Thursday

18th Jan 2018

Magazine

Nordic tax collectors set sights on new economy

  • How should a child making pocket money as an online video game instructor be taxed? (Photo: Chris_Parfitt)

Imagine a teenager earning his first €10 by providing another teenager one hour's worth of online training in playing an online game. Let's call him Magnus, and see what happens when he tells the news to his parents over dinner.

"I made my first €10 today".

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • Getting information from online platforms that facilitate the sharing economy is a growing problem for Nordic tax authorities. (Photo: acanyi)

Magnus is visibly proud: the €10 is the first income Magnus has ever made from his own work.

Soon the sum will be transferred to his PayPal account by another teenager in return for one hour's worth of online training in playing an online game.

Magnus did not need an employer to make this money.

He operates from a PC in his teenage bedroom and makes contacts via social media networks.

"How about tax?" his father wants to know.

Magnus does not seem to understand the question.

He was never educated about tax issues at school nor does he know that income information should be reported to tax authorities – the sum is too small to matter anyway, he says.

"Magnus would be obliged to pay tax and labour market contribution for the money earned," explains Malte Thomsen from SKAT Denmark.

"He should go online and declare the earnings as 'other personal income.' There is a separate box to fill out for this and it is all pretty easy," Thomsen says.

But it would not be possible for the tax authorities to control whether Magnus actually declares his revenues, as PayPal will not release the information to the tax authorities.

No sharing of information

Getting information from the online platforms that facilitate the sharing economy is a growing problem for Nordic tax authorities.

"The Nordic countries have all relatively high tax levels to finance their welfare and they face the same challenges," explains Bjoern Fritjofsson, senior adviser to the Nordic Council of Ministers.

A recent seminar for Nordic tax experts revealed a broad interest in pressuring the platforms, whether Airbnb or Uber, for more information.

"The experts meet to exchange information and experiences on how to handle the growing influence and role played by the platform economy," Fritjofsson says.

"It is generally easier when you operate as a group, but we also aim to establish a network of officials that are specialised in taxation of the platform-driven economy".

Stunning growth

The sharing economy is growing more rapidly than any other sectors these days.

Recent analysis for the Finnish government produced by PwC, found that the value of transactions in Finland's collaborative market was a little over €100 million in 2016.

It is estimated that the potential total value of transactions in Finland's collaborative economy will exceed €1.3 billion by 2020.

This is a stunning 1200 percent growth.

But many people do not realise that they have to declare revenues from the shared economy or they think that the tax authorities will most likely never find out about it.

"We have become so used to not having to do anything to declare our taxes, because it is done automatically by our employers. But then, when you have income from driving Uber, you rent out a room via Airbnb or find a sponsor for your YouTube blog, then you do need to be proactive and declare the earnings yourself," says Malte Thomsen.

Uber audit

Uber's European headquarters is in the Netherlands. By using information provided by the Dutch authorities, it was possible last year for a team of specialists in SKAT to identify 1,800 Uber drivers in Denmark that operated in Denmark in 2015.

The drivers were all notified and informed that their earnings should be declared for tax purposes.

Of the sample, 180 drivers had earned more than 80.000 Dkr (€10,750) and so far, 500 of the Uber drivers had their income assessment changed as a result of the audit.

"We started with income from Uber, because of the information released by the Dutch Tax Authorities.", Malte Thomsen says.

The tax information released by Uber in the Netherlands was a one-off event, due to pressure from EU authorities in Brussels. Meanwhile the Danish minister of taxation Karsten Lauritzen has ongoing talks with Airbnb on how Airbnb can cooperate with SKAT.

The number of platforms is also mushrooming. In total, 142 shared economy platforms were identified in Denmark in 2016.

Many of them, like Uber, Airbnb and YouTube, are registered abroad and can not be ordered under current rules to provide information to the national tax authorities.

Blind spot

Rebecca Filis works as a shared economy expert in the Swedish tax agency, Skatteverket.

The agency published an analysis in 2016 about the shared economy's effect on the Swedish tax system.

"Platforms like Uber, PayPal, AirBnb and alike should be required by law to deliver information for income taxation, our report concluded," says Rebecca Filis.

However, the platform owners do not consider themselves as employers, which would oblige them to pay social contributions or withhold taxes from employees' incomes.

"It is a blind spot and one of the biggest challenges for the authorities and the legislators when we have these new business models," she says.

"No one under 18 can have a PayPal account. Everyone is responsible for declaring their own income and it is the local right that applies," says Karine Froger, PayPal's head of communication in France and Belgium.

Globalisation

The Nordic welfare states are all based on tax structures that were established around one hundred years ago.

In Denmark, for example, the foundation of its tax legislation dates back to 1922, and does not take the modern economy into account.

"Most Nordic countries will try to adapt the existing laws to the shared economy," says Rebecca Filis.

