Kiri

Directive proposal VAT in the digital age Deemed supplier rule

Bolt’s position

October 2023

Bolt is the leading European urban mobility platform, founded in Estonia in 2013 and operating in 24 Member States. Bolt’s main service is the intermediation of ride-hailing rides operated by drivers, who can either be licensed under local PHV (private hire vehicle) regulations or “traditional” taxi drivers.

Bolt is very concerned about the unintended consequences of a provision of the Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age, more specifically the provision inserting an article 28 a) in Directive 2006/112/EC (the “deemed supplier rule” in article 2 of the Proposal).

The Commission argues that such a rule will solve VAT inequality. In fact, it will create VAT inequality in the passenger transport sector where before there was none.

No VAT inequality in the passenger transport sector

According to the Commission’s explanatory memorandum, “The passenger transport and accommodation sectors have been explicitly identified by the study as sectors in which VAT inequality is at its most apparent” and “These issues will be solved by introducing a deemed supplier model, by which platforms will account for the VAT on the underlying supply where no VAT is charged by the supplier, thereby ensuring equal treatment between the digital and off-line sectors of short-term accommodation rental and passenger transport.”

Bolt strongly believes that for the passenger transport sector, such an assessment is unfounded. In the passenger transport sector, there is no unbalanced situation in which drivers working through digital platforms would be exempted from VAT, where those working through other means would be liable for VAT.

In the EU, all passenger transport drivers are licensed professionals, whether they work on platforms or not. Both “traditional” taxi and ride-hailing drivers are regulated in all Member States where they exist. Whether drivers are liable for VAT has nothing to do with the fact they offer their rides offline or through a platform. This depends mainly on the level of their revenues and the VAT threshold set by each Member State. The directive proposal is therefore claiming to fix an issue which does not exist.

Discrimination against digitally enabled transport booking

Far from fixing an unbalanced situation, the proposed provision would actually create distortion and unfair competition between rides offered through digital means and those hailed in the street or booked by phone. It seems odd that European tax law would actively discriminate against transport booking services using digital technology competing against those which do not. This would go against the ambition of the EU to support the development of the digital sector in Europe and would

harm digital transport booking services which allow tens of millions of European citizens to access transport services in a more efficient and safer way.

An unlevel playing field would be created between the same services, depending on how they are booked. Indeed, the very same driver could be exempted from VAT when being street hailed or booked by phone (because his/her revenues would be below VAT threshold), while his/her ride would be subject to VAT when offered through a platform. In many Member States, one should bear in mind that drivers have the possibility to be booked by digital platforms or by offline means.

Negative impact on drivers with low revenues

The proposed provision could actually harm drivers who until now have been exempted from VAT by Member State tax rules because of their low revenues. In Estonia, this represents two thirds of the drivers operating on Bolt platform. The deemed supplier rule would lead in Estonia to a 10 million euro additional VAT to be charged with a negative impact on the drivers, the passengers and on Bolt. As most ride-hailing platforms operating in the EU are still striving to make their operations economically sustainable in the long run, the cost of the additional VAT could be compensated by an increase of the platforms’ commission on the price of the ride, leading to a decrease of the drivers’ earnings through platforms. Alternatively, it could lead to an increase in the price of rides offered by drivers whose revenues are under VAT thresholds, making them less competitive which goes against the purpose of exempting revenues below a certain threshold from VAT liability.

European platforms will be harmed first

The provision would mainly impact European passenger transport platforms, as they account for the vast majority of platforms operating in the EU. Not only do they represent most ride-hailing platforms in the EU, but the impact would be greater on them compared to large non-European actors as their smaller size means they would be less able to absorb the additional costs incurred and the loss of competitiveness. The proposed rule will indeed impose a huge and expensive compliance burden on European platforms, making it even more difficult for them to compete with global giants.

Violation of VAT neutrality

Normally VAT cost is borne only by the final consumer (passenger) and remains neutral at all stages of the value chain for a taxable person doing business. If an entrepreneur is non-VAT liable (below the registration threshold), he/she does not have the right to input VAT deduction but at the same time does not have to charge output VAT. The Directive proposal would lead to the fact that non-VAT liable drivers would likely have to bear the burden of VAT twice: -they will be charged VAT by the platform on the facilitation services (without right of VAT deduction) -and very likely, the additional VAT charged by the platform (as deemed supplier) on the ride, will be indirectly transferred to them, if not absorbed by the passenger (an increase of rides’ prices).

Bolt therefore calls for the removal of passenger transport from the legislative provision as it will create distortion when there was none and discriminate against digital services. Equally important, it will mainly hit European actors and could eventually harm the drivers who have the lowest revenues.

