Online renters and workers beware!

Most people are aware that the US FATCA rules and the OECD Common Reporting Standard force financial institutions around the world to report bank account details to the tax authorities in the country or countries you are assumed to reside in.

Now the OECD wants to take things a step further and make online platforms (websites and apps) report details about rooms and other real estate rented out, and work arranged through such platforms. The platform would report to their tax authority to pass on to yours. The aim is to prevent tax evasion. But the result may be more bureaucracy and a feeling that Big Brother at a tax office or two is watching your online dealings.

The OECD’s proposals are contained in a document titled “Model Rules for Reporting by Platform Operators in the Sharing and Gig Economy.” The document is open for consultation from February 19-March 20. After the consultation closes, the OECD is likely to issue final recommendations to member countries such as Israel. OECD recommendations are binding on member countries unless they express a reservation, according to the OECD Convention of 1960.

THE OECD PROPOSALS IN BRIEF

The proposals, if implemented, would cover the rental of immovable property (real estate) and a personal service.

A personal service would be a service involving time or task based work performed for the benefit of any user, unless such work is ancillary to a larger transaction. A personal service will not include any requiring significant infrastructure supported by staff, such as a train or bus service.

A personal service would have a wide scope and include transportation and delivery services (e.g. taxis relying on one or more individual drivers), manual labor, tutoring, copy writing, data manipulation and clerical tasks.

The rules would only apply to users of a website or app platform, except for start-up platform operators incorporated less than 36 months before the start of the year concerned, if it realized less than 100,000 Euros in the most recent financial year.

Also excluded under the proposals hotels providing at least 2,000 services per year, governmental entities and publicly traded entities. So only SMEs (small and medium enterprises) will be adversely affected by the proposals.

The platform operator will be required to carry out due diligence on its users in order to have details to report to tax authorities and users within one month after each year-end (January 31). The due diligence includes asking for tax identification numbers and identity documents, an individuals’ date of birth, the address and land registry reference number of property rented out, and checking where local personal services are supplied. Moreover, the seller’s address and identity may be checked out electronically using a government verification service.

WHAT ABOUT ISRAEL?

The Israeli Tax Authority (ITA) has already mounted an enforcement drive against room-renters and others doing business over the Internet.

If these proposals are implemented, the ITA may soon know how much you made from renting and working online without waiting for you to file a tax return. And proposals are reportedly being formulated in Israel to deny input VAT recovery on expenses if businesses don’t get advance approval from the ITA for purchases over NIS 5,000. This is very similar to the above-mentioned Government Verification Process proposed by the OECD.

COMMENTS

The proposals are only half-baked. Tax-dodgers may just steer clear of website platforms. Some social media platforms may not know they are being used to find property or work.

Others may be tempted to take up residence in a tax haven. So honesty will be a key factor.

Is this the thin end of the wedge? Will platform operators soon be asked to report other types of transactions such as clothing imports? These proposals relate to income tax. Will new rules VAT and customs duties be next?

And how will the above fit in with other OECD proposals for changing the international tax rules for e-commerce and re-allocating income to source and destination countries?

The proposals are not final. It remains to be seen what is adopted by the OECD and each country. You should monitor all OECD developments.

As always, consult experienced tax advisers in each country at an early stage in specific cases. The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd. leon@h2cat.com