"But the more I think about it, the more I realise that this is not only about the shared economy. We need to think bigger, this is about the digitalisation and globalisation of the economy".

"We are looking into something that we can't address with the regulations from the 1920s. It is no longer B2C [business to consumer] relations. We need to define: what is a digital employer? What happens to ownership in the future? Will we own cars at all in future?" she wonders.

Long tail

All the Nordic countries are looking into regulating the shared economy, including the taxation of earnings. But so far, there are no common approaches or plans for concrete joint initiatives.

Norway published in February 2017 recommendations from an expert committee, composed of trade unions, consumers, industry and others.

"The numerous small incomes all together make up a considerable sum, but it may escape taxation under current rules if each of them are too small and thus operate below current tax thresholds", says Merete Onshus from Norways' Ministry of Finance.

The committee welcomed that the sharing economy offers new income sources for the low-skilled and for those with fewer job opportunities.

It noted that the sharing economy, to some extent, operates outside of normal consumer protection regulations, but it seems to stir up relatively few problems due to online rating systems, insurance and secure payment systems.

However, experts recommended a "3rd party disclosure duty" that forces the platforms to deliver information to facilitate the taxation of revenues made in the shared economy.

Denmark's new government, which has been in place since November 2016, is also working on a new strategy to regulate the sharing economy and aims to present the results of their work this year.

Back in the teen's bedroom, Magnus continues to make pocket money as an online game instructor. Meanwhile, his classmate, Louise, runs a popular blog and makes a profit by recommending make-up products to her followers. His next-door neighbour, Karl, makes good money as an online poker player.

And none of them are paying taxes... yet.

This story was originally published in EUobserver's 2017 Business in Europe Magazine.

Click here to read previous editions of our Business in Europe magazine.

Opinion

How Europe can harness its digital economy

While other sectors fall apart, Europe's digital economy is booming thanks to smaller countries like Estonia, Finland and Ireland. They need to shout louder about their ambitions.

Magazine

The 'sharing economy' lacks a common definition

The sharing economy is a noticeable trend shaking up traditional sectors, but the phenomenon is ill-defined and empirical evidence about its impact is scarce.

Interview

Airbnb's change of heart toward Strasbourg

The accommodation platform has begun to cooperate with the French city because it saw negative side-effects were damaging its reputation, says Alain Fontanel, Strasboug's vice-mayor.

News in Brief

  1. Catalan parliament elects separatist speaker
  2. Czech government resigns
  3. MEPs back tighter export rules on cyber tech
  4. Annual eurozone inflation at 1.4 percent in December
  5. EPP group calls for 'European Netflix'
  6. Ex-MEP Goulard slated for senior French bank post
  7. Luxembourg speaks out in support of Palestinian state
  8. Danish fishing communities to be hit hard by Brexit, says report

Stakeholders' Highlights

  1. Nordic Council of MinistersOresund Inspires Other Border Regions on How Countries Can Work Together to Generate Growth
  2. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%
  3. AJC Transatlantic InstituteAJC Calls on EU to Sanction Iran’s Revolutionary Guards, Expel Ambassadors
  4. Dialogue PlatformRoundtable on "Political Islam, Civil Islam and The West" 31 January
  5. ILGA EuropeFreedom of Movement and Same-Sex Couples in Romania – Case Update!
  6. EU2017EEEstonia Completes First EU Presidency, Introduced New Topics to the Agenda
  7. Bio-Based IndustriesLeading the Transition Towards a Post-Petroleum Society
  8. ACCAWelcomes the Start of the New Bulgarian Presidency
  9. Mission of China to the EUPremier Li and President Tusk Stress Importance of Ties at ASEM Summit
  10. EU2017EEVAT on Electronic Commerce: New Rules Adopted
  11. European Jewish CongressChair of EU Parliament Working Group on Antisemitism Condemns Wave of Attacks
  12. Counter BalanceA New Study Challenges the Infrastructure Mega Corridors Agenda

Stakeholders' Highlights

  1. Dialogue PlatformThe Gülen Community: Who to Believe - Politicians or Actions?" by Thomas Michel
  2. Plastics Recyclers Europe65% Plastics Recycling Rate Attainable by 2025 New Study Shows
  3. European Heart NetworkCommissioner Andriukaitis' Address to EHN on the Occasion of Its 25th Anniversary
  4. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  5. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  6. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  7. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  8. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  9. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  10. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  11. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  12. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties

Stakeholders' Highlights

  1. EPSUEU Blacklist of Tax Havens Is a Sham
  2. EU2017EERole of Culture in Building Cohesive Societies in Europe
  3. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage
  4. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  5. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  6. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  7. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  8. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  9. Dialogue PlatformThe Turkey I No Longer Know
  10. World Vision7 Million Children at Risk in the DRC: Donor Meeting to Focus on Saving More Lives
  11. EPSU-Eurelectric-IndustriAllElectricity European Social Partners Stand up for Just Energy Transition