PWD update October 2023

Key points:

● Several provisions go significantly beyond the political agreement reached by Member States at Council in June. The current compromise would effectively automatically reclassify all platform workers as employees, which is the opposite of the previous political agreement.

● Several provisions can blunt the effect of national employment laws and customs on the application of the directive. Meanwhile, exceptions on where the directive does not apply for social, tax, law enforcement issues are not clearly defined.

Our main asks are that:

● The Council negotiators stay within the limits outlined by June’s general approach. The final Directive should neither lead to automatic reclassification of all platform workers, nor ban the use of algorithms in platform work.

● Allied Member States should encourage the Spanish Council Presidency not to seek a new negotiating mandate at the meeting of 27/10 when Member State ambassadors to the EU will meet (COREPER) to discuss the file.

● Proper legal advice is taken at every stage of this process to clarify the effect of compromise provisions on existing national laws. Clear, written guidance by the Council’s and the Commission’s legal service can ensure a workable Directive that does not erode national laws and competences, or overwhelm local and national enforcement.

Spain - which has the Council rotating Presidency until the end of 2023 - is pushing EU countries to accept a system leading to automatic reclassification. This clearly exceeds the limits of the mandate agreed in June by Member States within the Council.

The recent “compromise” put forward by the European Parliament and warmly received by the Council Presidency, goes beyond the well defined objective to keep self-employment a viable option:

● In practice, any ride-hailing driver or delivery courier who works through a platform that uses a rating system, enables payments, or insists on appropriate standards would be considered as an employee under the Directive.

● The ‘indicators’ currently discussed are designed in a way that makes it practically impossible for workers to remain self employed. A more balanced approach is possible through the criteria agreed upon in the Council’s text (requiring 3/7 criteria, an examination of the facts and suspensive effect).

● This change of employment status would not only be automatic, but also apply on tax, social security and law enforcement issues. This would erode the procedural autonomy of Member State Courts, cause significant administrative burdens and prolong cases by reforming largely irrelevant points of law.

● Platforms cannot rebut the presumption unless they show that the same criteria (which are impossible not to meet) do not apply. And so, even if a platform worker is legally self employed under national laws, the presumption automatically becomes reclassification.

● This effective reclassification could happen without a complaint from the person in question. A Trade Union, or a labour inspector could trigger the presumption independently, as it has happened in countries where such a system exists.

This goes beyond the Council’s position which aimed to protect genuine self-employment. Therefore, the Council Presidency should stay within clearly defined

red lines.

The current compromise can both undermine clearly defined national competences, and erode well-functioning existing laws

● Council Presidency and Parliament both want to require national labour authorities to apply the presumption, removing their discretionary power (as defined in the Council text) to not apply it when it is clear that national law does not indicate the existence of an employment relationship.

● Council Presidency and Parliament both want the presumption to apply automatically when a person or a trade union launches a proceeding, without reference either to criteria, Member State law or the facts of the case.

● Council Presidency and Parliament want to set arbitrary deadlines for rebutting the presumption in EU law, bypassing the procedural autonomy of Member State courts and creating a significant administrative burden on national legal systems.

● Council Presidency and Parliament want the rebuttal to require that the conditions for the presumption are not met, making the entire process determined by European rather than national employment criteria.

● In addition, existing laws protecting passengers and drivers, and improving working conditions by promoting collective agreements between platforms and workers are in peril, as the derogations separating them from the effect of the directive may be sacrificed for the sake of a compromise.

● Even so, many of the recitals which protect national competences still remain open to legal interpretation, within a highly litigious process. Meanwhile the Commission avoids providing reassurances that national sectoral legislation will not need to change following the adoption of the directive.

Member States need legal certainty on how the current text will interplay with national laws, and legal reassurances that they can continue to exercise their competence. The

Council Presidency should ask for clear written guidance from the Council’s legal service, or the Commission on that matter.

A blanket ban on data processing will make the platform economy less transparent and less safe

● Leveraging data is part of the platform economy and the future of work. According to the Council’s political agreement in June, all platform workers should have the right to put

their data to use. Consent-based processing, in accordance with the GDPR, can ensure more trust and transparency.

● The Council Presidency is ready to compromise with the Parliament, accepting a blanket ban on automated systems, without taking into account national specificities. Definitions on what constitutes automated decision making will be set at an EU level, and are currently broad and open to interpretation.

● The unintended consequence is that several innovative features increasing trust within the platform economy would no longer be possible. This ranges from data-driven fraud prevention to an expedited handling of a workers complaint. Even safety features, such as sharing audio recordings to protect both drivers and passengers would be a thing of the past.

The final rules on Algorithmic Transparency should remain proportionate and ultimately serve to improve transparency, safety and trust in the platform economy. Rules on

algorithms should be consistent with existing and upcoming rules on platforms, trade secrets, and artificial intelligence.

Directive proposal VAT in the digital age Deemed supplier rule

Bolt’s position

October 2023

Bolt is the leading European urban mobility platform, founded in Estonia in 2013 and operating in 24 Member States. Bolt’s main service is the intermediation of ride-hailing rides operated by drivers, who can either be licensed under local PHV (private hire vehicle) regulations or “traditional” taxi drivers.

Bolt is very concerned about the unintended consequences of a provision of the Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age, more specifically the provision inserting an article 28 a) in Directive 2006/112/EC (the “deemed supplier rule” in article 2 of the Proposal).

The Commission argues that such a rule will solve VAT inequality. In fact, it will create VAT inequality in the passenger transport sector where before there was none.

No VAT inequality in the passenger transport sector

According to the Commission’s explanatory memorandum, “The passenger transport and accommodation sectors have been explicitly identified by the study as sectors in which VAT inequality is at its most apparent” and “These issues will be solved by introducing a deemed supplier model, by which platforms will account for the VAT on the underlying supply where no VAT is charged by the supplier, thereby ensuring equal treatment between the digital and off-line sectors of short-term accommodation rental and passenger transport.”

Bolt strongly believes that for the passenger transport sector, such an assessment is unfounded. In the passenger transport sector, there is no unbalanced situation in which drivers working through digital platforms would be exempted from VAT, where those working through other means would be liable for VAT.

In the EU, all passenger transport drivers are licensed professionals, whether they work on platforms or not. Both “traditional” taxi and ride-hailing drivers are regulated in all Member States where they exist. Whether drivers are liable for VAT has nothing to do with the fact they offer their rides offline or through a platform. This depends mainly on the level of their revenues and the VAT threshold set by each Member State. The directive proposal is therefore claiming to fix an issue which does not exist.

Discrimination against digitally enabled transport booking

Far from fixing an unbalanced situation, the proposed provision would actually create distortion and unfair competition between rides offered through digital means and those hailed in the street or booked by phone. It seems odd that European tax law would actively discriminate against transport booking services using digital technology competing against those which do not. This would go against the ambition of the EU to support the development of the digital sector in Europe and would

harm digital transport booking services which allow tens of millions of European citizens to access transport services in a more efficient and safer way.

An unlevel playing field would be created between the same services, depending on how they are booked. Indeed, the very same driver could be exempted from VAT when being street hailed or booked by phone (because his/her revenues would be below VAT threshold), while his/her ride would be subject to VAT when offered through a platform. In many Member States, one should bear in mind that drivers have the possibility to be booked by digital platforms or by offline means.

Negative impact on drivers with low revenues

The proposed provision could actually harm drivers who until now have been exempted from VAT by Member State tax rules because of their low revenues. In Estonia, this represents two thirds of the drivers operating on Bolt platform. The deemed supplier rule would lead in Estonia to a 10 million euro additional VAT to be charged with a negative impact on the drivers, the passengers and on Bolt. As most ride-hailing platforms operating in the EU are still striving to make their operations economically sustainable in the long run, the cost of the additional VAT could be compensated by an increase of the platforms’ commission on the price of the ride, leading to a decrease of the drivers’ earnings through platforms. Alternatively, it could lead to an increase in the price of rides offered by drivers whose revenues are under VAT thresholds, making them less competitive which goes against the purpose of exempting revenues below a certain threshold from VAT liability.

European platforms will be harmed first

The provision would mainly impact European passenger transport platforms, as they account for the vast majority of platforms operating in the EU. Not only do they represent most ride-hailing platforms in the EU, but the impact would be greater on them compared to large non-European actors as their smaller size means they would be less able to absorb the additional costs incurred and the loss of competitiveness. The proposed rule will indeed impose a huge and expensive compliance burden on European platforms, making it even more difficult for them to compete with global giants.

Violation of VAT neutrality

Normally VAT cost is borne only by the final consumer (passenger) and remains neutral at all stages of the value chain for a taxable person doing business. If an entrepreneur is non-VAT liable (below the registration threshold), he/she does not have the right to input VAT deduction but at the same time does not have to charge output VAT. The Directive proposal would lead to the fact that non-VAT liable drivers would likely have to bear the burden of VAT twice: -they will be charged VAT by the platform on the facilitation services (without right of VAT deduction) -and very likely, the additional VAT charged by the platform (as deemed supplier) on the ride, will be indirectly transferred to them, if not absorbed by the passenger (an increase of rides’ prices).

Bolt therefore calls for the removal of passenger transport from the legislative provision as it will create distortion when there was none and discriminate against digital services. Equally important, it will mainly hit European actors and could eventually harm the drivers who have the lowest revenues.

