OVERVIEW: THE BLURRED LINES OF TAXATION AND SOCIAL CONTRIBUTIONS RULES GOVERNING ONLINE PLATFORM USERS
The Collaborative Economy, or Online Platform Economy, is not just a momentary fashion, but a long-term trend .
According to a study by PwC covering nine European countries, 275 platforms and five key business sectors 3 ( * ) , in 2015 it accounted for around 28.1 billion euros of transactions in Europe , an amount which almost doubled in just one year (15.9 billion euros in 2014), and which could reach 572 billion euros by 2025, a twenty-fold increase .
This same study estimates that on average, 85% of the value of transactions facilitated by the platforms is received by the user the remainder being split between the commission charged by the platform and insurance, etc.
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What is an online platform? Since the Act of 7 October 2016 for a Digital Republic 4 ( * ) , online platforms have a definition in domestic law, which is contained in Article L. 111-7 of the Consumer Code: An online platform operator is any natural or legal person offering, on a professional basis, for free or in return for payment, an online communication service to the public based on: 1. Classifying or referencing content, goods or services by means of computer algorithms offered or put online by third parties; 2. Or facilitating the establishment of contacts between several parties for the purpose of the sale of a good, the provision of a service or the exchange or sharing of an item of content, a good or a service. Collaborative platformsare mainly in the second category, i.e. they are platforms for establishing contacts , organising a virtual marketplace where buyers and sellers meet. However, in this report, the term online platformsis generally preferred to that of collaborative platforms , which has no legal definition in French law. |
However, by creating new opportunities for exchanges and services for millions of people, by blurring the boundaries between private individuals and professionals and between regular activities and occasional ones, the collaborative economy challenges the very foundations of our tax and social contribution system .
For platforms whose sellers or service providers are exclusively professionals, regardless of whether they are self-employed or employees 5 ( * ) , the existing law applies with no particular problem. The same is true for platforms offering exclusively non-profit activities, even if this condition is sometimes harder to establish (cf. below).
However, very often, platforms bring together both private individuals and professionals in mixedmodels, where distinguishing between the two is not always possible it being understood, moreover, that the status displayed or requested on the platform does not imply that the income received is subject to tax and social contributions. Beyond the diversity of economic models, online platforms can be grouped into five broad categories, all of them bringing together, although each time in different proportions, private individuals and professionals as well as paid and unpaid activities.
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Online platforms: a few examples Service platforms . Specialising in services to individuals (DIY, gardening, sports coaching, babysitting, home tutoring, etc.), Stootie has 800,000 users , ranging from private individuals looking to supplement their income to skilled craftsmen using it as one way of carrying out their business. Conversely, the 42,000 self-employed workers registered on Hopwork are qualified professionals, who all have a verified status (micro-entrepreneur, sole trader, etc.), and offer companies consultancy missions in marketing, communications, graphics and software development. 90% have chosen to be self-employed, in particular, for 31% of them, in order to earn more. Rental platforms . Cars are the items most frequently rented on collaborative platforms in Europe in particular on such French sites as Drivy , Ouicar and Koolicar . Apart from cars, Zilok has 350,000 objects of all types for rental between individuals and professionals , divided into 700 categories: tools, audio/video equipment, household appliances, suits, luxury accessories, holiday homes and musical instruments. |
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Hosting platforms . Taking the Airbnb platform by itself, the platform carried 350,000 advertisements in France in 2016, against 7,000 advertisements in 2012. Paris, the leading world destination of Airbnb , carried 85,000 advertisements (60,000 of which within the city boundary). The adverts are place both by individuals and professionals (agencies). Mobility platforms . In France, 40% of 18-35-year-olds are signed up on Blablacar , a car sharing platform which, by definition, is targeted at individuals looking to share their expenses. At the other end of the spectrum, apps such as Uber , LeCab and Private Driver offer transport services carried out by professionals who hold a private hire driver or internal transport (LOTI) licence . Goods sales platforms . These marketplaces are used by both professional sellers and individuals, and do not always distinguish second-hand sales from sales of a commercial nature. They are not always payment service providers. On the main one, Leboncoin , 18.5 million people in France bought or sold a good in 2016, almost 100 million transactions and for a total amount of 21 billion euros . We can also mention the auction platform eBay , and specialised platforms, such as Vide Dressing for second-hand clothes and accessories and A Little Market , specialised in hand-madeobjects. Source: Senate Finance Committee, according to the above-mentioned PwC study and information communicated or published by the various platforms |
The annual income of the users of online platforms is often modest : 350 euros on Stootie , 700 euros on Drivy and Ouicar etc. Excluding real estate and vehicles, individual sellers earned an average of 396 euros on Leboncoin in 2016, an amount equal on average to 3.5% of their total income, and most people using this small ads site are private individuals. The amount of these earnings can however be quite significant: a mission on Hopwork brings in 2,000 euros on average, an amount which is more or less equal to the income of a typical hoston Airbnb , with these average amounts hiding wide disparities.
