by mid-2020 model rules for the reporting of information by digital platforms. Commission staff, as well as Member States representatives, are attending relevant OECD meetings and contributing to the preparation of the final deliverable of this project, a set of model rules for platform reporting. This initiative takes into account the discussions both at EU and international levels. It is important to bear in mind that the key challenge at stake in this impact assessment is one of tax administration and of proper reporting of income and revenue generated through digital platforms. This impact assessment does not address the issue of whether platforms, as companies themselves pay their fair share, in relation to the profits they make. The Commission is however actively contributing to international discussions, led by the OECD and G20, on the reform of the international corporate tax system to make it fit for today’s increasingly digitalised and globalised economy. This initiative aims at tackling the problem of having a significant amount of money earned by people and businesses selling through platforms which has the potential of not being reported and remains un-taxed, therefore fostering the shadow economy. The issues at stake are also separate from broader policy initiatives aimed at upgrading the EU legal framework of the digital sector, in particular the forthcoming Digital Services Act, or an initiative aimed at improving the labour conditions of platform workers. Secondly, the aim is to touch upon the question of improving tax administrative cooperation more generally. In 2019, the Commission services concluded the first evaluation of the effectiveness, efficiency, relevance, coherence and EU added value of administrative cooperation in the field of direct taxation. The evaluation pointed out that cooperation brings about important benefits, yet there remains scope for improvement. For example, differences remain in the way Member States exploit the available tools. The information could be used more efficiently and the benefits of cooperation could be analysed in a more comprehensive manner. Building upon the evaluation, this impact assessment presents ideas for a limited set of precise interventions to improve the functioning of administrative cooperation. At the time of writing this impact assessment, the European Union and the world are facing the COVID-19 pandemic, an “unprecedented situation” and crisis putting strains on citizens’ way of life, on society and economy. It matters to underline first, that the objectives of this intervention and in particular fair taxation will remain fully valid in a post-COVID world and second, that its estimates costs and efforts would not be unreasonable to impose in a world focused primarily on recovery. Finally, a remark on the approach taken by this impact assessment: this document attempts to quantify the economic impacts as much as possible. When it comes to the estimation of benefits - in particular the additional tax revenues - the method relies on four key variables: the estimated total value of transactions facilitated by platforms, the percentage of those transactions that represents taxable revenue, the average tax rate and the percentage of revenue that is currently not reported, but would be as a result of the implementation of the option. Concerning costs, the method is based on the Standard Cost Model, whereby cost estimates depend on how often a certain activity is undertaken and the price of such activity. The key results of the analysis are presented in chapter 6, while annex 4 gives more information on the methodology and assumptions used. This document is divided into the following chapters: after the introduction in chapter 1, chapter 2 defines the problems at stake. Chapter 3 looks at the case for EU intervention; chapter 4 spells out the objectives of the intervention. Chapter 5 describes the policy options, while chapter 6 analyses their impacts and chapter 7 briefly compares them. As a result of the comparative analysis of impacts, one option is chosen as “preferred” one, described in chapter 8. Chapter 9 answers the question of how the impact of the intervention will be monitored and evaluated. Several annexes provide additional procedural and contextual information, as well as, a summary of the stakeholders’ consultation.

2 Problem definition The definition of the problem at hand is complex and its analysis made more challenging due to the fact that available data is scarce. An attempt has been made at estimating how significant the problems are. The problem drivers are also examined and the evolution of the problem - in the absence of EU policy intervention – is assessed. A problem tree chart presents visually the problems, their drivers and consequences. 2.1. What are the problems? This impact assessment focuses on two key problems: 1.Limited reporting of income and revenues gained via digital platforms; 2.Inefficiencies in the current EU framework for cooperation between tax administrations. The first problem which needs to be addressed is under-reporting (or lack of reporting overall) by platform sellers. At present, a sizeable amount of earnings obtained via digital platforms remain unknown to tax administrations and untaxed. It is important to clarify that digital platforms do not play a direct role in underreporting. However, because of their digitalised and global business model, accompanied by a fragmentation of a sellers’ activities across various platforms, it is difficult for tax administrations to trace how much income is earned through these platforms. The targeted consultation of Member States that was run in the context of this initiative confirmed that platform sellers often do not report as they should. Nineteen out of twenty-two respondents (EU Member States) consider that there is a significant lack of reporting of revenues obtained through digital platforms. In addition, eighteen out of twenty-two Member States perceive activities carried out through a digital platform as high risk in terms of tax avoidance, evasion or fraud (especially accommodation and transportation activities). Regarding the rate of compliance by platform sellers, it was estimated by most Member States as low or very low, both when it comes to sales of goods and provision of services. However, no Member State could provide an overall estimation of the non-compliance rate or was able to estimate the size of such a gap. The outcome of the public consultation, which includes the feedback from some platforms, also reflects such perception of under-reporting in the platform sector. The majority of the respondents to the public consultation agree with the statement that there is a significant lack of reporting, for taxation purposes, of revenues obtained through digital platforms. Similarly, they consider that there is a risk of tax avoidance, evasion or fraud as regards activities carried out through a digital platform. Finally, most of them believe that individual EU countries are not sufficiently equipped to track revenues generated through digital platforms. As part of the TADEUS project on ‘Digital and Data’, which gathers the Heads of tax administrations from across the EU, some Member States provided information on their national experience with given sectors. It suggests significant amounts of unreported income for tax purposes: ·In one Member State, an audit on transportation service drivers showed that only 3 out of 1 195 (less than 1%) drivers had reported correct information to the tax authorities (audit done in 2018). ·In another Member State, a study showed that 2 400 out of 8 400 (~29%) individuals who received income from short-term rentals did not completely fulfil reporting obligations (study done in 2018).

