D. AUTOMATIC INCOME REPORTING: THE DECISIVE STEP?
Informing users of their tax obligations is an important first step, reporting their income is the next step
A decisive step was taken in late 2016, with the vote in favour of two automatic income reporting systems , to the Social Security and to the tax authorities, allowing France to join those countries having already implemented similar provisions for example the United States, the United Kingdom and Estonia, according to arrangements that vary widely (see below). The proposals of the Working Group of the Finance Committee of the Senate have played an important role in this progress .
1. Automatic reporting to the social security beginning in 2018: a voluntary system, lacking a strong incentive
Article 18 of the Social Security Financing Act for 2017 50 ( * ) , which established the two thresholds of compulsory affiliation of EUR 7,846 and EUR 23,000 (see above also included) the creation of a system for automatic affiliation to the RSI via platforms, and if applicable automatic reporting and collection of social contributions. More specifically, this system, entirely voluntary, has two components :
- automatic affiliation is open to all self-employed workers carrying out an activity via an online platform for the purpose of selling goods or providing services. They can authorise the platform, by mandate, to carry out the reporting procedures for starting their activity on their behalf with the competent business formalitiescentre, i.e. in concrete terms, affiliation to the RSI;
- automatic reporting to the “ Union de recouvrement des cotisations de sécurité sociale et d'allocations familiales ” (URSSAF) and the levy at source of social contributions are for micro-entrepreneurs only , and to users affected by the EUR 7,846 and EUR 23,000 thresholds, i.e. movable property and furnished accommodation renters. They can allow the platform to carry out reporting of the turnover or proceeds recorded for this activity (...) as well as the payment of social security contributions (), to the URSSAF.
The limitation to micro-entrepreneurs of this second component can be explained by the fact that the micro-social system, characterised by a rate of contributions proportional to the gross turnover (i.e. 13.1%, 22.5% or 22.7% depending on the activities 51 ( * ) , see above), is much easier to organise for a levy at source than for the actual income system and even more so since the platform has no information regarding the expenses incurred by the self-employed worker. Similarly, in accordance with the same Article 18 of the Act for Social Security Financing for 2017 (see above), the contributions due by the renters of movable property and furnished accommodation are based on the gross amount of their turnover, decreased by a proportional tax-free allowance of 60% or 87%.
These provisions will come into force on 1 January 2018.
They are a significant step forward, and even ambitious to the extent that, in addition to the reporting itself, these provisions could pave the way to a collection at source of the compulsory levies which would apply . The other most significant case is that of the collection of the visitorstax by Airbnb in 51 cities in France (see below), and in several other cities around the world.
The Central agency for social security organisations (ACOSS) is responsible for the operational implementation of this mechanism, under the control of the Social security directorate (DSS). Looking ahead to its entry into force on 1 January 2018, the ACOSS is currently working on setting up an all inclusiveservice offering, where all the affiliation and reporting procedures could be made directly via the platform, using the model of the universal employment-cheque service (CESU) or at least by a simplified referral to lautoentrepreneur.fr (micro-entrepreneurs) or netentreprises.fr (other self-employed workers) portals. A Smartphone application is also envisaged .
Given the crucial importance attached to the simplicity of the procedures and the quality of user experience in the world of collaborative platforms, this vision of how the law is implemented must not only be welcomed but also receive strong support from public authorities .
The fact remains that the successof this system, for the users and the platforms, currently remains uncertain. Adopted in the Social Security Financing Act for 2017 without prior consultation with the actors concerned or a detailed impact study, it raises several technical and legal difficulties that the hearings conducted by the Working Group have not, up to now, been able to clear up.
Thus, the technical characteristics of the system, the nature and degree of harmonisation of the information transmitted, the arrangements for exercising the option to join the general system, or arrangements for the interconnection between the information systems of the platforms with those of the social security organisations, are not currently known. A more serious obstacle is that it appears that the platforms, as it stands, are unable to determine by themselves :
- when the threshold for affiliation to the RSI is crossed, or the exit threshold for the micro-social system (EUR 82,800 or EUR 33,100 depending on the activities), given the possibility that an individual has to undertake an activity on several platforms, and the possibility of undertaking activities subject to different affiliation thresholds (sales, services, movable and immovable property rentals);
- the rate of social contributions to apply , due to the issue of crossing the threshold, the difference in the rates applicable to the income categories, but also because of specific cases laid down by the micro-entrepreneur system. The most significant case is that of beneficiaries of aid to an unemployed person creating or taking over a business (Accre) , who benefit from a reduced rate of social contributions 52 ( * ) .