This new economy has long given the impression of developing outside the law, in particular as regards taxation and social contributions . A succession of events however has changed things considerably the closure of UberPop , the problems with Airbnb in Paris, the recent suspension of Heetch but also the success of platforms such as Blablacar and Drivy which now require a clarification of the rules.
Today, people are starting to become aware of the situation: rules do exist but they are very largely unsuited to the digital economy.
I. AS REGARD TAXATION, ALL INCOME IS TAXABLE FROM THE FIRST EURO WITH VERY FEW EXCEPTIONS
On 2 February 2017, the Ministry of Economy and Finance published 6 ( * ) a document entitled Income derived from online platforms or self-employed activities: what must be declared? How? ” This document, which is annexed to this report, contains five explanatory sheets , regarding the tax and social contribution obligations applicable to income stemming respectively from car sharing, renting out furnished accommodation, the sale of goods, the rental of goods and paid services.
First of all, the publication of these explanatory sheets should be welcomed since they are the first attempt to make a general presentation of the tax and social contribution rules applicable to users of collaborative platforms .
However, in their attempt to “explain”, what these sheets have demonstrated above all is the very great complexity of the existing rules and how unworkable they are . Instead of answers in full, comforting for all, clear, intelligible and fair heralded in the editorial which precedes the sheets, any users who read them will instead only find confirmation that:
- on the one hand, there is no area of tolerance as far as taxation is concerned: all income must be declared and is subject to income tax , with the exception of second-hand sales, whose definition is unclear, and co-consumption, activities, a new category whose scope is much narrower than that of exchanges between individuals. In addition, many dispensatory arrangements may apply;
- on the other hand, there is uncertainty as to the distinction between private individuals and professionals with regard to social contributions , so that many private individualsare in fact self-employed workerswho are unaware of this fact and who should join the self-employed workers system (RSI),), pay social contributions and comply with many sector-specific obligations as regards qualifications, certifications, health and safety regulations etc.
Devised for a physicalworld in which they remained mostly ignored as far as exchanges between individuals were concerned, these rules have now come face to face with the social and economic reality of the online platform economy.
In fact, the ministers, in the editorial that precedes the explanatory sheets say as much: We are aware that unlike professionals, those individuals who develop a sideline activity do not necessarily have the right reflexes in relation to regulatory, tax and social protection matters; these are complex subjects and it is important to provide them with support . During the hearings conducted by the Working Group, it not only became apparent that very many users of platforms were, in good faith, unaware of all or some of these rules, but also that the authorities themselves had, only when drafting the explanatory sheets, realised just how complex the subject is.
In reality, the process of clarification undertaken in the past few months, while commendable in its intention, could only run into the problem of the governments choice to explainthe situation as it stands, to stick to existing rules, on the grounds that there is no reason to apply specific rules to one source of income compared to another just because it is received via online platforms this is the main thrust of the title of the document published on 2 February 2017, which mentions without differentiating them income derived from online platforms and from self-employed activities . This unwavering position has several times led the Government to turn down the proposals of the Working Group, in particular when discussing the Finance Bill for 2016, even though they had been adopted by a very large majority in the Senate.
Equally unwaveringly, the Working Group believes that there is good reason to change the rules applicable to income derived by private individuals from their sideline and occasional activities, or at the very least to those that they carry out via online platforms, because these old and complex rules are not suited to exchanges between individuals on the Internet , which have near to nothing in common with those of the physicalworld, in terms of volume, form and participants. Hence:
- they are therefore not enforced , which allows certain individuals to receive substantial income, while not meeting their tax and social contribution obligations, which leads to a situation of unfair competition in respect of the other professionals ;
- if they were strictly enforced , which is not the case, on the contrary they would put very many private individuals in an uncomfortable position , in particular the unemployed with few prospects, persons on low income or simply amateurs or enthusiasts, and this would simply threaten the economic model of many collaborative platforms .
Before setting out in detail the proposals of the Working Group, the explanations below show the current rules and why they are not applied.