·In another Member State, the tax administration issued letters reminding taxpayers of the duty to report income gained through platforms. This action resulted in a 35% increase in reported income from property rental (campaign done in 2016). ·In another Member State, audits of users of a specific platform have resulted in an adjustment of their income taxes and/or value added taxes in 40% of the cases (audits done in 2017). Overall, the survey launched among Member States showed that twenty-one Member States have conducted compliance activities targeting transactions facilitated by platforms, such as audits, letters or information campaigns. ·In another Member State, tax authorities have observed a significant correlation between growth in the use of digital platforms and the tax gap. Digital platforms have become important players in various sectors of the economy. While it is difficult to give a precise estimation of the size of the digital platform economy (i.e. the total size of transactions occurring on digital platforms), it is significant and likely to grow. As further detailed in chapter 6 (and based on own computations), the total value of services transacted on digital platforms in 2018 in the EU-27 can be estimated at EUR 34.3 billion, while the total value of goods transacted on online peer-to-peer platforms is estimated at EUR20.7 billion. The largest service sectors are short-term accommodation, transportation and collaborative finance, and they are expected to continue growing in the next years. On the basis of these pieces of evidence, it is possible to estimate the tax gap (i.e. the difference between the taxes that should have been collected based on existing tax rules and the taxes actually collected) in the digital platform economy for the whole EU. This document estimates the tax gap in all sectors (goods and services) in 2018 to be between EUR2.7 billion (lower bound) and EUR7.1 billion (upper bound). These values are expected to triple by 2025. The calculations rely on several assumptions, among which the most important are: the applicable tax rate (20% in the low case, 40% in the high case), the fraction of income that is taxable (65% for most sectors), the fraction of taxes not currently paid (50%) and the total value of observable transactions. Similarly, within the “Digital and Data” project, the tax gap for services performed on digital platforms was estimated in a range from EUR1.1 to EUR2.7 billion for tax year 2015. Taking a 2016 study as starting point, the group reached an estimate of the tax gap by making the following four key assumptions: 1.EUR28 billion worth of transactions (services only) via digital platforms (for 2015); 2.Between 50 and up to 80% of these transactions are deemed taxable income, resulting in a total amount of taxable income between EUR 14.0 and 22.4 billion. 3.Between 40 and 60% of that income is assumed not to be reported, resulting in unreported income between EUR5.6 and up to EUR13.4 billion. 4.Assumption of a flat income tax rate of 20% on this basis, leading to a tax gap between EUR1.1 - 2.7 billion (for 2015). The chart below illustrates these estimates. Source: Figure based on the ‘Digital and data’ project – on reporting requirements for the sharing and gig economy The reasons for the lack of reporting (or under-reporting) by sellers active on these platforms are diverse. In some cases, those earning income or revenues via platforms may not know they have to report their earnings. In other cases, platform sellers may deliberately choose not to report the revenues obtained. Acting to tackle this problem is in line with the objectives of the Commission. The lack of reporting indirectly affects all EU citizens and businesses. Tax avoidance and evasion lead to fewer resources to fund social services of public utility, such as education, healthcare, pensions and infrastructure. More specifically, the problem affects compliant taxpayers "who do the right thing" and pay their fair share of taxes. Cost reduction achieved by not paying taxes is not an acceptable practice in the EU or elsewhere. Within the EU, for years, there has been a robust mechanism in place to ensure that tax administrations cooperate with each other to tackle, underreporting of income and tax evasion: the Directive on Administrative Cooperation in direct taxation (DAC). This mechanism has been recently evaluated. One of the findings is that it is important to adapt this framework to ensure it remains relevant in the context of a changing economy, including the growth of digitalisation and platforms active in what is sometimes called the "gig economy". The second problem that this initiative aims to tackle are the inefficiencies with the existing framework for cooperation and exchange of information between EU tax administrations. On the one hand, there is lack of clarity concerning some provisions of the legal text underpinning this framework, in particular when it comes to the concepts of foreseeable relevance, group requests and joint audits. On the other hand, there are issues of lack of effective monitoring and evaluation by tax administrations on whether the framework delivers and what its benefits are. To illustrate the need for clarification of some concepts: the Directive is built upon the concept of foreseeable relevance. However, such concept is not defined in the Directive and therefore its interpretation is left to each individual Member State, which gives rise to some differences in the application of the Directive. The evaluation also shows some uncertainty concerning whether the framework permits and if so how to conduct a joint audit (i.e. two or more tax administrations auditing together) of a taxpayer. As said above, another issue which emerged from the evaluation is the need to improve the reporting of cooperation activities, so that the effects of the rules can be monitored: this means systematically gathering information from the Member States on how they use the information they obtain via cooperation and what they use it for.

In relation to joint audits, the public consultation clearly reflects the call from the respondents to revise the EU legal framework to include some more specific details, in particular 27 out of 37 answers received in the consultation to the general public confirm this support. Furthermore, 21 out of 27 valid replies consider that each joint audit should finish with a single agreed report and the vast majority also deem that the tax administrations participating in the joint audits should be obliged to reach agreement on a report (i.e. facts and legal interpretation of facts). These problems directly affect tax officials involved with administrative cooperation, making the latter not as effective and efficient as it should be. The lack of clarity and certainty regarding some of the provisions of the Directive likely increase the administrative costs of making use of some of the provisions of the Directive. There are also possible opportunity costs. If tax officials, lacking clarity or being unsure concerning some aspects of the framework, refrain for instance from asking tax information to another tax administration, it may be that they miss the opportunity of gaining some intelligence relevant and useful for tax controls. Indirectly, inefficiencies in EU tax cooperation may have broader negative effects, putting at risk tax compliance within the EU Single Market. The evaluation of the existing framework for cooperation looked into this problem. Foreseeable relevance and requests for information for a group of taxpayers emerged as among the most problematic elements of the framework. The evaluation showed that there is a need to generate better quantitative evidence of the benefits of the intervention. 2.2. What are the problem drivers? The problems have various drivers or causes. Limited reporting of income or other earnings gained by third party sellers via digital platforms is the problem. Taxpayers fail to "do the right thing" in part because they lack incentives to do so. In particular, there is evidence that the probability of being caught has a positive effect on reporting of income. In many cases, it can be assumed such probability is or is perceived to be very low. In other words, it seems that, as noted by the Member States’ experience described previously, those who earn income via platforms perceive as unlikely that tax administrations will find out about such income and therefore do not necessarily report it. At the same time, in the digital platform economy, it is not uncommon for sellers to be active on various platforms, leading to income fragmentation, whereby such income and revenues remain unreported and undetected by tax administrations. The platform economy is by nature digital, and it connects sellers and consumers across borders throughout the entire Single Market and worldwide. A platform operator can connect sellers and consumers located in different countries, even outside the EU. While this brings substantial benefits in the Single Market, it also makes it more challenging for tax administrations to access the relevant information and might negatively impact on the reporting of income. This is because tax administrations have data access powers mainly in their own Member State. The word “mainly” is used because, at the EU level, there are in place procedures and tools for cooperation and exchange of information between tax administrations. Yet, these procedures and tools today do not allow for an effective and efficient access by a tax administration to information held by platforms located outside the Member State of the tax administration. Tax administrations have in several cases decided to act, on their own, to try to tackle this problem by introducing national requirements for platforms to report to tax administrations about the income made by sellers on these platforms. Fragmentation may result in unnecessary burdens on digital platforms. The business environment becomes more complicated, with various national reporting models, higher compliance and administrative costs, without sufficiently tackling the issue. According to platforms’ opinion gathered during the 27 February meeting, it is advisable to introduce a single EU framework regarding reporting requirements in order to avoid the heavy administrative burden and compliance costs that economic agents such as platforms have to bear due to this fragmentation across Member States. Both targeted consultation with Member States and public consultation confirm that such fragmentation of the reporting obligations would lead to an undue burden. Examples of third party reporting obligations related to platform operators Italy: The intermediaries that facilitate accommodation for less than 30 days are obliged to report information on sales lessors have gained. In addition to that, the intermediaries that intervene in the payment shall withhold a tax of 21 % from rent payments. Denmark: Companies that facilitate rentals of housing, cars and boats are required to report information on sellers' income to the tax authorities. In return the customers of a compliant platform gain a higher deductible amount in their income taxation. The foreign platforms are allowed to report as well and thus earn a higher deductible amount for their customers. Spain: A reporting obligation is in force since 2018 regarding tourist rentals. It affects persons, whether resident or not, including collaborative platforms, that provide the service of intermediation between landlords and tenants of properties located in Spain. Since January 2019, data are being received on the identity of the participants and the income obtained. Some non-resident entities are filing the return. France: Platform operators are obliged to send information on the income generated and transactions carried out by their users to the tax authorities. The obligation applies to income recorded as from 1 January 2019 with the platforms having to send this information to the tax authorities in 2020. In addition to legislative initiatives, some Member States have entered into one-to-one agreements with digital platform operators. This is the case for example of Estonia. In the current Estonian model, the income receiver has to grant approval to the platform to transmit information on their income to the tax administration, which may impact on the extent of the reporting. Based on the results of the targeted consultation of Member States, twelve of them have legislation and/or administrative guidance in place, differing in scope, whereby platform operators would have to report information to tax administrations on sellers active on their platform. Four more are planning to introduce such legislation or administrative guidance. Inefficiencies in the current EU framework for cooperation between tax administrations are fostered by different implementation by Member States of what ideally should be one single EU-wide rulebook and by different use and treatment of information exchanged. Any Directive leaves some flexibility to Member States. Yet, this flexibility should not lead to ambiguity or lack of clarity. For instance, tax administrations have to cooperate to exchange information that is “foreseeably relevant” to the administration and enforcement of taxes. Different tax administrations may understand the concept of foreseeable relevance differently. The concept is not included in the definitions listed by the Directive. Lack of clarify on this important concept poses a risk of misunderstanding, of delays in exchanges of information and, more generally, of inefficiencies in cooperation. Similarly, group requests, although allowed by the framework and carried out by Member States, are not explicitly mentioned in the Directive. To ensure legal certainty, an explicit mention should be included in the text of the Directive. It may even be the case that due to lack of clarity some tax officers refrain from making use of some of the tools of the Directive. In addition to that, today not all Member States make full use of the information they gain via administrative cooperation. The recent evaluation of the functioning of the Directive showed that only a few Member States are capable of assessing the benefits of the cooperation under the Directive. Yet, most Member States are not. 2.2. How will the problem evolve? In the absence of EU intervention, the underreporting of income and revenues will continue to exist, especially in those Member States not introducing reporting requirements for income and revenue earned via platforms. This leads to tax evasion and loss of tax revenues for the national treasuries. As discussed above, it is estimated that several billions are lost every year due to tax evasion by sellers in the digital platform economy. Sellers’ income and revenues generated through platforms are expected to increase over time, due to more digitalisation of economic activity. The size of the tax gap will therefore further increase. Tax evasion also provides an unfair financial advantage compared to those who play by the rules and pay their fair share of tax. This issue was highlighted in the consultation of Member States, where more than 80% (18 answers out of 22) confirmed that the lack of a level playing field was an issue. The public consultation confirmed this point, with three quarters of the valid respondents who consider that the underreporting of revenues obtained through digital platforms negatively impacts fair competition between the traditional economy and the digital platform economy. At the meeting held in February, platform operators, as key stakeholders of this initiative, stressed the importance of avoiding distortions of competition by including all platforms, regardless of where they are based. Several Member States have already introduced some form of reporting requirements or they are considering doing so. In case of several divergent reporting requirements, however, the scale of the problem will develop and result in a more complex business environment: for a hypothetical platform operating across 27 Member States, the costs of compliance with 27 diverse requirements would be higher than having to face one standard for reporting. Eventually, this will also create distortions in the Single Market. If a platform is based in a Member State without any requirement for reporting yet it operates in several other Member States, it may have a competitive advantage vis-à-vis a platform which provides the same services, but based in a Member State with a requirement for reporting. More subtly, distortions may exist when the regulatory frameworks differ among them, leading to a different compliance burden, depending on the Member State. The public consultation reflects this concern, with more than 70 % of the respondents stating that different national approaches bring undue administrative burden to platforms and/or sellers due to such differences between countries. The platforms have also highlighted this point during the meeting held with them. Inefficiencies in the current EU framework for cooperation between tax administrations will persist without EU intervention. This can result in a risk of missed opportunities for effective administrative cooperation and exchange of information, with a negative effect on tax administration and ultimately on tax compliance in the EU.