Since the platforms do not have the elements in question, and unless provision is made for them to collect more data moreover subject to tax secrecy and/or professional secrecy -, the automatic levy of social contributions could therefore prove to be difficult. One solution would be to have the information passed on in real time by a third*party aggregator which has the necessary information , but Article L. 133-6-7-3 of the Social Security Code does not expressly provide for this possibility 53 ( * ) , which in any case is also complex.
It is for this reason that the mechanism adopted with regard to taxation (see below) is limited to simple reporting , which does not involve the platforms needing to have information about the taxable base or the rate to apply.
Therefore, given the voluntary nature of the proposed mechanism, its operational complexity, and in the absence of a financial incentive, its implementation initially could be fairly limited . For the platforms, offering this service in the short term could prove to be burdensome. For the users, the benefit of the proposed simplification could be limited, and would remain in any event, for those of them who are not scrupulously honest, lower than the gainof non-reporting, since the risk of being controlled is low. The low level of tax revenue expected from the measure, i.e. 10 million euros per year according to the impact study, is perhaps an admission of these difficulties, or at the very least a sign of caution.
For the Working Group, the rightresponse would be as follows: an automatic reporting offer covering both the social sphere and the tax sphere , combined with a tax advantage producing its effects for sideline and occasional income.
2. Automatic reporting to the tax authorities in 2019: a mandatory system whose implementation is still uncertain
Article 24 of the Amending Finance Act for 2016 54 ( * ) established an obligation to automatically report the income of online platform users to the tax authorities . The data, sent once a year in a standardised format would be transferred to the pre-filled income tax return for taxpayers and it would then be the responsibility of the authorities to calculate the tax due, depending on the rules applicable to each income category.
This mechanism, directly resulting from the work of the Working Group of the Finance committee of the Senate (see insert), is codified in the new Article 1649 quater A bis of the General Tax Code. It will come into force on 1 January 2019.
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The legislative history
Adopted within the context of the Amending Finance Bill for 2016 at the initiative, in particular, of the MP, Pascal Cherki, secured automatic reporting received widespread support from members of different political leanings . Three identical amendments were tabled and adopted in open session 55 ( * ) . During the discussions in the Finance Committee, Gilles Garrez, president, stated that it was becoming urgent to make reporting compulsory” , backed up on this point by his colleague Charles de Courson. In open session, Pascal Cherki stated: I consider that it is important to have these discussions. And it was not surprising to see in the Commission that others had tabled the same amendment and that finally everyone was unanimous in voting for it! [] I would like to bring to the attention of the minister the very strong desire of the members of the Finance Committee, who feel that this measure is fair and necessary . Initially opposed to this mechanism, the Government finally supported it, after adopting a sub-amendment postponing its entry into force until 1 January 2019 . In reality, the mechanism adopted was that which had been proposed by the Working Group of the Finance Committee of the Senate in its September 2015 report , except that it provided for compulsory reporting without an associated tax advantage. More specifically, the amendment repeated, almost word for word, in its text itself and in its explanatory statement, the amendment presented by Philippe Dallier, member of the Working Group, as Opinion rapporteur of the bill in favour of a Digital Republic 56 ( * ) . This amendment had been adopted by a very large majority of the Senate, and finally deleted from the text during the joint Committee. It itself restated the amendment presented on behalf of the Finance Committee by Albéric de Montgolfier, General Rapporteur, also a member of the Working Group, for the Finance Bill for 2016, and also adopted by the Senate by a very large majority. These initiatives were rejected by the Government , which only justified its opposition by citing its reservations on the other amendment of the Working Group, i.e. the fixed tax-free allowance of EUR 5,000 but not on automatic reporting in itself. Although it was still opposed to this mechanism during the discussions of the Amending Finance Bill for 2016, the Government proposed, at the same time, to establish its equivalent with regard to social contributions. Source: Senate Finance Committee |
Automatic reporting to the tax authorities of the income of online platform users, which amounts to creating a new system of third-party reporting in addition to the existing systems (companies, financial institutions, notaries, etc.), is the only possible response, ultimately, to the challenge posed by the digital revolution both as regards the need to preserve tax revenue and therefore the quality of public services, and the imperative of fair competition between the different actors of each economic sector.
