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Booking.com, tax evasion and the future of digital platforms

Italian tax authorities are investigating travel website Booking.com for widespread tax evasion, according to reports. Genoa police suspect the company has evaded tax to the value of over €150 million. Some reports put the figure as high as €700 million. 

News sources say that the company issued invoices for bookings that did not include VAT, improperly applying the VAT reverse charge mechanism in cases where the accommodation did not have a VAT number. In effect, no VAT was declared in Italy. Booking.com also did not declare the VAT in the Netherlands, where the company’s headquarters are located. 

However, the company maintains that, far from committing tax evasion, property owners listed on the Booking.com website are themselves responsible for declaring and paying the appropriate VAT. 

When is a platform responsible for VAT?

Defining digital platforms’ responsibilities for tax is a contentious and urgent issue. 

For instance, a Dutch court recently found that drivers working for delivery service Deliveroo are not private contractors. Consequently, they do not require an individual VAT number. The UK Supreme Court subsequently reached a similar finding about Uber drivers in the UK.

In order to help clarify platform’s precise VAT obligations, many countries have developed formal digital services VAT frameworks, with clear provisions for when platforms are responsible for managing VAT. 

The UK and EU have both developed digital VAT rules clarifying when online marketplaces and digital platforms (potentially including Booking.com and other comparable booking platforms such as Airbnb) need to register and account for VAT.

What is a digital service, anyway?

However, ‘digital services’ are often broadly defined by the relevant regulations and any company that provides services online to customers abroad is strongly urged to seek expert VAT advice on their specific obligations. 

As we can see, the Booking.com saga potentially involves liability for hundreds of millions of euros in unpaid VAT, plus penalties and possible interest payments.  

Companies that operate digital platforms should also note that the EU has approved DAC 7 rules on digital platform reporting. Under DAC7, platforms must report income earned by sellers through the platform. Given such high-level information sharing, authorities are more likely to detect and penalise even accidental noncompliance.

Digital VAT compliance for a digital economy

As should be clear, VAT compliance can be extremely subtle and complex. Which is a problem, because noncompliance invariably leads to serious penalties.  

Fortunately, Vatglobal’s integrated solution makes global VAT compliance easy. Vatglobal combines world-class VAT advice and expertise with proprietary VAT technology that makes compliance simple, efficient and cost-effective. Get in touch with Vatglobal to ensure your business is always 100% VAT compliant, everywhere you have an obligation. 

 

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