3 Why should the EU act? 3.1 Legal basis The legal basis of DAC relies on Articles 113 and 115 of the Treaty on the Functioning of the European Union (TFEU), which aim at ensuring the proper functioning of the Internal Market. Article 113 TFEU provides a legal basis for the harmonisation of indirect tax systems of Member States, as far as it is needed to ensure the functioning of the internal market and to avoid distortion of competition. Article 115 TFEU provides for the approximation of such laws, regulations or administrative provisions of the Member States which directly affect the establishment or functioning of the internal market and make the approximation of laws necessary. The aim is to ensure a legal instrument of high quality for enhancing administrative cooperation in the field of taxation, in order to allow a smooth functioning of the internal market by circumventing the negative effects of tax avoidance and evasion. Applying the same conditions, the same methods and the same practices for administrative cooperation facilitates the work and efficiency of the authorities in the fight against tax avoidance and evasion. 3.2 Subsidiarity: Necessity of EU action As shown through the consultation of Member States and in the “Digital and Data report”, some Member States have introduced provisions that create an obligation for platforms to report periodically information on the income generated by sellers through their platforms. Such reporting obligations often cover a selected set of activities, e.g. platforms that facilitate short-term accommodation or transportation services, etc. Other Member States have introduced provisions that allow tax authority to issue a notice for information to a specific platform to have access to information on the income that sellers have earned through the platform. In some of the countries, this request can be made without performing an audit while in some of the countries such request can only be made during an audit. The exact details of information gathering rights vary. Based on their current national legislations, some Member States may not be in a position to collect information about sellers that are not resident in the said Member State. This is typically relevant for the taxation of the accommodation industry, where taxation rights are usually based on the location of the property (while the owner may be resident of different jurisdiction). Furthermore, there are uncertainties as to whether domestic legislation applies to, and can be enforced upon, businesses resident outside the jurisdiction, and whether reporting obligations based on domestic legislation can be enforced to platforms that are not registered nor have a permanent establishment in the regulating jurisdiction. The “Digital and Data report” concluded that the legal basis is insufficient for effective collection of third party information from platforms within the Member States. In some countries, there is no legislation for self-initiated third party reporting while in other countries the current state of legislation does not cover all the platforms from where their residents gain their income. A platform resident in a country can facilitate the transactions that are relevant in another country, and there is a risk of non-reporting to that country. This is also one of the main concerns expressed by platform operators, as this makes the level playing field in the digital platform sector uneven. 3.3 Proportionality: Added value of EU action Given that there is a necessity to act in response to the problems set out in chapter 2, it appears preferable to avoid a patchwork of reporting requirements, unilaterally implemented by some or all Member States and across different taxes. The information needs to reach the country where the income and revenues are due to be taxed. It is questionable if this could be achieved by reviewing 27 different national reporting obligations and possible subsequent alignments. Moreover, as there is a need for a similar scope at least concerning (i) resident and non-resident digital platform operators, (ii) resident and non-resident sellers, (iii) content of the information, and (iv) timing of collection of the data, a coherent and comprehensive solution at EU level is likely to imply a relatively lower administrative burden for both tax administrations and companies. The preferred option has to respect the principle of proportionality, achieving the objectives yet minimizing negative consequences on platform operators and sellers on these platforms. The added value of EU action is broadly confirmed in the public consultation where the vast majority of respondents stated that digital platforms should have the same reporting obligations for tax purposes throughout the EU in terms of laying down a single set of rules.



4 Objectives: What is to be achieved? 4.1 General objectives The initiative aims at ensuring a fair and consistent functioning of the internal market, where everyone pays his or her fair share of tax. In recent years, obtaining income or revenue through platforms that facilitate the buying and selling of goods and services – from online marketplaces to rental platforms – has become commonplace. However, most platforms operate cross-border without physical presence in the market they serve, while tax administrations remain confined by their territorial borders. This new business model brings with it benefits but also some challenges, in particular when it comes to taxation. Non-compliance with tax obligations by platform sellers may be deliberate or simply result from a lack of knowledge on the applicable tax rules. To address this challenge, several Member States have implemented or are planning to implement domestic legislation requiring digital platforms to report on income obtained by their users. Lack of a level playing field and different reporting requirements imposed by Member States at national level may distort the market allocation of services and goods provided via digital platforms and generate substantial costs for tax enforcement.