A. INCOME RECEIVED VIA ONLINE PLATFORMS DOES NOT BENEFIT FROM ANY SPECIAL TREATMENT
Income received by private individuals for their activities carried out via online platforms is subject to the same taxation rules as their other categories of income . In particular, they are subject to income tax in accordance with Article 12 of the General Tax Code (Code Général des Impôts - CGI ) , which provides that the tax is payable each year on the profits or income that the taxpayer makes or from which he benefits in the course of the same year .
Occasionalor income does not therefore benefit from any special treatment , whatever its origin and whatever the amount. Therefore, amounts received via online platforms are in principle taxable from the first euro, and must be declared in line with the provisions of ordinary law .
These categories are profits and capital gains from self-employed workers which generally fall in the category of industrial and commercial profits ( Bénéfices Industriels et Commerciaux - BIC), non-commercial profits ( Bénéfices Non-Commerciaux - BNC) or real estate income , whether or not they derive from professional activities within the meaning of the Social Security Code (see below).
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Self-employed workersincome Industrial and commercial profits (BIC) are defined by Article 34 of the General Tax Code as profits made by natural persons derived from the exercise of a commercial, industrial or craft occupation . Article L. 110-1 of the Commercial Code 7 ( * ) deems commercial transactions 8 ( * ) to be the following activities, widespread on online platforms: 1° Any purchase of movable property for resale , either in its original condition or after having transformed and used it; [] 4° Any rental of movable property business ; 5° Any manufacturing, agency, land or water transport business; [] 7° Any exchange, banking or brokerage transaction, issuance and management of electronic money and any payment service 9 ( * ) . Non-commercial professional profits (BNC) are, under the terms of Article 92 of the General Tax Code, profits from liberal professions, from responsibilities and offices whose holders do not have trader status and from all occupations, lucrative operations and sources of profits distinct from another category of profits or income . Liberal professions are those in which the intellectual activity plays the main role and which comprise the personal practice of a science or an art for example, with regard to platforms, school work or guitar tuition at home, but also the creation of a logo, a website or a translation. People with this status carry out their business fully independently which distinguishes them from employees and their property and actions are, in principle, governed by civil law, which distinguishes them from traders. Source: Finance Committee of the Senate |
The beneficiaries of these categories of income have the choice between being taxed on the basis of their real income and charges or on the basis of the “micro-tax” system , often preferable because simpler and more suited to occasional activities. Subject to annual turnover not exceeding the VAT exemptionthresholds provided for by Article 293 b of the General Tax Code, i.e. EUR 82,200 or EUR 32,900 depending on the activities, they can benefit from a proportional tax-free allowance on their annual gross income, which takes into account, in a simplified way, expenses incurred for the activity . These tax-free allowances are:
- 71% for micro-BIC sales of goods 10 ( * ) ;
- 50% for micro-BIC services 11 ( * ) in the case of a commercial or craft activity;
- 34 % for micro-BNC services 12 ( * ) , if a science or an art is exercised;
- 30% for unfurnished rentals under the micro real estate system 13 ( * ) .
With regard to the declarative procedures , taxpayers who are covered by the micro-tax system need only to state their gross proceeds on the supplementary declaration form No. 2042 C PRO (see below). The tax authority then applies the proportional “tax allowance” and calculates the amount of tax due according to the progressive tax rate under ordinary law conditions.
The micro-tax system: summary
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Micro-tax system |
Examples |
Tax allowance |
Maximum gross income |
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Micro
|
Sales of goods |
Purchase and then resale of comics, sale of handmadejewellery... |
71% |
€82,200 |
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Services
|
Passenger transport, rental of a furnished apartment, a car or a Finance Committee, DIY or gardening |
50% |
€32,900 |
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|
Micro
|
Provision of services |
Home tutoring,
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34% |
€32,900 |
|
Micro
|
Unfurnished rental |
Rental of a cellar, an attic,
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30% |
€15,000 |
Source: Senate Finance Committee
Taxpayers coming under the micro-tax system can opt for the micro-entrepreneur system (formerly auto-entrepreneur) , which in particular includes an option for a flat tax in discharge of income tax instead of progressive scale taxation after application of a tax allowance. The micro-enterprise status is discussed in the section of this report devoted to the tax system of online platform users.
Above these thresholds, the taxpayer is compulsorily subject to the ordinary income tax system, which allows the exact amount of all expenses to be deducted this is more complex, but also more suited to professional activities. In addition, if the gross income exceeds the VAT exoneration thresholds, the taxpayer is subject to VAT, that he must declare, collect and pay . However, it should be stated that at these levels of turnover 14 ( * ) , there is no doubt about the professional nature of the activity : in these situations, current tax law poses no particular problem in being applied to the online platform economy and the question of occasional and sideline income, the subject of this report, does not arise.
