Getting the Gigs

Apr 15, 2019

The Sunday Business Post, 14 April 2019, The gig economy undoubtedly has benefits, but it is not a universal blessing.  New ways of working and earning – gig, trading and sharing activity typified by the likes of eBay, Deliveroo, and Airbnb – mean different things to different people. They can provide better service and bargains for consumers, new opportunities to make money or a better return on property.  They also prompt a whole range of questions about issues like data protection, workers’ rights and of course taxation.  In developed countries, the taxman will never be too far away from wherever money changes hands.

One of the functions of the OECD is a coordinating role, bringing together the heads of tax administrations of the OECD member countries to share knowledge and experience derived from what's going on in their territories.  This group meets frequently (it met last month in Chile), and among its current topics for discussion is the gig economy.  That’s not too surprising because revenue authorities always prefer formal arrangements and by definition, gig economy and sharing economy arrangements are relatively informal. 

The companies offering the platforms and facilities are typically established, regulated and compliant and are not the issue.  The tax risk is where money is made by individuals participating in the gig economy, but who might not be registered for tax purposes anywhere.  Others using their spare time for gig economy activity are PAYE workers, where the responsibility for tax compliance on their wages largely rests with the employer. 

That means that many participants in the gig economy may be unfamiliar with, or choose to be unfamiliar with, the tax responsibilities which arise when money is made.  Not only that, because some goods and services like accommodation are traded across borders, money leaks out of the local economy and ends up being taxed nowhere.

Some years ago, the UK authorities dealt quite elegantly with these problems by simply declaring that earnings under £1,000 from the gig economy would be exempt.  But that, at best, is only a partial solution. Failing to tax the gig economy is not just a tax issue.  Untaxed commercial activity confers an unfair advantage over businesses which do account for and pay over their tax properly.  It's about creating a level commercial playing field.  The aspiration among the OECD revenue authorities seems to be to sort out the gig economy activities while they are still a relatively small part of total business activity. 

Rather than looking at the activities of individual taxpayers, it seems that the revenue authorities propose to engage what they call the platform sellers – the coordinating organisations which provide the applications and the infrastructure to make the commerce happen.  Up to now, very few countries have introduced specific tax rules to catch gig economy activity, preferring instead to run advertising and awareness campaigns.  The power available to the Irish revenue to obtain information about people providing short-term accommodation through the likes of AirBnB is quite unusual. 

The idea of targeting platforms and organisations rather than individuals is a tool to keep tax systems working.  Just as in the case of employment, where it is easier to deal with individual employers who are far fewer than individual employees, it is on the face of it far simpler for a revenue authority to target the big-name website than the individual on the bike or in the car.  This though is where the problems start to arise.

The legal relationship between employer and employee is readily identifiable and clear-cut, but the relationship between the contractor and subcontractor is much more problematic.  Not just in Ireland, revenue authorities have been attempting for years to design regulations to ensure that contractor and subcontractor transactions are fully taxed.  The construction industry is a particular case in point with its extensive use of subcontractors – hauliers, plasterers, electricians and the like.  There remain problems across industries like entertainment and IT in establishing when an individual is an employee, or whether instead they are truly self-employed. 

When we add into the mix the nature of a platform provider within the gig economy framework, where the organisation is often neither a contractor nor an agent but a facilitator, revenue authorities may rapidly find that their information gathering and policing exercises fall foul of legitimate data protection and privacy concerns.  Information garnered via untargeted information requests from companies, or trawling websites and online advertising won’t always provide the evidence that can make tax assessments stick.  Nor will “soft law” measures like asking gig economy providers to subscribe to a tax code of conduct likely be enough to provide robust tax controls for growing and sometimes unregulated sectors.

While we’ve now got quite used to popular protest against tax avoidance and tax planning in the corporate sector, I suspect we are some distance from seeing campaigns mounted against the tax evasion possibilities of the gig economy and calls for “something to be done”.  The genesis of the problems being addressed by proposals for digital taxation to be paid by multinationals and the current work of the tax authorities marshalled under the OECD banner against the gig economy is exactly the same – technology has outstripped the capacity of 100 year old tax rules. 

The next front in the battle for fair taxes won’t involve tax authorities challenging corporations working across many territories, but challenging occasional landlords, taxi drivers and couriers working in the gig economy.  Let’s see if that receives a universal blessing.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland