Tax Challenges and Opportunities of the Growing Digital Economy

Value Added Tax (VAT) is a tax applied to all transactions carried out for consideration in the EU. VAT systems are harmonised at the EU level to ensure neutrality and to minimise their negative impacts on the functioning of the Internal Market. We invite you to read the latest mBank-CASE Seminar Proceedings No. 171 by Grzegorz Poniatowski and Giacomo Luchett entitled: “Tax Challenges and Opportunities of the Growing Digital Economy”. While becoming an increasingly more important source of revenue, the EU VAT system needs to meet the constant challenges of not becoming outdated. The fast pace of the digitalisation of the economy poses new challenges to the system and tax administration due to, among others, the emergence of new and complex business models and the dematerialisation of transactions. The digitalisation also creates opportunities in that it provides new digital instruments for improving the monitoring of tax compliance and reducing regulatory costs. Adapting the VAT system to the challenges and opportunities related to the changing nature of the transactions and the structure of the economy is necessary to avoid tax base erosion, declining compliance, and costs for taxpayers related to regulatory complexity. In response to the abovementioned challenges and opportunities, the European Commission, Directorate General for Taxation and Customs Union (DG TAXUD), commissioned a study on ‘VAT in the digital age’ covering three distinct but interrelated areas of VAT policy: (i) Digital Reporting Requirements, (ii) VAT Treatment of the Platform Economy and (iii) Single VAT Registration and Import One Stop Shop. The Study is conducted by a grouping of consulting firms and research institutions led by Economisti Associati Srl and including Oxford Research AB, the Center for Social and Economic Research (CASE), Wavestone S.A., Mazars N.V., Hedeos société d’avocats, Desmeyere Services, and Università di Urbino. The articles presented in these proceedings were inspired by the work performed under two thematic silos of the work conducted within the Study. The first article authored by Grzegorz Poniatowski deals with the VAT treatment of the platform economy. The article discusses the nature of the business model and problems related to its distinct features. The second article, authored by Giacomo Luchetta (the leader of the study for the European Commission), discusses the current functioning of digital reporting obligations and outlines possible policy interventions and their impacts. Similar to the first paper, it also presents an array of possible policy interventions and their expected impacts. The papers inspired by the work conducted for the European Commission are based on the secondary information available to-date. The primary information gathered for the Study during the fieldwork, the estimates of the scale of the problems, and the quantification of the impacts are not presented herein. The articles express only the opinions of the Authors.