Chapter 3 – Information reporting and exchange

• Why does Inland Revenue need more regular income information?
• The OECD’s model reporting rules for digital platforms
• How the model rules work
• Implementing the extended model rules in New Zealand
• How the information could be used in New Zealand
• Timing and different options to address this
• Attributing calendar-year income to the New Zealand tax year
• Partial pre-population
• Implications for digital platforms that are tax resident in New Zealand
• Optional de minimis exclusion for small New Zealand resident digital platforms
• An alternative approach

3.1 Access to accurate and timely income information is crucial for the smooth and efficient running of the tax system. It allows Inland Revenue to check that people are paying the appropriate amount of tax and reduce opportunities for avoidance.

3.2 This chapter outlines proposals to increase Inland Revenue’s visibility over the activities of sellers on digital platforms in the gig and sharing economy. Inland Revenue does not currently receive regular information from digital platforms about sellers’ activities on digital platforms. However, Inland Revenue can, and has, obtained information from digital platforms using its information collection powers. This approach lacks transparency and is inefficient for Inland Revenue and digital platforms, who may need to spend considerable time and energy to comply with an information request.

3.3 There is therefore an opportunity to improve the framework under which Inland Revenue accesses information held by digital platforms, improving transparency and making the model more efficient for digital platforms and for Inland Revenue. The benefits of a more transparent information reporting framework include providing Inland Revenue with more consistent access to information about sellers’ activities on digital platforms (and this information could be used by Inland Revenue to support tax compliance, such as by pre-populating sellers’ income tax returns), and improved certainty and lower compliance costs for digital platforms that are providing the information.

3.4 As noted in chapter 2, the OECD have developed rules that would help achieve these objectives. This chapter seeks public feedback on whether New Zealand should implement the rules developed at the OECD which would enable Inland Revenue to receive regular income information from digital platforms about their sellers’ activities and incomes. This chapter also consults on how the information could be used.

3.5 If implemented, the proposals discussed in this chapter would affect:

• New Zealand resident digital platforms: They would be required to provide Inland Revenue with information about sellers’ incomes earned on those platforms by both New Zealand tax residents and non-residents.
• Sellers on digital platforms: This includes both resident and non-resident sellers, as information provided by digital platforms could be included in sellers’ income tax returns, which would reduce their compliance costs and reduce possibilities for motivated sellers to conceal income information from Inland Revenue. Information reported by New Zealand digital platforms to Inland Revenue that related to non-resident sellers’ activities could also be shared with that sellers’ tax authority.
• Inland Revenue: Under the OECD rules, Inland Revenue would be required to obtain information from New Zealand resident digital platforms, and then share relevant information about non-resident sellers with their tax authority. Inland Revenue would also use the information collected (and received) in its tax administration functions.

Why does Inland Revenue need more regular income information?

3.6 Inland Revenue does not receive regular information on income earned by sellers in the sharing economy like it does for those who earn salary and wages or investment income. As the introduction to this chapter mentions, Inland Revenue can obtain information from digital platforms using its information collection powers but this is cumbersome and inefficient.

3.7 The Government considers that there is currently a lack of transparency because tax reporting systems do not regularly or systematically capture information about transactions in this part of the economy. This transparency gap means that Inland Revenue often lacks information on the incomes earned by sellers on digital platforms, which increases the risk that sellers may not be paying the correct amount of tax.

3.8 The gig and sharing economy is expected to continue growing, taking a larger share of the economy. As such, failing to have adequate information on this sector could jeopardise the tax base. It is therefore important to increase Inland Revenue’s visibility over sellers’ activities on digital platforms in the gig and sharing economy. This increased visibility could enable Inland Revenue to pre-populate sellers’ income tax returns, which would reduce compliance costs for sellers, and improve general compliance with income tax obligations more broadly.

The OECD’s model reporting rules for digital platforms

3.9 The OECD worked with digital platforms and member jurisdictions to develop a standardised approach to information reporting and information exchange involving digital platforms. There are two main objectives of the OECD developed rules.

• Ensure that sellers on digital platforms and tax authorities have access to relevant income information to support tax compliance. The model rules require digital platforms to provide tax authorities and sellers with information on sellers’ income earned through digital platforms. Access to this information helps sellers to comply with their own tax obligations and can also be used by tax authorities to enforce tax compliance and ensure that seller activities do not go undetected.
• Create a standardised approach to information collection for digital platforms. A multilateral, standardised information exchange would result in reduced compliance costs for digital platforms compared with unilateral rules designed individually by jurisdictions. If jurisdictions designed their own rules, the variations between jurisdictions would result in increased compliance costs for digital platforms that had to design their information systems to satisfy the requirements designed by each individual jurisdiction.