Enforcing legislative requirements in a highly digitalised context without international cooperation is close to impossible. In the absence of cooperation, any tax administration would have difficulties learning about the income earned by local taxpayers through foreign platforms. In the digital platform economy, the platform operators, the seller and the consumer can all be located in different countries. Absent an exchange of information across tax authorities, tax administrations will have an incomplete access to information, as shown by the experience of some Member States who have introduced domestic reporting requirements. It may also have the perverse effect of encouraging domestic sellers to provide services or sell goods through platforms established in another country. Most platforms operate cross-border with possibly no physical presence in the market they serve, and it is costly and time-consuming for tax administrations to request information on the large and growing number of transactions facilitated by platforms. This impact assessment aims to assess the need to develop a common solution that would ensure all tax administrations in the EU receive the information they need to enforce their tax laws and address tax evasion and fraud at lower costs than in a baseline scenario. This would simplify compliance as businesses would only need to comply with one set of reporting obligations across different taxations fields within the EU while the relevant taxpayers would be alerted to the existence of tax obligations. Secondly, this initiative aims to contribute to make EU tax systems fairer, safeguarding Member States’ tax revenues. Fighting tax fraud and evasion to help secure national and EU revenues is one of the priorities of the Commission. The political guidelines of the current Commission calls for stepping up the fight against tax evasion to make taxation fairer. As it emerges from the mission letter to Commissioner Gentiloni, improving cooperation between national tax authorities is considered a key way to do so. Cooperation is particularly relevant in the context of this initiative, as sellers, users and digital platforms can all be located in different countries. Tax fairness lies at the core of this initiative, which is also meant to strengthen citizens’ trust that everyone pays their fair share, as it would address the public concern that income obtained or revenue generated through goods and services offered through digital platforms would not be subject to taxation. 4.2 Specific objectives This intervention would aim at ensuring tax administrations have access to the relevant information that would allow them to tax their tax residents and/or, where applicable, relevant sources of income and/or turnover (e.g. property income “sourced” from a certain Member State), in accordance with the applicable national rules. This would enable them to reduce the risk of non-compliance linked with the provision of services or sales of goods through digital platforms and combat the perception that the inherent income is out of scope of tax rules. More specifically, the initiative is meant to improve the ability of Member States to detect and counter cross-border tax avoidance and evasion. As the evaluation of the current framework shows, cooperation should be revised, clarified and/or strengthened to enhance such ability. The ability is dependent on the extent of quality, relevant, timely information Member State have at their disposal. If tax officers have the information they need, at the right time, to check that platform sellers declare what they earn, it will be possible for them to control that tax due is actually paid. Not all EU tax officers today do have access to such information. Platforms have this information. The intervention would require platforms to provide this information to tax administrations. Hence, it would serve the goal of having a correct administration and enforcement of tax rules across the Union. In addition to the ability of detecting and countering cross-border tax evasion or fraud, this initiative aims also at specifically having a deterrent effect. There is evidence that taxpayers respond to the probability of being caught cheating on their taxes, and that automatic exchange is the most effective tool to foster voluntary compliance. The initiative is meant to deter EU taxpayers from not paying the taxes due, and preventing the test and trial approach – not declaring and see what will happen. By increasing the probability of detecting non-compliance, the initiative is meant to provide an incentive to “do the right thing” and declare and pay taxes owed.

5 What are the available policy options? Designing an effective and efficient solution to the problem is challenging. There are different options. At the highest level of analysis, a choice is due between the status quo or baseline and a scenario where the Commission would act, either in a non-regulatory or a legislative manner. The legislative option in itself opens up several sub-options, depending on the design choices, not mutually exclusive, for the instrument. This chapter describes the options identified, one by one. 5.1 - Baseline Under this option, the EU would not act. However, other actors, namely Member States as well as the OECD, would still act. As discussed in chapter 2 above, some Member States have already acted to address the problem, by implementing national measures, which vary in scope and administrative requirements. The OECD is working on the development of model rules intended to impose reporting obligations on digital platforms. At a first stage, this framework will only encompass certain services intermediated by platforms, but there is a strong commitment to expand the scope of the model rules to encompass other services and the sales of goods. More precisely, the services currently in scope are: rental of immovable income; personal services, which are meant to include services involving personally-performed time or task based activities for the benefit of a user, including transportation and delivery services. The model rules include an obligation for platform operators to collect and verify certain information, with a view to correctly identify the seller, the jurisdiction of tax residence and ensure that tax administrations are able to match the seller to a taxpayer. The decision on the implementation of such rules will however be left to each individual country, as they will not be considered as a minimum standard, i.e. their implementation will not be deemed as mandatory. 5.2 - EU non legislative intervention to recommend the implementation of a global standard Under this option, the Commission could propose a Recommendation to Member States to implement consistent rules addressing the challenge presented by the taxation of income or revenue generated by third party sellers through digital platforms. Such Recommendation would call on Member States to implement the international rules as developed by the OECD and – to the extent needed – be complemented by guidance adapting such rules for the internal market. 5.3 – EU legislative intervention A legislative option implies a legally-binding framework to encompass reporting by digital platform operators and the exchange of such information. This would be made possible through a legislative modification of the existing administrative cooperation framework. This option would make digital platform operators subject to reporting obligations under the DAC, requesting them to collect information on registered sellers and report such information to the tax authority. In practice, the obligations that would fall on digital platforms under the DAC would, in general, be similar, albeit simplified, to the ones imposed on EU financial institutions under the same directive. Those would mainly consist in identifying the relevant taxpayer and respective Member State of tax residence, on the basis of relevant pre-established information as prescribed in the legal text, and collect and report information on the income obtained by each taxpayer through the platform.

Under this option, the EU would intervene to regulate the adoption of the international approach to exchange of information on income and revenue generated through digital platforms, building on the work of the OECD. The analysis will focus on the following building blocks when determining the possible approach: 5.3.1 - Relevant activities The activities facilitated by digital platforms vary significantly. They include a whole range of activities from rental of immovable property, professional and other on-demand services, to transportation services and online marketplaces. To ensure that any reporting requirements are efficient and applied consistently throughout the EU, a clear definition of the activities in scope is needed. Options under consideration: At the OECD level, various options have been considered for the scope of activities that the international standard would need to cover. It is expected that the activities in scope will in a first stage be limited to some categories of services provided via platforms (see “limited scope” option above) but might be expanded in a second stage. 5.3.2 - Who should report: Reporting Platforms This section aims at determining upon whom shall befall the obligation to report to EU tax authorities. The determination of the platforms in scope is intrinsically linked with the scope of reporting, discussed in 5.3.1. Beyond such considerations, two other questions arise in connection to the obligation to report to the tax authorities. The first sub-options allow to take into account the fact that reporting requirements may have a different impact (in terms of administrative burden), depending on the size and the years of operations of the platforms. The second set of sub-options focus on the extra-territoriality, i.e. the fact that platforms do not need to be based in the EU to connect sellers and users in the EU.

OECD countries are expected to reach an agreement on a relatively broad scope of reporting platforms, for the activities covered. The public consultation raised questions about some possible exclusions, but discussions are ongoing at the time of writing. 5.3.3 - Platform sellers (reportable taxpayers) As for the platforms in scope, the determination of the sellers in scope (i.e. taxpayers on whom information will be collected and reported by the relevant platforms) will be intrinsically linked with the scope of reporting. Similarly, beyond these consideration, the extent of the reporting requirements is also influenced by the number of sellers upon which platform operators need to report. In that respect, the first option deals with possible exclusions based on the limited tax revenue impact, while the second set of options looks at the territorial dimension of the reporting. The following options therefore need to be considered when designing reporting obligations: At the OECD level, discussions are ongoing at the time of writing on possible exclusions for certain sellers, on the basis of certain criteria. While the content of these discussions is confidential and a conclusion still to be reached, it should be noted that the version of the OECD standard published on 19 February 2020 envisaged exclusions for large lessors, sellers the stock of which is traded in securities market as well as for government entities. 5.3.4 - Practical aspects – how the exchanges should take place Three considerations are in order when designing an exchange framework: I.How the exchanges should take place a.Spontaneous exchanges. b.Automatic exchange of information (once a year). II.Dataset III.Data checks

