Taxing Uber

Abstract

Sharing economy has disrupted not only labor or competition law but also tax law. With the proliferation of various online sharing platforms, enabled by technological advances, classical work organizations that usually appeared in the form of medium or large companies, as an expression of economic vertical integration, now started to dissipate into a cloud of self-employed entrepreneurs gathered around one or several suppliers of labor—the platforms. These suppliers of labor claim to be simple intermediaries, putting into contact individuals seeking and offering services, often by using their own idle assets. Value is thus created through the interaction of many dispersed individuals, rather than by a single centralized entity. As will be explained in this chapter, there are currently not only labor law incentives, but also tax incentives, to structure businesses in the way Uber and other “gig” entrepreneurs have done. Countries, on the other hand, are facing a drop in tax collection of indirect taxes (VAT/GST), as well as direct taxes (withholding taxes or payroll taxes) caused by the increasing quantity of individuals taking part in this new form of economy. Alongside these specific problems related to the new form of work organization used by Uber and other online sharing platforms, there is the issue, albeit not specific solely to sharing economy, of tax avoidance schemes used by the platform itself. Unlike the traditional intermediary businesses, Uber and other similar sharing platforms (such as AirBnB) which rely heavily on the use of an intellectual property (IP), in this case the Uber application, can easily relocate their profits to low-tax jurisdictions, leaving high-tax jurisdictions where their income is effectively being earned, without their fair share of tax. These circumstances also create an increasingly unfair market competition between the “gig” entrepreneurs and the participants of the traditional “brick-and-mortar” economy which remain under the scope of the existing tax rules, without the possibility to dislocate or morcellate their businesses as the digital economy entrepreneurs are able to do. The following Chapter will thus focus on the questions regarding the tax liability of Uber—both the company itself and individual Uber drivers.