3.10 The rules were published by the OECD in July 2020. Broadly, the rules require digital platforms to collect and report information on the income earned by sellers on digital platforms in the gig and sharing economy. The areas covered include income earned through personal services and accommodation.

3.11 The exchange of information with other jurisdictions will primarily be conducted under the Multilateral Convention for Mutual Administrative Assistance in Tax Matters (the Multilateral Convention). New Zealand signed the Multilateral Convention in 2012, and it currently extends to 144 jurisdictions. Article 6 of the Multilateral Convention authorises automatic programmes of exchange of information at a high level, leaving the specific details of such exchanges to be set out in a subsidiary instrument. The subsidiary instrument developed by the OECD for the gig and sharing economy is the Multilateral Competent Authority Agreement on Automatic Exchange of Information on Income Derived through Digital Platforms (the DPI MCAA).

3.12 Shortly after the OECD published their model rules, the European Commission published a directive on reporting obligations for digital platform operators that led to the Council of the European Union formalising a directive known as DAC7. This directive builds on the OECD rules and requires all digital platforms that are active in the EU to report information about sellers to the relevant tax authority. The information that is required to be reported under DAC7 is broader than the model rules and covers the sale of goods and vehicle rental (in addition to personal services and accommodation as required by the model rules). EU member states have until 31 December 2022 to implement the DAC7 amendments into their national tax laws and the directive will apply from 1 January 2023 throughout the EU.

3.13 In June 2021, the OECD moved to complement the broader scope of DAC7 by including an optional module in the Multilateral Competent Authority Agreement on Automatic Exchange of Information on Income Derived through Digital Platforms (the DPI MCAA) to cover jurisdictions with an interest in information relating to the sale of goods and vehicle rental (known as the extended model rules).

How the model rules work

3.14 Jurisdictions which implement the rules are required to collect certain information about the activities of sellers on digital platforms that are tax resident in their country. This information must then be shared with tax authorities of other countries that have also implemented the rules to the extent that the information relates to persons resident in that jurisdiction. Tax authorities will also receive information from other jurisdictions’ tax authorities where the rules have been implemented. The model rules provide a standardised reporting framework and information exchange.

Figure 1: An example of the information flows under the model rules

3.15 The information could be used in several ways to help sellers on digital platforms comply with their tax obligations. For example, the data provided to tax authorities will provide them with information that could be used to determine what, or whether, income should be included in an income tax return, and this would provide a good indication as to whether sellers should be registered for GST.

3.16 This way of operating supports the standardisation of reporting rules between jurisdictions and makes it easier for digital platforms to comply with their reporting obligations across jurisdictions. This is because information is only required to be disclosed to one tax authority rather than several. This also means that digital platforms will follow largely similar processes for gathering and reporting information on transactions, and means that digital platforms can avoid unnecessary compliance costs which might arise if each jurisdiction implemented its own rules with different data requirements and due dates.

3.17 The more jurisdictions that seek to implement the OECD rules, the more effective the rules will operate. This is because digital platforms are tax resident in various jurisdictions, and tax authority will have greater access to information the more jurisdictions seek to implement the rules and exchange information.

3.18 At a basic level, the model rules require digital platforms to provide the following information about each reportable seller:

• The name, address, date of birth, and taxpayer identification number (TIN) – for New Zealand residents, the TIN would be their IRD number.
• The total consideration paid or credited during each quarter of the reportable period. The rules define the reportable period as being a calendar year.
• For the rental of immovable property, the address of that property.

3.19 In terms of timing, the model rules require digital platforms to provide information about a calendar year to the tax authority in the country that they are tax resident by the end of February following the end of that calendar year. The receiving tax authority would then have until the end of April to exchange that information with other tax authority. This reported information is required to be broken down into quarterly periods.

3.20 The rules also manage circumstances where there could be multiple digital platforms that have the same income information on sellers. These rules broadly allow a nominated digital platform to be the responsible platform for reporting this income information, and prevents digital platforms that operate in multiple jurisdictions from having to report the same income information more than once.

Implementing the extended model rules in New Zealand

3.21 The Government is consulting on whether New Zealand should implement the OECD’s extended model rules rather than developing its own rules. The model rules would require changes to New Zealand’s tax laws to require New Zealand tax resident digital platforms to provide Inland Revenue with information about sellers’ incomes earned through that platform for personal services, accommodation rental, the sale of goods, and vehicle rental. Inland Revenue would also receive information from other tax authorities about New Zealand tax resident sellers’ incomes in those categories.

