Co-opting digital companies into tax law enforcement

Today, The Times reported that some 38,000 online sellers registered for VAT in the UK in 2017-18, compared to 29,000 in the previous year and just 5,000 three years earlier.

Why this increase?

Since March 2018, UK legislation requires operators of online marketplaces to verify the VAT registration numbers provided by sellers operating through the marketplace. Operators may also be jointly and severally liable for any VAT due from a seller contravening VAT legislation.

In addition to these tough measures, HMRC is asking operators to sign up to a set of non-binding commitments to give sellers access to information on UK VAT obligations, provide HMRC with information on sellers' VAT compliance and act expeditiously on HMRC notifications of non-compliance. According to HMRC's published list, seven operators have signed up to these commitments. 

Given the rise in registration figures, HMRC's approach seems to be working and other countries are taking a leaf out of the UK's book: Germany has also introduced a concept of joint and several liability for German VAT and requires operators of marketplaces to collect compliance data.

These moves may be analyzed in the context of two broader trends. Whilst digitalisation and the availability of increasing data volumes should provide hitherto unthinkable opportunities to enforce tax and regulatory compliance, nation states struggle to regulate and police a borderless online world. These trends mean that states need to adapt and are increasingly likely to co-opt multinational digital enterprises in tax law and other regulatory enforcement.

This post has been cross-posted to the European Tax Blog.