Making the income of platform workers visible.

The 'High-Level Expert Group on the Impact of the Digital Transformation of EU Labour Markets', commissioned by the EU Commission presented a report on this issue back in April 2019. Among other things, it culminated in the proposal of a 'Digital Single Window' at EU level. It has certain parallels with the 'Digital Social Security' (DSS) model, proposed by Enzo Weber but also differs in some key aspects.

On the basis of the group's report, the EU Commission had tasked researchers, Daisy Ogembo and Vili Lehdonvita from Oxford, with studying the feasibility of the concept and making relevant proposals.

The starting point for the 'Oxford Report' is the finding that platform workers are generally self-employed contractors and therefore, their compliance with tax and social security obligations is significantly lower than that of employees, for whom such deductions are made at source. Moreover, platform workers often carry out several activities within the same period, possibly in different forms of employment – not only in one country but under the legal jurisdiction of several countries. Consequently, their income may be taxable (or subject to social security contributions) in multiple countries. The situation becomes even more complex if the platform is located outside the EU.

The gaps in the collection of taxes and contributions not only give unfair competitive advantages to companies using platform work. They also produce a segment of the working population with insufficient coverage in pension insurance and other branches of social security. On the other hand, platform-mediated employment leaves a digital footprint and thus, opportunities to support appropriate taxation and payment of social security contributions.

Some EU Member States are trying to take advantage of this opportunity by requesting income data for platform workers directly from the platform operators. These countries include Estonia, Denmark and France. Their experience is the starting point for more detailed investigations and conclusions.

The main purpose of the proposed Single Digital Window is to avoid fragmentation of reporting obligations and their format, specifically: The aim is to avoid a situation, where 28 (now 27) Member States develop their own systems, formats and protocols to be followed by reporting platforms, with these possibly even being differentiated by the various recipient authorities. Whether all countries even have the resources to set up such a structure themselves is doubtful. Nevertheless, a European digital reporting system could simplify these reporting obligations. Other functions could even be considered, such as a collection agency, but this idea has not been pursued further.

Firstly, the report emphasises that the design of a digital reporting system depends on the purposes for which it is used: to reduce compliance costs for platform workers and platforms? or to combat the evasion of tax and other duties and thus, an extension of the tools available to the collection agencies?

There is also the question of experience with potential obstacles: are they technical, legal or administrative in nature? One of the arguments put forward against greater involvement of the platforms is that this could give platform workers employee status.

Data protection concerns are another problem, creating stringent requirements on cross-border data exchanges, in particular. Finally, the costs of introducing and operating an income reporting system must also be considered. At the very least, these should not be greater than the additional taxes and duties gained as a result of this process.

Probably the biggest problem is access to income data held by platforms that are not registered in their own country. In some cases, cross-border cooperation between tax authorities has proved successful, as in the case of Denmark and the Netherlands. However, the report wants to go a step further and proposes that the Member States should join forces, set up joint structures and act together in respect of non-EU countries.

In all scenarios, the problem of processing the income data obtained to determine the social security and pension contribution liability and calculate its amount, especially where self-employed persons are concerned, remains. On this point, the report blatantly criticises the often complex rules on social security for the self-employed, which it alleges are not tailored to cases of platform work. It is often more difficult to collect income data for social security purposes than for tax purposes, but this is not explained in any more detail.

As far as the technical problems are concerned, it is clear these are closely related to data protection regulations to some extent. This has an impact on identifying the platform workers. Some Member States such as Estonia have a single 'number' for all purposes. Germany, on the other hand, would be much more challenging in this respect - with additional administrative costs. Moreover, to avoid breaching the limits of data protection legislation, additional information would be needed, more than mere knowledge of the flow of money. For example, where the platform worker is resident (state(s)) – has/have the right of taxation (and the right to levy social security contributions).

Therefore, the nature and quality of the data required for a common digital reporting system is a key issue that needs to be addressed. Another critical issue remains the 'timing' of the data to be transmitted so that it is available to the competent authorities in a timely manner for the relevant accounting period.

What would the next steps be at European level? First, Member States and the tax authorities would need to agree on the main objective of a single digital reporting system: To simplify the participation and compliance costs of platforms and the people working through them, or to maximise tax and social security revenue? The former is likely to be at the expense of accuracy and the latter at the expense of simplicity and ease of use.

A further step would be a European directive obliging web-based platforms to provide relevant income data.

Even then, implementation problems remain: Who enforces the obligations in cross-border cases and by what means? By blocking the website if the rules are not followed, for instance? This question becomes particularly relevant if the platform is based in a non-EU country. Finally, the need to adapt the European data protection rules would also have to be considered. 

The report - but not this article for reasons of space - elaborates on two alternative models for setting up a uniform digital reporting system. In short:

The first option would be a decentralised network in which tax authorities of Member States cooperate with each other. This model is already used today for cross-border VAT and income taxation. The second model uses a central agency ("hub and spoke model"), which would be appointed by the Member States. The platforms would then be required to transmit all income data to said agency, which would forward it to the relevant authorities within the Member States. Such a system would be new in Europe. This would be the more appropriate model from the point of view of including platforms from non-EU countries. Most importantly, however, according to the authors of the report, the central agency could process the data in such a way that it meets the needs of the recipient country.

The authors of the report advocate the second option, a centralised system, and propose a pilot project on a voluntary basis, with core states being Denmark and Estonia. In a further step, legal foundations could then be created at European level to make the system mandatory for platform operators and workers. However, use of the system by Member States' tax and social security authorities is voluntary. Another option would be to entrust a European institution to act as the central agency, such as the newly established European Labour Authority. However, this would require a further legal basis at European level.

The report should be regarded as positive as it also looks at the collection of social security contributions. The EU Commission should continue to pursue the concept of a 'single digital reporting system'. However, there are still many hurdles to be overcome before it can be introduced, and above all, it will be important that the income data determined in this way can also be used in a meaningful way from the point of view of the German social insurance institutions.

The report is accessible here – in English.

An abridged version published by the Federal Ministry for Labour and Social Affairs (BMAS) is available here.