B. A SYSTEM THAT ECNOURAGES THE DEVELOPMENT OF THE SHARING ECONOMY, WITHOUT A THRESHOLD EFFECT OR A DISTORTION OF COMPETITION
As it is designed, the measure proposed by the Working Group will exempt totally or partially modest additional income, without however creating a threshold effect on exitfrom the mechanism, or inequality of treatment between taxpayers, whenever they derive significant income from their onlineor offlineactivities.
1. No threshold effect beyond EUR 3,000
The fixed tax-free allowance does not create any threshold effect : above annual gross income of EUR 3,000, the net taxable income and the tax due are gradually aligned with that of ordinary law, until they become identical at the exit threshold. Thanks to this smoothing, users who exceed the EUR 3,000 threshold in a year for their activities on collaborative platforms would not be suddenly taxed on the whole of their income.
The EUR 3,000 threshold therefore amounts to laying down in law, for the first time, a simple and unique criterion which characterises occasional or sideline income and hence exempts it . This criterion, although imperfect due to its general nature, is needed to take account of the new reality created by the online platform economy: the millions of people who carry out multiple, recurrent, standardised and traceable activities in real time, cannot be subject to complex rules that are often unknown, and imperfectly completed by taxdoctrine and case-law whose criteria are, moreover, variable, depending on the activities, the administrative authorities and the courts.
It should be noted that this threshold would not necessarily mean that greater income would become automatically taxable : can be seen as a warning threshold, below which the question does not arise, but above which some income may remain exempt (see below).
2. No distortion of competition between professionals
The alternative fixed tax-free allowance does not create any distortion of competition between professionals using the online platforms and others : as soon as the income becomes significant, it is the ordinary law, the entire ordinary law and nothing but the ordinary law that applies, in other words, the application of a proportional tax-free allowance under the micro-tax system, or the deduction of expenses under the actual income and charge system.
The exit thresholdtherefore amounts to introducing an implicit concept of significant income, variable according to the category to which the income relates, but simple, clear and objective .
Therefore, those people whose annual income is significant are actually taxed on the whole of their income, from the first euro, and under the conditions of ordinary law. The part of their income below the exit threshold does not keepthe benefit of the advantage . A tax-free allowance, whether it is fixed or proportional, is in this respect different from a gradual scale of income tax , where a particular rate of taxation is applied to each bracket, even in the case of income that falls within a higher income bracket.
In other words, no private hire driver, no renter of tourist furnished accommodation, no self-employed creator of logos, hairdresser or home tutor will derive a financial advantage from the proposed measure whenever his activity provides him with a significant income the threshold being set at a level considerably lower than that of an income on which a person could live(see below).
The proposed measure therefore automatically excludes income that may constitute unfair competition in respect of other professionals , whether they are self-employed workers (liberal professions, craftsmen, traders, etc.) or employees and whether they use an online platform or not. This risk is mitigated further by the fact that automatic reporting of income by the platforms ensures the reliability of the tax returns.
Symmetrically, the proposed measure does not create any deadweight effect for professionals : no self-employed worker in a traditionalsector would obtain a tax advantage by using an online platform rather than physicalmeans, once his total income exceeds the exit thresholds.
In short, the advantage does in fact exempt occasional private individuals but does not change anything for realprofessionals.
The table below presents the list of potential beneficiaries of the proposed measure, and of those who would not benefit from it.
Scope of application of the fixed tax-free
allowance
as regards income tax
|
Beneficiaries • Users whose gross annual income received via platforms is less than EUR 3,000 ( entirely exempt ). • Users whose gross annual income received via platforms is greater than €3,000 but does not exceed the exit threshold, between €4,225 and €8,824, depending on the activities ( partially exempt ). |
Non-beneficiaries • Users who do not accept automatic reporting of their income. • Users of platforms which do not implement automatic reporting of income. • Users whose gross annual income collected via platforms is greater than the exit threshold, between €4,225 and €8,824, depending on the activities. • Micro-entrepreneurs , if they opt for the levy in discharge of income tax. • Companies and other legal persons not subject to income tax. |
Source: Senate Finance Committee
This table prompts three observations.
