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21st Jun 2018

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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".

Read and decide

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  • 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.

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