Within the framework of the ‘Digital and Data’ group led by Member States, later complemented by the discussions at Working Party IV, consensus has been reached that the following set of data would be indispensable to ensure the effectiveness of the system and that the information could reliably be used for taxation purposes: In practice, under this option, the EU would expand the scope of automatic exchange of information to cover income or revenues earned through digital platforms. The effectiveness of any system for exchange of information is dependent on the quality of the information which is passed through it. Data supplied by platforms should be of high quality: accurate, valid and reliable. However, it is important to apply the basic principle of proportionality in designing the rules that platforms would have to follow for checking data, to avoid imposing an excessive, unreasonable burden on economic operators. The option of the EU legislative intervention will include a due diligence procedure. 5.4 – Follow up to the DAC evaluation: Strengthening administrative cooperation To contribute to the achievement of the objectives, and building upon the findings of the DAC evaluation, the legislative option would also cover minor fixes to the current administrative cooperation framework to ensure it becomes more effective. These changes to the framework mainly concern: a clarification of the concept of foreseeable relevance; explicitly mentioning that group requests for information are in scope of the directive and joint tax audits are possible under the directive. Foreseeable relevance is an overarching concept in administrative cooperation for tax purposes, which imposes that any information requested under this directive must be directly or indirectly linked with the tax affairs of a given taxpayer. Although the reference is made explicitly in article 1 of the Directive, there is no explanation of further clarification of the concept at this stage. Group requests are requests for information concerning more than one taxpayer. This means that tax authorities are able to ask for information on a group of taxpayers, without naming them individually. A detailed description of the group of affected taxpayers with a clear and fact based justification on the grounds that the taxpayers falling in the group are generally deemed not tax compliant is required. 5.5 - Options discarded at an early stage Some of the options highlighted above were considered as not a viable way forward, either because there was no deemed added value or because experience with similar approaches has proven ineffective in the past: Option discarded Section Explanation Non-legislative approach 5.2 This option would bring no added value as the OECD framework would be developed and Member States that would wish to do so would implement the framework. A Commission Recommendation would bring no added value as it would not be legally binding, hence it would not address the issue of fragmentation of reporting requirements across the EU. In particular, it would still be for each Member State to decide on the introduction of such requirements and on their precise scope. In addition, the difficulty of enforcing domestic legislation vis-à-vis platforms resident in another jurisdiction would not be addressed. Monetary-based exemption for sellers 5.2 Excluding sellers from the scope of the initiative based solely on a monetary threshold would lead to an easy circumvention of the rules. There exist different platforms that allow sellers to provide a given service or sell goods. Sellers who do not want to see their revenues and income reported could easily split transactions and activities across several platforms to remain under the threshold. This would clearly defeat the objective of such reporting requirements. Method and timing for the exchanges – Spontaneous exchanges 5.3.4 Past experience shows that spontaneous exchanges (i.e., situations where each Member State sends without prior request information to another Member State which could be of relevance to the latter) are not effective. The lack of enforcement of such an approach led to the development of the automatic exchange of tax rulings. More recently, automatic exchange was also chosen as the preferred option for the exchange of country-by-country reports and exchange of potentially aggressive tax schemes. 6 What are the impacts of the policy options? 6.1 Overview of options As a result of the analysis above, the following two options have been shortlisted: A.Baseline scenario. In a baseline scenario, the EU would not intervene. The Member States which have already introduced measures to have an exchange of data from platforms to tax administrations will keep those measures. It is unlikely, however, that the regulatory landscape would remain fixed as it is today. It is expected that the OECD would adopt model rules for data exchange by mid-2020. The scope of the OECD work is limited to rental of immovable property and “personal services”. These rules are not expected to become a minimum standard and therefore implementation by jurisdictions is not mandatory. Based on the forthcoming OECD model rules, some Member States would probably adapt their national measures to align with the OECD model or introduce measures. However, they are likely to differ in terms of scope and requirements. B.EU legislative intervention. Choosing this option, the EU would introduce a legal instrument to implement in a common manner across the Member States a system to set up: first, reporting from platforms to tax administrations and, secondly, communication / exchange of these reports between tax administrations. The design of the intervention may differ mainly in terms of relevant activities, as well as reportable platforms and reportable sellers. The figure below recalls the various relevant activities considered.

Any intervention would, at a minimum, take into account the framework being discussed at international level, as developed by the OECD. The other options under analysis build on the international approach but extend the scope of activities (and as a consequence of platforms and sellers) covered. In addition, with this option there would also be a strengthening of administrative cooperation more broadly. 6.2 Economic impacts There is a lack of official statistics on platforms and on transactions facilitated through these platforms. This prevents us to reliably estimate the economic impacts of the intervention. However, we try to estimate as much as possible both the benefits and the costs of the measure on the basis of sound assumptions and extrapolations from available data. These estimates should be taken as a best effort by Commission services to try to assess the most significant impacts of the initiative. 6.2.1 Benefits Reduced costs of enforcing tax laws The initiative addresses the high cost of gathering information useful to enforce tax laws in a baseline scenario. The latter is characterised by limited cooperation and lack of a common EU standard for information gathering and exchange. The assumption is that, for a tax administration, there is a cost involved in obtaining information. Following the Standard Cost Model, such cost can be thought as being dependent on two main variables: the cost of performing a certain activity (price, or P), and the frequency of such activity (quantity, or Q), dependent on the number of sellers (s) for which information is needed. The costs for gathering information in a baseline scenario can be defined as: The costs in a baseline scenario are assumed to be higher than the recurrent costs of gathering information for tax enforcement, once the intervention is implemented. As will be shown in section 6.2.2, estimating the costs of the intervention is feasible, on the basis of extrapolations of cost estimates for automatic exchange of information of financial accounts. Taking the estimates of recurrent costs of the intervention as starting point, it is possible to illustrate the fundamental point that the initiative aims to achieve a situation where: This is due to a lower cost of gathering information per seller (P), due to: first, the introduction of a requirement for platforms to report certain tax-related information about sellers’ transactions. Second, a mechanism for cooperation between national tax authorities so that information can reach the tax administration where the seller(s) have to pay taxes. Taking into account uncertainty on the actual size of the benefits due to lower costs of obtaining information under the intervention, no quantification of these benefits is provided. The key message is that one benefit of the initiative will be lowering the high cost of enforcing tax law compared to a baseline scenario, thanks to standardisation, reporting by platforms and cooperation (automatic exchange of information) between tax administrations. Reducing the costs of gathering information is a clear expected benefit which should be taken into consideration by decision-makers. Impact on tax revenues A key aim of the initiative is preventing tax evasion on transactions through digital platforms. Income and revenues earned through the digital platform economy are currently under-reported, as discussed in chapter 2. Better reporting and exchange of information should therefore have a positive impact on the revenues collected by tax administrations. Methodology to estimate the impact of the intervention on tax revenues Currently, there is no publicly available administrative data on the size and distribution of the revenues and transactions occurring on digital platforms. There are several reasons for this lack of data. First, there are different reporting requirements across jurisdictions, with several jurisdictions imposing little to no such requirements. Second, many digital platforms are privately held, so they do not have to make public their annual financial reports. Even among listed companies, there is no requirement to make the amount of transactions and revenues publicly available on a country-by-country basis, which further limits the ability to estimate the size of the platform economy and the size of the tax base currently escaping taxation. With these caveats in mind, we can calculate bounds of the effect of the initiative on tax revenues. Under the regulatory option, the additional tax revenues can be estimated by multiplying the following terms: the total value of the European transactions facilitated in each sector (V), the percentage of those transactions that represents taxable revenue (y), the average tax rate (t) and the percentage of revenue that is currently not reported, but would be as a result of the implementation of the option (p): Five main sectors are considered in the calculation of tax revenues arising from each option under study. Four are service sectors - accommodation, transport, (peer-to-peer) finance, other on-demand services (professional and household services) - and one is the goods sector. This scope is also in line with other studies commissioned by international organisations, such as European Commission (2017), European Commission (2018), Vaughan and Daverio (2016) and OECD (2019).