Firstly, the proposed mechanism does not distinguish, in its income tax component, between private individualsand professionals , but covers all persons liable to pay income tax on income else than received as an employee (rental or real estate income, income from liberal profession, commercial, craft activities, etc.). This distinction is not necessary , since the advantage cancels itself outwhen the annual income reaches a significant amount. Apart from the fact that it would be superfluous, reserving the advantage to non-professional private individuals would in addition pose a problem with respect to the principle of equality before taxes, in that it would lead to treating income from the same category (BIC, BNC, etc.) differently.
Secondly, by definition, those persons whose annual net income from all sources, does not exceed EUR 9,710 per share of the family quotient, i.e. the limit of the first bracket of the income tax scale in 2016, are not taxable 59 ( * ) .
Thirdly, micro-entrepreneurs cannot benefit from the mechanism , if they opt for the levy in discharge of income tax at the same time as the payment of social contributions (see above). Indeed, the levy in discharge by definition excludes the application of the proportional tax-free allowances of the micro-tax system, or the deduction of expenses of the actual income system, and consequently taking into account a minimum amount of EUR 3,000. This exclusion is no way problematic, for two reasons:
- with regard to the principle , affiliation to the micro-entrepreneur system presupposes that the taxpayer considers himself, through a voluntary approach, as undertaking an activity of a professional nature : there is therefore no reason to consider that the income that he derives from the platforms is additional sideline or occasional income;
- in practice, the levy in discharge of income tax , at a fixed rate of 1% for the sales of goods under the BIC system, 1.7% for services under the BIC system, and 2.2% for services under the BNC system (see above), most of the time is much more favourable than the standard progressive scale taxation, with or without the proposed advantage . It is true that in some cases, in particular for taxpayers who are not liable to income tax because their annual combined income is less than EUR 9,710, the choice of the micro-enterprise system with a levy in discharge of income tax is less advantageous but this is a policy decision unconnected with the measure proposed by the Working Group.
3. Cost-sharing and second-hand sales would remain exempt, even above the EUR 3,000 threshold
The proposed tax advantage consists of applying a fixed tax-free allowance to income received via platforms and reported by them, which would allow complete exemption of income lower than EUR 3,000, and partial exemption of income between EUR 3,000 and the exit threshold. For the fraction of the remaining income taxable after application of the tax advantage, ordinary law automatically applies, with no modification.
This means in particular that income exempt due to its nature will in any case remain exempt, even above the threshold . This mainly concerns the following income sources, which account for a significant part of the online platform economy:
- income from cost-sharing, including car sharing , whose non-taxable nature was confirmed by the tax instruction of 30 August 2016 (see above). As explained above, determining the exact amount for cost-sharing is not always easy (for example in the case of boat sharingand co-cooking): the value of the proposed measure is to secure in any event the persons concerned as long as the threshold is not crossed, and to reserve to higher income the need for a detailed analysis;
- income derived from second-hand sales , exempt in accordance with Article L. 150 UA of the General Tax Code (see above). However, above the EUR 3,000 threshold, the distinction between second-hand sales and commercial sales remains confused and difficult to apply since no tax instruction has been published on the subject, unlike for cost-sharing activities. The Working Group is therefore in full agreement with the afore-mentioned Recommendation No. 25 of the IGAS report: clarify the doctrine applicable [] to non-commercial second-hand sales and develop guidelines on the subject, accessible online .
In the proposed mechanism, automatically reported income is therefore not necessarily taxed income.
The EUR 3,000 threshold must thus be understood more as a warning threshold, above which the question of taxation is asked , rather than as a threshold that automatically triggers taxation. The primary objective of the proposed measure is not to impose excessive constraints on private individuals and not to involve the services of the tax authorities in issues of little significance , which moreover could often turn out to involve, at the end of a painstaking review, simple cost-sharing. The proposed threshold thus allows the tax authorities to concentrate its resources on the truly important cases .
From an operational point of view, however, processing by the online platforms and the tax authorities of income exempt by natureimplies a few adaptations , but no complication for the usersreporting procedures. These adaptations are presented in the part relating to secured automatic reporting (see below).
* 59 The proposed advantage is nevertheless applicable to them, and they can benefit from it where the difference in the calculation of the net taxable income, due to the tax-free allowance of EUR 3,000 rather than the proportional tax-free “allowance” or the deduction of the actual charges, would allow them to remain in the non-taxable bracket instead of movingup into the tranche taxed at 14%. The same is true for moving up into the higher brackets.