Uber vs Airbnb – Differing Approaches to VAT
Platform-based businesses or the sharing economy have become a staple of global networks and marketplaces around the world. This idea creates an infrastructure that brings multiple parties together and facilitates their interaction, including the exchange of information between these parties, followed ultimately by an exchange of money and/or goods and services. The platform itself is the key resource of the business as it provides the channel that enables the transactions.
Two well-known businesses that each provide platform-based services are Uber and Airbnb. Uber is a location-based car-for-hire service that connects available drivers and customers’ on-demand via a smartphone app. Uber drivers are not required to hold special licenses; they simply use their personal vehicles to offer discounted fare rides. Operational in over 600 major cities around the world, Uber recently announced that they have serviced more than five billion riders and have become the most recognized alternative to traditional taxicabs.
Airbnb is an online community marketplace that connects people looking to rent their homes with people who are looking for accommodations. The company does not own any lodging; it is merely a broker and receives commissions from both guests and hosts in with every booking it facilitates. It has over 3,000,000 lodging listings in 65,000 cities and 191 countries, and the cost of lodging is set by the host. Additionally, Airbnb has recently launched business travel services called Airbnb Business, where specific accommodations are labeled “business travel ready.” According to the Global Business Travel Association, U.S. business travel spending alone is expected to reach $296 billion by the end of this year and climb 5.2 percent next year — a huge opportunity.
While the underlying business models of these two companies are similar, their treatment of VAT could not be more different. According to Airbnb’s website, VAT is charged at the time of payment and a VAT invoice is finalized and issued when a reservation is accepted. The invoice is to include the travelers’ information, such as name, address, etc. as it appears in the Airbnb account. Armed with a formal invoice from Airbnb, employers can easily recover the VAT paid by their employees who utilize Airbnb’s services while on business travel. If you utilize Airbnb while traveling for business, just make sure that on the invoice appear employer details.
Currently, Uber does not charge VAT on its services anywhere in the world. Uber claims that “drivers who use the Uber app are subject to the same VAT laws as any other transportation provider.” This means that Uber essentially treats each of their drivers as a separate business which makes each of them too small to require VAT collection. However, this practice is currently being challenged in a British court. A crowdfunding initiative called the “The Good Law Project” started by UK lawyer Jolyon Maugham is suing Uber in the UK claiming it potentially owes millions of pounds in uncollected VAT. The lawsuit accuses Uber of using a legal loophole to get out of paying VAT and by doing so, severely undercuts rivals who must add a 20% VAT on all fares, according to British law.
Not only the local authorities aren’t happy with these sharing models. After the French minister for the economy described the current situation as “unacceptable”, EU finance ministers will discuss next month how to force home-sharing platforms such as Airbnb to pay their fair share of taxes and in the right tax domains.
In Barcelona, the people aren’t happy at all about the huge amount of tourist trampling the city’s streets. In Paris it will be mandatory from December 1st, 2017 to obtain a registration number from the town hall before posting an advertisement for a short-term rental on its website. And in Ibiza have the authorities placed a cap on the number of beds for tourist. And in Ibiza have the authorities implemented a cap on the number of beds for tourists. Owners will also be banned from renting their homes, or rooms within them, via websites such as Airbnb and Homeaway unless they obtain a license, facing fines of up to €400,000 if they break the law. The websites face the same fine for letting people advertise without a valid license number.
Only time will tell if this lawsuit against Uber will be successful; a lot will depend on The Good Law Project’s ability to raise the necessary funds to fight a powerhouse such as Uber. But looking down the road, a victory by Maugham would almost certainly lead to a domino effect worldwide. Not only will Uber have to cough up its unpaid VAT in the UK and across the globe, but other platform-based businesses that have managed to dodge their VAT obligations, legally or otherwise, will have to follow suit and pay up as well.
If you’re a platform-based business that is confused about how these changing laws may affect your tax obligations, or if you’re wondering how to optimize VAT recovery from your employees’ business travel, VATBox can help. More and more businesses are choosing VATBox to help them streamline the VAT recovery process. Leveraging the cloud and utilizing full automation, VATBox exhibits complete control of a company’s VAT spend, while providing businesses with unrivaled visibility, compliance, and data integrity. To explore how VATBox can help your business, schedule a demo today.