Payment of taxes, tax optimization and other peculiarities around the so-called platforms. sharing economy

Answers from Peter Varga on the topic of paying taxes, or the legal defectiveness of platforms called. The sharing economy can be found in several articles in Hospodárske noviny during this period. We bring you part of the interview with our managing director in this article.

How does Slovak law regulate the sharing economy? Which legislation regulates it?

As such, the sharing economy does not have its own separate, coherent legal framework. Its external and internal relations therefore fit into existing legal and fiscal frameworks. If the sharing economy is understood as two neighbours sharing a single drill, the legislation is generally only in the realm of civil relations and occasional taxation. However, the sharing economy can also be interpreted in a very expansive way, thus including, for example, the environment around existing commercial online platforms. In this case, these relationships are also governed by commercial regulations such as the Commercial Code, the Trade Licensing Act or the VAT Act.

How does the Civil Code regulate the sharing economy?

The Civil Code does not contain any institutes specifically designed for the sharing economy. In its legal grasp, we must make use of the general and existing ones. If we associate the sharing economy only with a non-commercial environment (e.g.: two neighbours sharing a drill), the Civil Code knows, for example, a share ownership, a loan agreement or a lease agreement.

What problems is Airbnb preparing for the state and officials? There are voices calling for a ban on Airbnb. How do you rate it?

If I have an apartment and I go on vacation for a month and rent it out through Airbnb, it’s basically the same sharing economy as the aforementioned drill. However, if I buy more apartments to rent them out, I’m in business. And when I run a business, I face several other regulatory pitfalls. In the case of Airbnb, it is perhaps worth mentioning the problems with the taxation of Airbnb as well as the landlords themselves, or compliance with consumer protection regulation.

In the case of Airbnb, I don’t think the problem is primarily with some backward regulation. We can probably all agree that if the guesthouse pays the taxes, the Airbnb landlord should pay them too. However, if, for example, we want to protest against consumer protection regulation because of the flexibility of Airbnb, then it is certainly necessary to look at the whole regulation conceptually and in its entirety. It has been “brainstormed” for years and by many people, so it is not enough to talk superficially about the advent of mobile applications and to talk about the sharing economy over and over again. This is absolutely devoid of any legal or logical significance in this regard. Booking.com also has an app and is just as flexible in matching supply with demand. And in this respect, a guesthouse on booking.com is the same sharing economy as an apartment on Airbnb that was bought because of Airbnb.

So it is only natural that if you do not respect the rules of the game that your competitors must respect, there will be voices calling for a ban. It is certainly not possible to see as a fair competitive environment where one competitor has 20% lower prices simply because it has no regulatory costs (e.g. it does not pay taxes). And the state may not only have a “tax problem” with this, but it may also be disturbed by the fact that it undermines its efforts to bring the economic environment closer to perfect competition.

What is the current state of taxation of accommodation sharing services such as Airbnb? Can taxpayers effectively apply tax rules to Airbnb?

From the perspective of the Slovak perception of the functioning of Airbnb, taxation has basically three levels. And in general, it’s safe to say that all of these levels are somehow glitchy in the case of Airbnb. As such, Airbnb has been criticised for not paying a fair tax on its European income – it is too tax-optimising. This is due to a combination of Ireland’s tax advantages and the wording of international tax treaties that exempt Airbnb from taxation in the country where it generates its income. The result is that income from Slovak rentals is not taxed in Slovakia and, at the end of the day, is not relevantly taxed in Ireland itself.

Another tax element is taxation at the landlord level. Unlike Airbnb as such, landlords have relatively clear tax rules and so the only problem may be that they don’t have to declare that income. And the third area is usually local taxes. Again, the landlord has to pay local taxes, but due to perhaps currently weak controls and a lack of readily available information on landlords, the payment of local taxes in practice is perhaps more on the level of a voluntary principle.

Are those who use Airbnb (or even other types of sharing economy) really “stealing” from the state, as some EU countries claim?

