TAXATION OF PEER-TO-PEER (P2P) FIRMS

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Abstract
The digital economy and peer-to-peer (P2P) businesses have grown at amazing rates, together with the perception that it they are far less regulated and taxed than traditional types of business; transaction costs have been eliminated. The rapid explosion of P2P platforms in the hospitality and tourism sectors has raised questions about whether these new entrants enjoy a tax-advantage if compared with traditional businesses, violating the principle of tax neutrality.

The digitalisation of the economy represents a challenge for policy makers that need to radically change their rules, and behaviour in order to achieve their goals (i.e., competition, redistribution, efficiency, etc.).
The Peer-To-Peer (P2P) economy can be described as a collection of virtual marketplaces that connect individuals looking to trade goods and services with one another through digital platforms. On one side, there are buyers, who want specific goods or services and, on the other, the sellers that own the good to be sold (or rented) or control the assets needed to provide the service. The definition of the P2P economy remains open; new digital P2P activities like the “sharing economy” and the “gig economy” can be appropriate, but partial.

Table 1. Examples of Peer-to-Peer (P2P) platforms across sectors (IMF 2017 p.59)
SECTOR                                                          P2P PLATFORMS
Delivery                                                           Deliveroo, Instacart, Postmates
Digital Currencies                                              Bitcoin, Ethereum
Financial services                                               Funding Circle, Lending Club, Kickstarter, Prosper, SoFi
Retail business                                                  Amazon, Craigslist, eBay, Etsy
Software-, Knowledge-, and Media-Sharing           Apple iTunes, Coursera, Dropbox, Wikipedia
Professional Services                                          Fiverr, Freelancer, Taskrabbit, Thumbtack, Upwork
Traveler Accommodation                                   Airbnb, Flipkey, Homeaway
Transit and Ground Passenger Transportation       BlaBlaCar, Careem, Didi Chuxing, Lyft, Ola, Uber

The digital economy and peer-to-peer (P2P) businesses have grown at amazing rates, together with the perception that it they are far less regulated and taxed than traditional types of business (G20 2019). This can distort competition, giving P2P an unfair advantage over competing businesses in the same sectors; at the same time, they have positive effects in the market, since thy put pressure on old businesses, enhancing efficiency. Whether P2P economy users are “subject to lower taxation - because of preferential rates or simply underreporting of income -government tax revenues may be at risk, especially if other more tax-rich activities are being displaced. At the same time, it is possible that this new way of doing business is formalizing activities in certain sectors, bringing them within reach of the regulatory and tax authorities” (IMF 2017, p. 58).
Innovation in the way markets work is not a recent event, but what distinguishes P2P businesses is the technologies that allows individuals to barter. Transaction costs have been eliminated, but P2P also circumvented certain rules in traditional businesses.
The rapid explosion of P2P platforms in the hospitality and tourism sectors has raised questions about whether these new entrants enjoy a tax-advantage if compared with traditional businesses, violating the principle of tax neutrality. Many cities in the State of California (U.S.A.) have been trying to regulate this new business, without making it illegal, but compensating for tax-advantage and guaranteeing safety and quality.
In Europe some States / Regions have introduced regulations aimed at limiting the phenomenon without banning it.
The ride-sharing industry has been another very important area of public interventions; traffic represents a source of inefficiency in large cities worldwide, and the question of whether drivers are employees or self-employed has been a source of controversy in Europe and in the U.S.A.. It can have important implications for the burden of tax, as well as for social insurance and benefits. The city of London in the U.K. has regulated the ride-sharing business such as drivers are employees.  The European High Court of Justice (2017) has ruled that individual states must regulate the phenomenon;; in some areas in Europe, such as Bulgaria, the ride-sharing service is banned. In Italy the regulation is municipal and there is the obligation to license the ride-sharing service, in compliance with the EU ruling.
The growth of commercial platforms like Amazon, Alibaba and Ebay constitute a certain threat to public authorities especially in Europe and the U.S., since these businesses are mostly located in foreign countries, as legal entities, and then do not pay corporate taxes, are not subject to strict labour market rules, and negatively contribute on employment. Traditional commercial places (shops, malls and stores) do pay corporate taxes, and are subject to strict labour market rules, thus suffering of unfair competition.  Governments have become aware of the need to clarify tax obligations for users of the P2P economy with some having already issued specific guidance (G20 2019). They have also recognized the potential benefits of getting access to and using the large amount of information held by digital platforms for enhancing compliance (Taxation and Digitalization).
P2P business have some common characteristics; the first is the low barriers to entry that allows buyers and sellers to switch roles easily and quickly. The second is the different degrees of control over users; some platform select sellers, and impose strict codes of conduct. The third is the revenue-generating model based on commissions (fixed or variable) ranging from 1-2 percent for lending to up to 20 percent for transportation network companies, and with more than 85 percent of the value of transactions facilitated received by the seller.
P2P business are global, but the largest are located in Asia (AliBaba and DiDiChuXing). Global platforms, like Amazon and Ebay have been replicate locally in some countries, to satisfy certain necessities (e.g.  in the Middle East and in South America). The number of users and the dimension of transaction/income are only anecdotal (IMF 2017, p.61).
The effect of P2P business on traditional activities, like transport services and hotels, is complex to measure, but some authors estimate a loss of 8-10% revenue as incumbents are forced to lower prices not to loose market's shares (more details are available in the IMF report published in 2017).
The G20 has tried to define common principles that define the taxation mechanisms of these businesses in many meetings; some countries, including European ones, are introducing measures aimed at increasing the revenue, often null, that comes from these exchange platforms; these policies, however, are implemented in an uncoordinated manner and constitute economic barriers to trade, to business. In the immediate future it is hoped that the G20 will be able to define a shared fiscal policy to balance the revenue; however, this policy must be accompanied by an increase in digital literacy for users, life-long learning and the use of new technologies in education and the world of work.
The G20 has tried to define common principles that define the taxation mechanisms of these businesses in many meetings; some countries, including European ones, are introducing measures aimed at increasing the revenue, often null, that comes from these exchange platforms; these policies, however, are implemented in an uncoordinated manner and constitute economic barriers to trade, to business. In the immediate future it is hoped that the G20 will be able to define a shared fiscal policy to balance the revenue; however, this policy must be accompanied by an increase in digital literacy for users, life-long learning and the use of new technologies in education and the world of work.


References
G20 (2019) Ministerial Meeting on Trade and Digital Economy Recommendations for Promoting Innovation, Digital Technologies, and Trade. 16 May 2019.
https://www.digitaleurope.org/resources/2019-g20-ministerial-meeting-on-trade-and-digital-economy-recommendations-for-promoting-innovation-digital-technologies-and-trade/
International Monetary Fund (IMF) 2017. Digital revolutions in public finance. Edited by Sanjeev Gupta, Washington, DC, ISBN 9781484315224.