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IMF Proposes Specific Tax Rules For Peer-To-Peer Economy

by Mike Godfrey,, Washington

10 August 2017

Whilst the peer-to-peer (P2P) economy has posed many challenges to traditional tax collections systems, the sector's technological foundation also holds the keys to solving these problems, according to a new report by the International Monetary Fund (IMF).

The IMF working paper, published on August 8, explores the implications for the P2P economy for tax policy and administration and whether new P2P business models warrant special tax treatment.

"As the digital, peer-to-peer economy takes off worldwide, it has come under increasing scrutiny and criticism amid the perception that it is far less regulated and taxed than other economic sectors. Some view this light government touch as distorting competition and giving individuals and businesses in the P2P economy an unfair advantage over competing businesses in the same sectors," states the working paper.

"If P2P economy users are indeed subject to lower taxation – because of preferential rates or simply underreporting of income – government tax revenues may be at risk, especially if other, more tax-rich activities are being displaced," it adds.

However, the IMF concludes that, from a tax policy perspective, "the case for a separate or special tax treatment is not immediately obvious."

"What appears to be a tax-administration issue could be mistaken for a tax-policy issue," the IMF observes.

According to the IMF, the tax behavior of individuals operating in this new economy are "very familiar," such as the under-reporting or non-reporting of income, and sellers in the P2P economy choosing to structure their tax affairs through companies.

"In this sense, the emergence of P2P activities does not seem to be driving a radical rethink of the tax system or the principles upon which it is based," the paper said.

The IMF also points out that the technological platforms underpinning the P2P economy can help to solve problems associated with low tax compliance in the sector, particularly with regards to indirect taxes.

"As online intermediaries, they record data on the myriad of transactions taking place in the virtual markets they oversee. Governments can cooperate with them to access this data, which would undoubtedly alleviate information constraints and strengthen enforcement and allow better quantification of activity that had previously been misreported or undocumented," the paper states.

"[P]latforms can already act as custodians for the tax administration by withholding tax on behalf of sellers, something which seems relatively straightforward for indirect taxes. Such arrangements could help ease compliance and administration while raising revenue, particularly in low-capacity countries," it adds.

However, the IMF concedes that using P2P platforms as a means to withhold direct taxes is more challenging, "as P2P sellers rarely use one platform exclusively and are likely to be mixing many different streams of income from different activities (on and off-platform, self-employment, and employment)."

TAGS: individuals | compliance | tax | business | value added tax (VAT) | tax compliance | International Monetary Fund (IMF) | enforcement | self-employment | withholding tax | BEPS

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