The concept of “stealing” can be perceived not only subjectively but also objectively. If a landlord or a taxi driver driving for Taxify does not declare income or does not pay VAT, we can probably confidently say that Slovakia is being ripped off. However, if we are talking about the tax structures of Airbnb, Uber or Taxify, the notion of “ripping off” can only be seen in a subjective context through the prism of morality and fair tax collection. These companies are legally taking advantage of existing tax-law frameworks and thus are not paying taxes at a level that perhaps a critical part of society would consider fair. Several cases have been reported in the media. It is worth noting the case of Google, which allegedly paid a tax of EUR 47.8 million on its EUR 22.6 billion revenue from Europe, the Middle East and Africa. And this can be seen as unfair not only in relation to states, but also in relation to competitors who cannot implement such structures. And, yes, it can be confirmed that European countries, the EU as a whole or the OECD have very strong reservations about companies like Airbnb, Uber, Apple or Google using tax havens like Ireland or the Netherlands. I would just remind you here that measures are now being implemented progressively at global level to make the taxation of global companies fairer. I say “on a global level” because the Slovak invention “digital tax” is in stark contradiction with international law and therefore also with the Slovak Income Tax Act.

How has the situation around Uber in Slovakia developed? Recently, the courts ruled that Uber will be banned altogether. Has anything changed?

I am not aware that anything has changed.

Do you think there is a chance that Uber will be allowed again in Slovakia? If so why? If not why not?

Unless new regulation is in place to accommodate Uber, I assume Uber will not return. But that’s just my incorrect assumptions. From a legal point of view, this is a relatively straightforward issue. The EU Court of Justice has confirmed that Uber has to adapt to our regulation of road transport in Slovakia. Uber didn’t do that, so the court preliminarily banned it. The attack on Uber in Slovakia, however, came from a side I might have expected less. The primary problem with doing business through Uber was that Uber drivers were doing business illegally. That is, unless Uber operates in accordance with the old or already new regulation, it has no reason to be “allowed”. It must be said, however, that the Taxify case demonstrates the existence of a very wide range of discretion in our courts in cases factually limiting to equality, and so anything is indeed possible.

Are any EU or US countries changing their stance on Uber? Or they continue to apply strict regulations resp. prohibitions on its use?

I confess that I don’t follow the fate of Uber in other states to any greater extent than the general consumer of internet information. Each country has its own rules of the game, and thus the approach of states to Uber as well as Uber’s approach to the relevant regulation can be quite different. But whatever it is, I don’t think it would have any significant predictive value as to how we should view Uber’s compliance/non-compliance in Slovakia. Approaches from abroad as well as Uber’s approach from abroad can only be seen as inspiration for how to potentially legislate this type of business in Slovakia. If, also on the basis of experience from abroad, a company for which the state acts feels that the existing regulation of taxi services is unfashionable, it obviously needs to be changed. However, the only reason for this cannot be the existence of a mobile app, because Hopin also has one and its drivers have a TAXI sign on their cars. Nor do I think that in a state governed by the rule of law, such illegal business or non-payment of taxes should be immune from sanctions just because the sharing economy is arbitrarily invoked.

Is there any change planned at global, European or national level in the legal regulation of the sharing economy?

I do not think that there is, and I cannot imagine that there could be, objectively, any global concept of regulating the sharing economy. The EU only legislates in areas where it has a mandate from Member States. Nor am I aware of any general initiative that aims to adopt tangible solutions for the sharing economy. And I don’t even think there’s a need to create a blanket legal framework for the sharing economy. For example, if a company has a problem with the regulation of taxis, the state can amend the Road Transport Act. If the state wants to create a regime for Uber drivers other than the binary regime, entrepreneur/non-entrepreneur, it will regulate, for example, the Commercial Code or the Income Tax Act. It would probably make our legal system more complicated, but if there is such a social or technological order, why not.