Although the Working Group can only support the principle of this measure, it emphasises however that it could, paradoxically, be weakened by its compulsory character , desired by the MPs instead of the voluntary and incentivising system proposed by the Working Group. Indeed, devoid of any penalty and any incentive, and applicable in law to international platforms which already judge that they are not subject to the simple communication right on a case by case basis (see above), it could remain nothing more than wishful thinking, or at least a position of principle more than an effective obligation.
The postponement to 2019 of the entry into force of the mechanism , although automatic reporting for taxation is scheduled for 2018, also reveals these risks.
Of course, some platforms could eventually implement automatic reporting, as is the case for the information obligation referred to in Article 242 bis of the General Tax Code, with a concern for compliance and reputation , and given the legal risk existing in the event of having certain activities classified as permanent establishment. The fact remains that it is a much more burdensome obligation, and a much more sensitive subject for both the platforms and their users.
Moreover, the analyses carried out by the Working Group in the past few months have shown that the list of information to be transmitted by the platforms in accordance with the new Article 1649 quarter A bis of the General Tax Code, as adopted by the National Assembly, were due to be slightly modified 57 ( * ) . This information is as follows:
1° For a natural person, the last name, first name and date of birth of the user;
2° For a legal person, the corporate name, the address and the users registration number (SIREN);
3° The users email address;
4 The private individual or professional status characterising the user on the platform;
5 The total amount of the gross income received by the user in the course of the calendar year for his activities on the online platform, or paid through it;
6° The category to which the gross income received relates.
This list contains information which the online platforms do not necessarily have , such as for example the users date of birth or a companys registration number (if it has one), and which the tax authorities do not need to ensure full reliability of the reporting (provided it has a unique identification number, or the tax identification number, to carry out all the cross-checks). With regard to the other data, the platforms are already required to collect them pursuant to Article 242 bis of the General Tax Code.
The Working Group therefore proposes to improve the secured automatic reporting system, in order to make it fully applicable which is not conceivable without a reform, at the same time, of the tax base rules which have never really been applied in the physical world (see above), and which are not suited to the reality of exchanges between private individuals in the digital age.
The Working Group also proposes to bring forward the entry into force of automatic reporting to 2018 : provided the latter is operational with regard to social contributions, even though it is a more complex mechanism which includes a possibility to pay at source and presupposes an interconnection with several information systems, there is no reason that it could not be implemented for taxation, in the form of a simple standardised document sent out once a year.
These proposals are set out in the third part of this report.
II
* 50 Article 18 of Act No. 2016-1827 of 23 December 2016 on Social Security Financing for 2017. These provisions are codified in the new article L. 133-6-7-3 of the Social Security Code.
* 51 Excluding the payment in discharge of income tax which is open to micro-entrepreneurs. This is not referred to by Article L. 133-6-7-3 of the Social Security Code.
* 52 This rate is progressive and is equal to a fraction of the normalrate of the micro-social system: 25% up to the end of the 3 rd calendar quarter following that in which the registration is made; 50% for the 4 following quarters; 75% for the 4 following quarters; subsequently 100%.
* 53 The power of attorneyprocedure stated in the article refers to the highly general provisions of Article 1984 of the Civil Code, unchanged since the Act of 20 March 1804, power of attorney or proxy is an act by which a person gives to another the power to do something for the principal and in his name. The contract is formed only by acceptance of the agent . Moreover, the use of a third-party aggregator raises additional questions in relation to the processing of personal data, subject to the provisions of the Data Protection Act No. 7817 of 6 January 1978.
* 54 Article 24 of the Amending Finances Act No. 2016-1918 for 2016 of 29 December 2016.
* 55 These were presented respectively by Valérie Rabault, general rapporteur on behalf of the Finance Committee, which had adopted the amendment of Pascal Cherki (Socialist, ecologist and republican group), by Charles de Courson (Union of democrats and independents group) and by Jeanine Dubié (Radical, republican, democratic and progressive group).
* 56 Opinion No. 524 (2015-2016) of Philippe Dallier, Draftsman for opinion on behalf of the Finance Committee, on the bill in favour of a Digital Republic, 5 April 2016.
* 57 In addition, the scope of application of the article should be clarified. Indeed, it covers all online platforms within the meaning of Article L. 111-7 of the Consumer Code, whereas only 2° of the I covers contact platforms (see above). For information, 1° of the I covers services based on the ranking or referencing, by means of computer algorithms, of content, goods or services proposed or put online by third parties , i.e. in particular search engines and other comparators.