Taxpayers eligible for the micro-tax system can also opt for the income system , if they believe that this is more advantageous to them. According to some platforms heard by the Working Group, it appears that this is the case in particular for car rentals and, where application of the kilometre scale is preferable, for the calculation of expenses, to a proportional tax-free allowance.
Besides these ordinary law systems, users of online platforms may be taxable in accordance with a series of special, complex systems and probably largely unknown to users seeking only a modest income supplement, unconnected to their main activity: “artistic” and “non-artistic” photographers, capital gains on precious metals, fruit and vegetable sales, car boot sales, etc. The rental sector, in particular, is characterised by a wide diversity of systems :
- the short-term rental of furnished property , which falls under the ordinary law micro-BIC regime, the most common on platforms such as Airbnb ;
- unfurnished property rental , which benefits from the régime micro-foncier , i.e. a proportional tax allowance of 30% within the limit of gross annual income of EUR 15,000. This system mainly concerns platforms for the rental of cellars, garages and storage between private individuals, such as Costockage , Ouistock and Jestocke ;
- professional furnished property rental(LMP) status , which, under certain conditions, allows the person to benefit from the micro-BIC system 15 ( * ) ;
- the system applicable to bed & breakfast ;
- the system applicable to listed monuments, etc.
In conclusion, money received via online platforms is therefore in principle taxable under the conditions of ordinary law, i.e. from the first euro: Contrary to what is sometimes claimed, there is no grey areaas regards income tax, but only a poor application of inappropriate rules .
There are however two particularly significant exceptions for the online platform economy which by their nature are exempt: second-hand sales and cost-sharing. However, the definition of the former is too confusing and that of the latter, too restrictive.
*
3
Source:
Robert Vaughan et Raphael Daverio, PwC UK, “
Assessing the size and
presence of the collaborative economy in Europe”
, a study for the
European Commission, April 2016.
NB: The scope of this study is different
from that used in this report. The PwC study focuses on the five following
sectors: accommodation, transport, professional services on demand, home
services on demand, and crowdfunding. This report does not address
crowdfunding, but includes sales of material goods between private
individuals.
* 4 Article 49 of Act No. 1321 of 7 October 2016 for a Digital Republic.
* 5 The case of income earned by employees via online platforms, for example private hire drivers employed by a company which holds the licence, does not fall within the scope of this report. It does not pose any particular problem since it is not, by definition, occasional or sideline income, and even less cost-sharing.
* 6 Within the context of the implementation of Article 242 bis of the General Tax Code, which provides that online platforms inform their users of their tax and social obligations, in particular by providing a link to the documentation published by the tax authorities (see below).
* 7 The Council of State Decision No. 234133 of 29 April 2002 states that carrying out on a professional basis operations of the nature of commercial transactions within the meaning of Article L. 110-1 of the Commercial Code is a commercial activity within the meaning of Article 34 of the General Tax Code.
* 8 Industrial activitiesand craft activitiesare equivalent activities. The only difference is the conditions under which they are carried out and how they are carried out. A craftsman, in particular, is a self-employed worker who performs a manual activity requiring a certain qualification, acquired after an apprenticeship and seeking, by so doing, to realise mainly the value of his work.
* 9 This last category covers platforms of the Fintechs sector more, providing payment services, account aggregation services, crowdfunding, crowdlending and virtual currencies such as Bitcoin . These services are not addressed in this report.
* 10 Article 50-0 of the General Tax Code.
* 11 Article 50-0 of the General Tax Code.
* 12 Article 102 ter of the General Tax Code.
* 13 Article 32 of the General Tax Code.
* 14 The thresholds of the VAT exoneration are equal to gross monthly income of EUR 6,850 for the sales of goods and EUR 2,742 gross per month for services.
* 15 Under the terms of Article 155 of the General Tax Code, the "professional furnished property lessor" (LMP) tax system requires three cumulative conditions :
(1) at least one member of the tax household is registered in the Commercial Register (RCS) in the capacity of professional lessor;
(2) the annual proceeds derived from this activity received by all the members of the tax household is greater than EUR 23,000;
(3) this income is the main income of the tax household and is therefore greater than all the other earnings combined (remuneration and salaries, BIC, farming profits, etc.).
At the tax level , the main advantage of the LMPsystem is to be taxed in the industrial and commercial profits (BIC) category, and therefore to be able to offset the losses of the rental activity against all the expenses of the tax household, without a cap on the amount (whereas the amount that can be offset is capped at EUR 10,700 for real estate income). At the social contribution level , the LMPsystem carries with it by definition affiliation to the self-employed workerssocial security system (RSI).