Table 6 offers an overview of the policy options included in the calculation of tax revenues and the sectors covered by each option. The last column of Table 7 includes the methodology used to estimate the value of transactions in each sector. These computations assume that there is no exclusion in terms of reportable sellers and reportable platforms. Sector Included in which option? Method to estimate additional tax revenues (V, own estimate) Limited scope Intermediate scope Full scope 1. Accommodation + + + Extrapolate V from largest platform on the market 2. Transport + + + 3. Other on-demand services + + + Midpoint of updated Vaughan and Daverio (2016) and European Commission (2018) 4. Finance + + Updated Zhang et. al. (2016) 5. Goods + Updated European Commission (2017) Total transaction value (V) The table below compares the estimates of V, the total value of platform transactions in each sector, using various methodologies. Column 1 shows the estimates obtained using the own methodology (explained in more detail in Annex 4), while columns 3-4 show the updated values in previous studies from the European Commission. Estimates of transaction values (V), by sector Sector Own estimate Vaughan and Daverio (2016)* European Commission (2018)* European Commission (2017)** Accommodation 15 272 23 223 9 356 . Transport 6 303 5 124 3 600 . Other on-demand services 6 137 4 499 7 776 . Finance 6 638 7 301 11 232 . Total services 34 351 40 146 31 964 . Goods 20 713 . . 17 155 Total goods and services 55 064 . Note: * = values have been updated to reflect 2018 values, assuming an annual growth rate of 20%. Also, original values were updated to calculate EU-27 aggregates rather than EU-28. ** = The estimate includes only goods transacted in a peer-to-peer regime and it has been updated assuming a growth rate of 12%. It is estimated that the total value of services transacted on digital platforms in 2018 in the EU-27 was EUR34.4 billion, while the total value of goods transacted on online peer to peer platforms was EUR 20.7 billion. The value for transactions in the service sector is the sum of four components: accommodation, transport, finance and other on-demand services. For the first two, the total size of transactions was estimated using the methodology described in Annex IV. For the last two sectors, an assumed yearly growth rate of 20% was used to update the values found in Vaughan and Daverio (2016) and European Commission (2018) to represent the year 2018. Then, the two estimates were averaged to obtain the value shown in column 1 of Table 7. The total value of goods transacted on peer-to-peer digital platforms was found by updating the value found in European Commission (2017) with a 12% yearly growth rate. Accommodation, transport and finance are the largest service sectors of the digital platform economy, within the limitations considered in the estimates made here, with total EU-27 transactions in 2018 amounting to EUR 15.3 billion, EUR 6.3 billion and EUR 6.6 billion, respectively. There are however large differences in the estimates for the value of transactions, especially for accommodation, which stem from different methodologies. While not being directly related to this impact assessment, the discrepancies in estimating the size of the platform economy confirms the importance of improving statistical analysis of the platform economy. Given the double-digit growth rates in some of the sectors, goods and services provided by sectors are expected to become an increasingly important source of value-creation and employment. This could warrant monitoring by national governments for administrative reasons other than taxation, such as assessing participants’ labour market status, or for assessing social security requirements. Effects on tax revenues: Summary of Analysis

In order to calculate the total tax revenues resulting from the application of the regulatory option to various scopes of activities, we need to estimate y, the total percentage of transactions that represents taxable income, the average tax rate t and p, the fraction of income currently not reported to tax authorities. Sector Value of tax revenues resulting from AEOI y (taxable income, percent) Low transaction estimate V High transaction estimate V t = 20% t = 40% t = 20% t = 40% 1 Accommodation 608 12 16 993 1 985 65% 2 Transport 234 468 410 819 65% 3 Other on-demand services 292 585 505 1 011 65% 4 Finance 166 332 281 562 25% 5 Sale of goods 1 346 26 93 1 346 2 693 65% By its very nature, it is difficult to estimate the level of underreporting. It is therefore assumed that the percentage of income not reported (p), is 50% for all sectors. This is in line with the insights from the “Digital and Data” report and Kleven, Khan and Kaul (2016), who estimate that as the fraction of self-employed individuals “approaches 1 (…) evasion rates could be as high as 50%”. In these sectors, the percentage of self-employed is very high, so non-reporting could also be very significant. The fraction of transactions that represent taxable income, y, is taken to be 65% for the following sectors: accommodation, transport, on-demand household and professional services and goods. This is the mid-point of the range considered by the “Digital and Data” project. The rest of the income could be fees paid to the platform itself, or other deductible operating costs. For (collaborative) finance, y is taken to be 25%, as the income in this sector is represented by interest payments, rather than the principal. The tax rate, t, is calculated using a lower bound of 20%, which is in line with the average EU effective average corporate income tax rate in 2018 (European Commission, 2019f) and an upper bound of 40%, which is closer to the EU implicit tax rate on labour in 2017 (European Commission, 2019b). Implementing the limited scope would logically yield the smallest tax revenues (between EUR 1.1 and 3.8 billion), as it would be applied to a subset of activities, whereas the full scope option (goods + all services) would yield the largest tax revenues (between EUR 2.7 billion and EUR 7.1 billion). By comparison, the total tax revenue arising from direct taxes was EUR 1.7 trillion in 2017 in the EU-27, which means that the additional tax benefits would vary between 0.07% (limited scope, lowest estimate) and 0.41% (full scope, highest estimate) of total direct taxes. The table below offers an estimate of the lower and upper bounds of the effects that each option could have on tax revenues in the EU. Scope Sector Covered Yearly tax revenues - bounds (€ million) 2018 2025 Low High Low High Limited 1+2+3 1 135 3 816 3 018 10 150 Intermediate 1+2+3+4 1 300 4 377 8 543 28 849 Full 1+2+3+4+5 2 647 7 070 10 973 33 708 The estimation suggests that by 2025, the effects of the various options on tax revenue would be significantly higher, as the platform economy grows in importance across the EU. Peer to peer lending is expected to grow at 68% per year between 2015 and 2025 (Nunatak Group, 2015), while Mastercard (2019) predicts that the gig economy will grow 17.4% per year between 2018 and 2023. The current estimates took a conservative approach, assuming a compound average growth rate of 15% per year for services in the EU and 8.8% for goods. Automatic and standardized reporting of incomes gained through platforms would allow Member States to properly collect taxes due (with a clear positive effect on public finance), while limiting compliance costs incurred by economic agents. A single reporting standard at the EU level would limit the compliance costs of cross-border platforms, which would avoid having to report using different standards in each jurisdiction. This could also improve the functioning of the Single Market and encourage cross-border trade, as the cost of platforms expanding to a different Member State would be lower than the case with different reporting standards. Furthermore, a single reporting standard could decrease the Member States’ tax administrations costs of cooperation, as discussed above. Regardless of methodology, the benefits derived from implementing automatic EU-wide reporting seem to be in the order of billions of euros per year. This is the case even in for a limited scope (accommodation, transport, professional and household services). The estimation of tax revenues involves significant uncertainty regarding each parameter (value of transactions V, rate of unreported tax revenues p, proportion of transactions which represent taxable income y), but overall, it would seem that the fiscal benefits of the options are significant and positive. The fiscal benefits of an EU intervention are much larger in case of reporting obligation applying to all services and sale of goods. In 2025, additional tax revenues are estimated to range approximately between EUR 11 and 33 billion while they would range between EUR 3 and 10 billion if only a subset of services were covered by the initiative. Since the digital platform economy is highly concentrated, limiting the scope to medium/large platforms (i.e., those with turnovers above EUR 100,000) would in principle not affect the estimations of the tax revenues significantly. Data on the distribution of transactions by platform size is not available, but, as shown in the study by European Commission (2017), the majority of transactions occur on medium-to large platforms. Limiting the scope solely to EU-based platforms could significantly decrease the tax revenues of each option. In order to preserve a level playing field, all sellers based in the EU and operating on digital platforms should be covered by the taxation requirements, regardless of where the platform is based. Studies such as European Commission (2017) have shown that the largest players in most sectors of the platform economy originate from outside Europe. Given the highly mobile nature of their businesses, digital platforms could easily relocate outside Europe, while offering services and goods to European consumers through European sellers. This concern was voiced both by businesses and by Member States’ representatives during the meetings held with them (see Annex 2 for a summary of the consultation). Furthermore, platforms which originated abroad have significant market shares in the EU, so it is likely that the revenue estimates could therefore be significantly smaller in case of relocation. Limiting the scope to exclude domestic sellers would negatively impact the revenues benefits and the level playing field. Excluding domestic sellers from the scope could have a large effect on the revenues benefits of the EU intervention. Although experience with DAC2 shows that many Member States would introduce national provisions to expand the reporting requirements to domestic taxpayers, this would create clear concerns in terms of level playing field, as it would no longer be ensured that all sellers are subject to the same reporting. This could translate in underreporting and undue reduction of the tax liability for some sellers. In that context, it is noted that the initiative will not impact on the level of taxes due by the sellers and on whether or not a sellers should pay tax, but simply ensure that tax administrations are better equipped to enforce the collection of taxes. A wide scope in terms of sellers would limit the risks of circumvention, while not creating extensive additional costs for sellers. An exemption for some sellers is likely to trigger attempts at circumventing the rules to “meet” the exemption criteria, in particular criteria defining transaction and monetary values. At the same time, it is useful to recall that the initiative does not create any costs for sellers, beyond the time needed to provide a limited set of data. As most of these data are requested from sellers when signing up to sell services or goods via a platform, it is expected that any negative impact on sellers’ willingness to use the platform economy would be limited. Improved income information would also allow tax authorities to better target possible tax incentives, such as exemptions or credits, as all income gained on platforms would be observable. The wide scope in terms of reportable sellers is also supported by the consultation: more than 60% of Member States’ replies to the targeted consultation supported that all providers of services or sellers of goods through digital platforms should be reported to the relevant tax administrations, without exemption. Furthermore, other benefits will derive from the use of the information exchanged. The DAC allows for exchange of information regarding “all taxes of any kind”, but specifically excludes VAT, customs duties, and excise duties covered by other EU legislation. However, although these limitations limit the purpose for the exchanges, the directive broadens the use of the information to other purposes. In practice, despite these limitations when considering a request or otherwise making an initial exchange under the Directive, once held, the information exchanged can be used in the administration or enforcement of “taxes and duties of any kind”, including VAT. 6.2.2 Costs