PWD update October 2023

Key points:

● Several provisions go significantly beyond the political agreement reached by Member States at Council in June. The current compromise would effectively automatically reclassify all platform workers as employees, which is the opposite of the previous political agreement.

● Several provisions can blunt the effect of national employment laws and customs on the application of the directive. Meanwhile, exceptions on where the directive does not apply for social, tax, law enforcement issues are not clearly defined.

Our main asks are that:

● The Council negotiators stay within the limits outlined by June’s general approach. The final Directive should neither lead to automatic reclassification of all platform workers, nor ban the use of algorithms in platform work.

● Allied Member States should encourage the Spanish Council Presidency not to seek a new negotiating mandate at the meeting of 27/10 when Member State ambassadors to the EU will meet (COREPER) to discuss the file.

● Proper legal advice is taken at every stage of this process to clarify the effect of compromise provisions on existing national laws. Clear, written guidance by the Council’s and the Commission’s legal service can ensure a workable Directive that does not erode national laws and competences, or overwhelm local and national enforcement.

Spain - which has the Council rotating Presidency until the end of 2023 - is pushing EU countries to accept a system leading to automatic reclassification. This clearly exceeds the limits of the mandate agreed in June by Member States within the Council.

The recent “compromise” put forward by the European Parliament and warmly received by the Council Presidency, goes beyond the well defined objective to keep self-employment a viable option:

● In practice, any ride-hailing driver or delivery courier who works through a platform that uses a rating system, enables payments, or insists on appropriate standards would be considered as an employee under the Directive.

● The ‘indicators’ currently discussed are designed in a way that makes it practically impossible for workers to remain self employed. A more balanced approach is possible through the criteria agreed upon in the Council’s text (requiring 3/7 criteria, an examination of the facts and suspensive effect).

● This change of employment status would not only be automatic, but also apply on tax, social security and law enforcement issues. This would erode the procedural autonomy of Member State Courts, cause significant administrative burdens and prolong cases by reforming largely irrelevant points of law.

● Platforms cannot rebut the presumption unless they show that the same criteria (which are impossible not to meet) do not apply. And so, even if a platform worker is legally self employed under national laws, the presumption automatically becomes reclassification.

● This effective reclassification could happen without a complaint from the person in question. A Trade Union, or a labour inspector could trigger the presumption independently, as it has happened in countries where such a system exists.

This goes beyond the Council’s position which aimed to protect genuine self-employment. Therefore, the Council Presidency should stay within clearly defined

red lines.

The current compromise can both undermine clearly defined national competences, and erode well-functioning existing laws

● Council Presidency and Parliament both want to require national labour authorities to apply the presumption, removing their discretionary power (as defined in the Council text) to not apply it when it is clear that national law does not indicate the existence of an employment relationship.

● Council Presidency and Parliament both want the presumption to apply automatically when a person or a trade union launches a proceeding, without reference either to criteria, Member State law or the facts of the case.

● Council Presidency and Parliament want to set arbitrary deadlines for rebutting the presumption in EU law, bypassing the procedural autonomy of Member State courts and creating a significant administrative burden on national legal systems.

● Council Presidency and Parliament want the rebuttal to require that the conditions for the presumption are not met, making the entire process determined by European rather than national employment criteria.

● In addition, existing laws protecting passengers and drivers, and improving working conditions by promoting collective agreements between platforms and workers are in peril, as the derogations separating them from the effect of the directive may be sacrificed for the sake of a compromise.

● Even so, many of the recitals which protect national competences still remain open to legal interpretation, within a highly litigious process. Meanwhile the Commission avoids providing reassurances that national sectoral legislation will not need to change following the adoption of the directive.

Member States need legal certainty on how the current text will interplay with national laws, and legal reassurances that they can continue to exercise their competence. The

Council Presidency should ask for clear written guidance from the Council’s legal service, or the Commission on that matter.

A blanket ban on data processing will make the platform economy less transparent and less safe

● Leveraging data is part of the platform economy and the future of work. According to the Council’s political agreement in June, all platform workers should have the right to put

their data to use. Consent-based processing, in accordance with the GDPR, can ensure more trust and transparency.

● The Council Presidency is ready to compromise with the Parliament, accepting a blanket ban on automated systems, without taking into account national specificities. Definitions on what constitutes automated decision making will be set at an EU level, and are currently broad and open to interpretation.

● The unintended consequence is that several innovative features increasing trust within the platform economy would no longer be possible. This ranges from data-driven fraud prevention to an expedited handling of a workers complaint. Even safety features, such as sharing audio recordings to protect both drivers and passengers would be a thing of the past.

The final rules on Algorithmic Transparency should remain proportionate and ultimately serve to improve transparency, safety and trust in the platform economy. Rules on

algorithms should be consistent with existing and upcoming rules on platforms, trade secrets, and artificial intelligence.