Better conditions for growth and correct tax payments in the sharing and platform economy
The sharing and platform economy provides new opportunities for growth and innovation among private individuals and supports better socio-economic exploitation of household activities.
In the sharing and platform economy, Danes are given greater freedom of choice and new opportunities for earning money, while at the same time creating more competition on the market for the benefit of users.
However, the activities in the sharing and platform economy entail a line of new challenges to tax control among other things. It is therefore important to establish a well-functioning market for the new economy, where residents of Denmark who are active in the sharing and platform economy, pay proper tax and where there is clarity about the tax rules to be followed by citizens.
This law implements the Government, the Danish People’s Party, the Social Democrats’ and the Social Liberal Party’s Agreement on better conditions for growth and proper payment of taxes in the sharing and platform economy that include new and changed basic deductions for the sharing economic income.
The goal of the law is to make sure that the Danes who participate in the sharing and platform economy pay the correct tax and to make sure that the regulation regarding income from sharing and platform economy is clear to the citizens involved.
The law contains new and amended basic deductions in three areas.
Firstly, the parties to the agreement have sought to strengthen the incentives for renting out a private home through a third party (a digital platform or an agency) who report the revenues to the tax authorities. This is supported by raising the schematic basic allowance for the letting of second homes where there is reporting, from DKK 21.900 to DKK 40.900 (2019 level) from 2021, where the reporting can be done by a third party.
Secondly, the parties to the agreement have sought to strengthen the incentive for short-term rent to be rented through a third party reporting to the tax authorities. The law also aims towards simplifying the rules governing the taxation of letting of all annual dwellings part of the year and to simplify the rules for renting a part of an all-year dwelling.
A schematic allowance of DKK 28.000 shall therefore be made conditional upon the submission of information by third parties to tax authorities. In addition, a new schematic allowance of DKK 11.000 is introduced through the letting of all-year-round dwellings, where the revenues are not reported by a third party. This rule corresponds to the rules in the case of letting of second homes. For 2018, 2019 and 2020 there will however be no requirement of third party-reporting to receive the higher allowance.
In order to simplify the regulation, the tax rules governing the letting of all-year-round dwellings part of the year or the letting of part of an all-year dwelling will be broadly similar to those currently applied in the letting of second homes. This is a flat-rate allowance, which varies depending on whether there is an alert and where only a part of the excess rental income is taxed.
In addition, the law prescribes that only 60 pct. of the excess income besides flat-rate allowance is taxed. This rule is the same as the one currently applying to the taxation of income on the letting of second homes. Similarly, the income of all landlords will be taxed as capital income in accordance with the rules applicable to owners of second homes.
Thirdly, the aim of the law is to make it more attractive for private individuals to rent out their cars, boats and caravans, etc. This is achieved by easing the administrative burden linked to the letting. The law introduces a basic allowance of DKK 10.000 on the income of natural persons from renting passenger cars, boats and caravans.
By applying a basic allowance, it becomes administratively more straightforward for persons who make limited use of the lease of their assets, as this does not require an estimate of actual costs and loss of value. Letting that takes place in the course of a professional activity is excluded from this deduction as the proposed deduction provides an incentive for private individuals to participate in the sharing and platform economy.
Digital reporting solution
In order to make it attractive for platforms to report voluntarily, and to make it attractive for users to use voluntary solutions, a digital reporting solution should be developed. As a result, users of platforms that voluntarily report the revenue of users to the tax authorities, will automatically have their revenue data reported to the tax authorities.
The digital reporting solution is not expected to be fully developed before 2021, which is the reason why the conditions regarding reporting do not apply before 2021.
The above actions, which support better conditions for growth and correct tax payments in the deregulated and platform economy, demonstrate the effective application of a number of the principles of digital-ready legislation. These will be described in more detail below. Each example starts with a brief introduction to the content of the principle in question.
Principle #1 on simple and distinct rules
Principle number one provides that, where possible, legislation should be simple and distinct so as to be easier to manage and to contribute to a more uniform administration that can be digitally supported.
Under this law, the rules on the letting of all-year dwellings and the letting of part of an all-year dwelling are adjusted such that these rules are more in keeping with the regulation of second homes. The regulation is made simpler and easier to manage for the benefit of the public administration and for the benefit of citizens wishing to rent out their all-year dwelling.
Furthermore, the introduction of flat-rate allowances for all-year-dwellings and car-rentals etc. also contributes to the clarity and distinction of the regulation.
Principle #7 legislation should prevent fraud and errors
Principle number seven requires legislation to be designed in such a way as to prevent fraud and allow for efficient control, which can be supported digitally.
The law provides an incentive to report the letting of second homes, all-year-dwellings, cars, boats and caravans through the allocation of deductions. In this way it is ensured that in almost every case there is a clear advantage of using third parties, that report to the tax authorities. Thus, the legislation demonstrates how incentive structures can effectively prevent fraud and error.
Additionally the rental platforms are supported by the possibility of reporting users’ revenues to the tax authorities through the creation of a digital reporting solution. A digital reporting option makes it more attractive and easier to report to the authorities, which supports a better means of effective control and prevention of fraud in accordance with principle number seven.
Effects and consequences
The law entails administrative costs for the Danish Tax Agency for the development of a new digital transmission solution for platforms in the sharing economy.
Among other things, a solution must be developed for unique user identification and a receiver solution (database) for storage and quality assurance of data. In addition, the law provides administrative expenditures for the tax agency to strengthen tax control and strengthen the guidance targeted at companies and citizens actively engaging in the sharing economy.
The law on better conditions for growth and correct tax payment in the sharing and platform economy is a good example of how legislation can be formulated in view of clear and simple rules as prescribed by principle number one.
To this end, the law demonstrates how the establishment of positive incentives for reporting to tax authorities and the creation of a digitally supported reporting solution contribute to effective control and prevention of fraud in accordance with principle number seven.