Requirements for platforms to report data and for tax administrations to exchange them will entail costs for both. These costs fall under two main categories: ·one-off, substantive compliance costs, incurred when the new system is introduced, mainly for development; ·recurrent administrative and, for tax administrations, enforcement costs, to operate the systems once it has been set up and to ensure it works as expected. The assessment of costs is based on assumptions and extrapolations derived from the costs of setting up and operating DAC2. These estimates are therefore indirect and as such, fragile. Annex 4 provides additional information on the categories of costs and benefits and on the assumptions made. In the case of a legislative option, a certain number of platforms will have to gather a certain amount of data about a certain number of sellers, and then provide these data to tax administrations. The latter would then have to exchange these data with each other and exploit in some manner these data. It is important to underline that sellers are not assumed to bear any particular burden or cost. One-off and recurrent compliance costs fall on digital platforms, which will have to report seller information, and on tax administrations, which will have to gather, store safely and use the information collected from platforms about sellers. Sellers (either individuals or businesses) would need to fill in their details once and update them when their details change. As it can be seen in Table 4, most of the required information (with the exception of the TIN) is already routinely asked when signing-up to most websites, so the additional reporting costs for sellers would be negligible. The following needs to be estimated in order to quantify costs for platforms and tax administrations: 1.The estimated number of sellers about which information is reported (“reportable sellers”). The number of reportable sellers is expected to vary depending on the scope of reporting: if the scope is broad (i.e., covering both services and goods), the number of reportable sellers will be higher than if the scope were more limited. The number of sellers is also going to vary depending on whether there are exemptions and thresholds. If the overall scope is broad, yet some exemptions are introduced, the number of reportable sellers will be lower than if the scope were broad and without exemptions. 2.The cost of complying with the intervention, ideally per seller. The hypothesis is that, the more sellers use a certain platform, the higher the costs will be for that platform. Therefore, small(er) platforms, used by a relatively low number of sellers, will bear lower costs than larger, widely used platforms. For instance, if a platform has 1000 sellers to report, we expect its costs both upfront and then once the system is operational to be higher than a platform which would have to report 100. At the same time, we would expect the costs, one-off and recurrent, for one tax administration running controls on 1000 reported sellers to be higher than for an administration running controls on only 100 of them. Methodology to estimate costs The total costs of each option can be estimated and monetised by multiplying the total quantity (estimate) of reportable sellers (Qs) under each option by a cost (P), which varies depending on whether costs are one-off or recurrent. The average costs per platform are obtained by dividing the total estimated costs by an estimate of the number of platforms that would have to comply. The average costs per tax administrations are obtained by dividing the total costs for tax administration by twenty-seven. These are simplifying assumptions give that the costs will vary given the size of the platform and of the tax administration, but we lack data for a more granular estimation. Annex 4 gives more information on the methodology, assumptions and references. The number of platforms matters for estimating the costs per platform, on average, of the intervention, as follows: Trying to quantify the number of platforms is challenging in the absence of official statistics. At the targeted consultation of Member States, four respondents provided estimates of platforms active in their country. On this basis, and generalising from the findings of Vaughan and Daverio (2016), we estimate that there are hundreds of platforms in the scope of the intervention, both EU-based as well as platforms established in third countries but operating in the EU. Our estimates put the number of platforms affected by the intervention in a range between 500-600 hundreds in a limited scope to almost 2000, if both services and goods are covered, without exemptions. A table in annex 4 provide more information on these estimates. One-off substantive compliance costs According to our estimates, the one-off, substantive compliance costs for platforms EU-wide vary between circa EUR250 million in the case of a limited scope to EUR875 million in case of a full scope. These costs are estimated for the whole estimated population of sellers. The cost estimates per platform, on average, are circa EUR400 000. It should be stressed that these are average estimates, based on several assumptions. They do not necessarily reflect the actual costs incurred by platforms, especially of those having to report a relatively low number of sellers. There are also likely economies of scale involved in the definition of costs. One-off costs for all tax administrations are estimated at between EUR54 million to EUR189 million, depending on the scope of reporting. That means EUR2 million to EUR7 million per tax administration, on average. Annex 4 provides additional information on these estimates. The Commission would also bear costs. In any legislative option, on the basis of current and past experience, it is likely that the Commission would incur also development costs, for defining the common, EU specifications of the new system of data collection and for setting up / adapting the existing EU systems to enable the exchange of information to take place. More specifically, the Commission would invest mainly for the development and operation of the Common Communication Network (CCN), the central IT infrastructure for the safe exchange of information among tax and customs authorities in the EU. Having one single network is much less burdensome that if tax administrations had to exchange on a bilateral basis with each other and more secure than if exchanges took place solely via the internet. It is important to clarify that the Commission would not be actively part of the exchanges: it would not gather data, nor exchange them, nor use/exploit them. With this disclaimer in mind, on the basis of costs incurred in the past for DAC2, the one-off costs for the Commission are estimated at EUR 0.8 million for the development and first five years of operations of the system. As said, the Commission would not play an active part in gathering or exploiting data but rather it would only facilitate them.

