Taxing Digital Platforms: The Uber Test
Uber’s explosive growth has made it one of the most fascinating companies to emerge out of the 2010’s. Often mired with controversy, especially as it has started to compete with traditional public transport operators around the world, the company has been somewhat of a test for how digital platforms, especially those that quickly become large-scale conglomerates, have been able to play the VAT avoidance game. This is not new, as e-Tailers like Amazon and eBay have used their digital status as a way to outdo their brick and mortar competitors in the past, so what exactly is the problem with Uber doing so as well? Let’s explore the latest on this developing story.
The Growth of Uber
Uber has seen tremendous gains in the transportation industry in recent years. Reporting growth of around 30% in recent months, they are set to continue their domination as a rideshare partner of choice for consumers from across the world. In the UK, Uber has recently been engaged in battle with HM revenue & customs, as a result of an ongoing tax liability, which started with a ruling in 2018, denoting that uber drivers were “workers” and not self-employed, as the company would like them to be classified for legal and business purposes.
Uber’s UK VAT Liability
This implies that Uber potentially has backdated VAT liabilities which some estimate to be over £1bn. Countering this, they have asked to be classified as a “transport provider” marketplace, providing opportunities to self-starters wishing to be self-employed. If the company fails to convince the UK supreme court that the 2018 ruling should be overturned, and that their drivers are in fact self-employed, they may owe up to 20% in VAT on all bookings (retroactively and proactively), which would be a major financial setback for the company and encourage other tax authorities to pursue outstanding payments in the same way.
HMRC and a Precedent on Tax on Digital Platforms
If the HMRC, the leading tax authority in the UK, negotiates a settlement with Uber, it may set a precedent for companies to start using legal status to gain advantages over their VAT compliant competition. It may also give an indication that disruptor companies have to follow a certain set of rules, while everyone else has to follow another. This has paved the way globally for new discussions around how digital platforms are using clever structuring as a way to minimise and avoid their VAT payments. Legal status plays a big part, as marketplaces are generally not considered to be direct suppliers of goods. They act as facilitators, pushing the VAT liability to contractors and merchants, who often don’t hit the minimum thresholds for paying VAT in the first place. Tax authorities often have a hard time tracking VAT abuses across countries, as they require substantial resources in order to do so.
The Outcome of the Uber Test
The outcome of the Uber test is going to be interesting to watch in coming months, as it is likely to set a new precedent in the UK, and allow Uber to argue a similar case in other territories if they are successful. If you have your own digital business, and you are curious about VAT compliance and correct procedures to follow, it may be worth getting some expert help upfront, rather than having to get some help when you’re pinged for outstanding VAT. VATGlobal services over 12 000 clients around the world, so they’re a good place to start if you have any urgent questions. Remember to keep a close eye on the Uber test, as all digital businesses can learn a fair share from its outcome, and it will have an effect on how marketplace businesses and tax authorities operate while moving forward.