Recurrent administrative and enforcement costs Looking at recurrent administrative costs for platforms, it should be borne in mind that, in a baseline scenario, tax administrations would ask them for data in different ways and formats, leading to substantial work to comply with these requests, especially for platforms operating in several Member States. This is arguably the main reason why the targeted consultation of platforms indicates a clear preference for a common EU solution, expected to be less expensive than the current baseline patchwork of loosely coordinated or not-coordinated reporting obligations. Overall, an EU standardised reporting model for platforms would result in lower costs than a continuation of the baseline scenario. According to our estimates, the recurrent administrative costs for platforms would vary between EUR30 million in the case of a limited scope to about EUR100 million in case of a full scope. These costs are estimated for the whole population of sellers. The administrative costs per platform, on average, would range at 50 000 per year. For tax administrations, the recurrent costs of the system are estimated approximately between EUR6 million (limited scope) and EUR21 million (full scope) per year, or circa EUR200 000 to EUR800 000 per Member State. These estimates are extrapolated from the costs incurred by Member States for operating the system for automatic exchange of information of financial accounts (DAC2). In addition to the costs of running the system and keeping it operational (i.e. ensuring the actual exchange of data), tax administrations would incur (labour) costs for sorting and exploiting the data, which can be referred to as enforcement costs. Sorting sellers' information has a cost. Some sellers may indeed be active only occasionally, and obtain low incomes. In this case, information is less relevant for tax administration than information concerning large(r), high-revenue, taxable sellers. To keep the administrative burden for platforms as limited as possible, a choice is made to pass these costs onto tax administrations, asking platforms to send information about all the sellers, without exemption or threshold. Tax administrations will have to sort the information received, as they already do in other areas of administrative cooperation (e.g., financial accounts). As all data will be in a standardized electronic format, the costs for tax administrations to sort and filter relevant information are not expected to be substantial. Enforcement costs depend on: the number of controls or other uses done by tax administrations of the data they receive; the time each control takes; a monetary value of time, which depends on the average wage of a tax officer in charge of controls or other forms of data exploitations. On the basis of assumptions, overall, recurrent enforcement costs would vary between EUR3 million to more than EUR10 million, or about EUR100 000 to EUR400 000 per tax administration. For the Commission, the recurrent, administrative costs are estimated at about EUR0.1 million per year. Annex 4 provides additional information on the estimates of recurrent costs. Costs: Summary of Analysis Platforms (for all platforms) EU27 tax administrations Commission One-off SSC Recurrent AC (yearly) One-off SSC Recurrent AC (yearly) Recurrent EC (yearly) One-off SSC Recurrent AC Limited scope (Services other than finance) 250 30 54 6 3 0.8 0.1 Intermediate scope (Services including finance) 500 60 108 12 6 0.8 0.1 Full scope (All services + Goods) 875 105 189 21 10.5 0.8 0.1 Legend: SSC stands for substantive compliance costs, AC for administrative costs and EC for enforcement costs. Annex 4 on analytical methods gives information on the assumptions, formulas and values used for reaching these estimates. One-off costs are in the order of hundreds of millions of euros. Irrespective of the scope chosen, the recurrent costs derived from implementing automatic EU-wide reporting seem to be in the order of millions or tens of million euro of euros per year for the totality of the platform operators and of tax administrations. Even with the widest scope (all services as well as goods), the costs remain in order of tens of million euro per year. The estimation of costs involves significant uncertainty regarding each parameter (number of reportable sellers, costs of compliance per seller), yet recurrent costs overall would seem to be in the order of tens of millions of euro. Considering the number of reporting platforms, on average, this would result in estimated average recurrent costs for businesses of tens of thousands of euro. This is an average value. For a platform reporting relatively few sellers, however, costs could be lower. The estimations capture costs for the three different scope of reporting, without considering possible exemptions or thresholds in terms of reportable sellers and platforms. If exemptions were introduced, how would the impact change? The answer to this question depends on the design of the exemption. Chapter 5 identifies two main types of possible exemptions: for platforms, based on the number of years that the enterprise has been in operation and turnover, or based on location; and for sellers, based on the amount and value of transaction, or based on location. From a cost perspective, exemptions from reporting, be it for platforms not having to report in the first place or for certain sellers not to be reported, mean essentially lower (if any) one-off and recurrent costs. If a platform does not have to report, it will not bear one-off costs for setting up a system to collect and transmit information to tax authorities. If a platform does not have to report for certain sellers, part of its one-off and recurrent costs will be lower. However, excluding certain sellers would also be costly, at least upfront, as a platform would have to sort / filter its database of sellers to identify precisely which sellers to report about and which not. If not all platforms were subject to the same reporting obligations, for example if non-EU based platforms were not subject to the reporting obligations, this would also create an uneven playing field across platforms interacting with EU sellers. The scenario with no exemption either for platforms or for sellers has been widely supported by the targeted consultation of Member States and by about half of the respondents to the public consultation. Namely, in the public consultation, 18 and 19 out of 37 respondents deem that all platforms (18/37) and all providers of services or seller of goods (19/37) should be subject to the same reporting obligations in order to avoid potential loopholes. The results of the targeted consultation of Member States indicate instead a clear preference for no exemptions. The one-off costs for tax administrations are likely to be lower for tax administration in case exemptions are introduced in terms of reportable sellers and/or platforms. However, such exemptions mean that tax administration would only access information on those through an exchange of information on request, thereby increasing their recurrent administrative and enforcement costs. Exemption from reporting for platforms and/or for sellers would lead to lower benefits: as said above in section 6.2.1, exempting for instance non-EU based platforms would result in a significant reduction of expected benefits (in terms of tax revenues). In addition, it would maintain an uneven playing field as some platforms or sellers would not be subject to the reporting. Avoiding exemptions maximises expected benefits, while ensuring the broadest possible level playing field and avoiding the risk that platforms and/or sellers put in place avoidance strategies which unduly benefit from exemptions. This also takes into account the preference expressed by the majority of the respondents to the targeted consultation. 6.2.3 Impact on sector’s competitiveness The growth of the digital platform economy suggests that the economic role of platforms as facilitators of transactions in services and goods is likely to become increasingly relevant. In other words, the sector targeted by the intervention is a digital area of business that is growing and expanding. Consumers appreciate the convenience of having a wide range of services and goods at their immediate disposal. On a major platform facilitating goods’ transactions, once users have set up a profile and chosen what to buy, it can take less than ten seconds to pass the order.

The digital platforms sector is characterised by traditional features required by most market places: price competitiveness and trust. It cannot be excluded that a legislative intervention may affect the price competitiveness of certain sellers, who in a baseline scenario do not follow the rules and are able to provide services/sell goods for less because they do not pay taxes. Yet, having a level playing field requires all sellers to pay their fair share of tax, so competition should be fair and not based on “cheating”. Moreover, a wide intervention would prevent competitive disadvantages that could arise from the passing on of compliance costs. As far as platform operators are concerned, they would have to deal with the same regulatory setting, avoiding possible issues of differentiated requirements across Member States and thus contributing to establishing fair competition and a level playing field for all businesses active in the EU. An intervention that would cover all platforms operating in the Single Market (for example, not excluding platforms based outside the EU but active in the EU) would best ensure a level playing field across platform operators, avoiding a situation whereby only some platforms have to face compliance costs and others do not. Platforms’ representatives made such point clearly during the stakeholder consultation. Moreover, the intervention could increase trust in the system, as consumers prefer buying from sellers of good reputation, on trusted platforms. As in the case of e-commerce in a larger sense, consumers value trust: some platforms’ business models actually are based on trust towards strangers. Trust matters for sellers and platforms too: a reliable platform or seller is likely to be more successful than one which is not trusted. The effect of the EU intervention, especially in case of a broad scope, is expected to increase trust and possibly attract even more users and sellers towards platforms. The key mechanism through which trust will increase is a reduction of compliance risks for platforms and sellers. For instance, ensuring “fair play” will reduce the risks of damages to the reputation of platforms as well as promote a more positive, less conflictual (and costly) relationship between sellers and tax administrations, which will have the information they need to ensure that the former comply as expected. 6.2.4 Impact on SMEs The impact of the intervention on SMEs can be analysed from two perspectives: on the one hand, it can be asked whether the intervention will impact SMEs as reporting platforms. On the other hand, there is the issue of SMEs affected as sellers. Both questions can be approached in a qualitative and/or in a quantitative manner, asking for instance how many platforms having to report are SMEs or how many sellers will be SMEs. Firstly, we consider the impact on small and medium-sized platforms as reporting platforms. It is argued that, irrespective of how large the actual cost of compliance will be, SMEs having to report will be particularly affected. There is evidence that due to their relatively small size and limited resources available, SMEs face a disproportionate compliance burden as tax compliance costs are regressive. The introduction of a specific threshold dependent on the size of a platform, for instance excluding platforms with relatively low turnover, could therefore be considered as a way of addressing the issue of compliance costs. However, such thresholds are likely to act as a disincentive to the scaling-up of small and medium sized platforms and is not recommended. Tax incentives targeted at SMEs, be they in the form of a different tax rate or a special administrative or compliance treatment may prevent SMEs from growing by creating a so-called bunching effect. This ultimately has a negative impact on economic growth. Even if the incentive to stay below the threshold may be somehow mitigated by platforms’ incen