3.22 The benefits of implementing the OECD’s model rules include consistency with international best practice and greater access to information for Inland Revenue in a compliance context. Digital platforms have also expressed support for the model rules at the OECD, and it is understood that the rules, or rules of equivalence, will be implemented by Europe, where a lot of digital platforms are tax resident. For New Zealand to benefit from the information collected under the model rules by European digital platforms, New Zealand would need to implement the extended model rules or rules of equivalence.

3.23 The implementation of DAC7 in European Union (EU) member states may already impose reporting obligations on some electronic marketplaces and digital platforms in New Zealand to the extent that they have any sellers who are tax resident in EU member states or other sellers for which they have facilitated the sale of goods, the rental of modes of transportation, personal services, or the rental of immoveable property in an EU member state. If New Zealand implemented the extended Model Rules, these electronic marketplaces and digital platforms would only have a reporting obligation to Inland Revenue which would then exchange information with EU member states as well as other countries which have adopted the model rules. In this regard, the affected electronic marketplaces and digital platforms may prefer to provide information to Inland Revenue rather than provide the information to potentially multiple European Union member tax authorities.

How the information could be used in New Zealand

3.24 Implementation of the extended model rules in New Zealand would result in Inland Revenue receiving information about sellers’ activities on digital platforms in the gig and sharing economy for accommodation, professional and personal services, the sale of goods, and vehicle rental. The first two categories correspond to the OECD’s model rules, and the second two categories correspond to the extended rules (designed to be rules of equivalence to the European DAC7 requirements).

3.25 Although the Government supports the adoption of the extended model rules in New Zealand, it is proposed that the information would be used in different ways depending on the category.

3.26 If the rules were implemented, Inland Revenue could seek to use the information about accommodation rental and professional and personal services in sellers’ income tax returns. The incomes earned through digital platforms in these circumstances would, generally speaking, be amounts that needed to be declared by sellers themselves for income tax purposes. That is, sellers are required to declare this income in their income tax returns and pay tax on any profits they make for these activities.

3.27 The sale of goods and vehicle rental are not traditional gig and sharing economy activity types. For the sale of goods, this is because it does not involve the sharing of assets, skills, or labour. It would also be unclear from a platform perspective whether the sale of goods was part of a taxable activity of the seller or merely an individual selling personal items that would not attract GST. For vehicle rental, it is the digital platform that is the seller. This would be different if a digital platform offered a service of vehicle rental, with the vehicles themselves being provided by a seller. In this situation, the seller would be sharing an asset, and this would be a reportable activity. For these reasons, it is not proposed that income information in these areas would be used for pre-population of income tax returns.

Timing and different options to address this

3.28 One of the obstacles with the OECD’s rules is that information is provided for each calendar year (as opposed to a tax year, which ends 31 March). This could make it difficult for tax authorities that have a tax year other than a calendar year to pre-populate sellers’ income tax returns.

3.29 For Inland Revenue to pre-populate sellers’ income tax returns with information it receives from digital platforms in New Zealand (and other tax authorities who exchange information under the OECD’s rules) there are two different methods to explore that could achieve this. These methods are attributing calendar-year income to the New Zealand tax year and partial pre-population.

Attributing calendar-year income to the New Zealand tax year

3.30 Under this method, income earned through digital platforms for a calendar year could be attributed to the corresponding tax year. This would mean, for example, that income information obtained under the model rules for the calendar year 2024 (1 January to 31 December) would be attributed to the 2024–25 tax year (1 April 2024 to 31 March 2025). This would result in a full years’ worth of income being pre-populated and would not rely on sellers doing an exercise apportioning and attributing incomes to different tax years. These rules could be designed based on similar rules that allow taxpayers to attribute overseas income below $100,000 earned to a different balance date to be attributed to the New Zealand tax year.

3.31 The attribution method would need to be phased in. For example, during the first year that the rules were in force only nine months of income information could be pre-populated. This is because income information relating to the period for 1 January to 31 March would have been accounted for in the prior tax year and prior to these rules being in force. After this period of transition this measure would be largely effective at achieving complete pre-population of income derived through sharing economy platforms.

Partial pre-population

3.32 Under this method, Inland Revenue would use the information from April to December to include in sellers’ income tax returns, and prompt sellers to include the income information that relates to the period between January and March themselves. This information should be readily accessible to sellers, however, as it is understood that most digital platforms provide regular information to their users. As Inland Revenue would receive information relating to the January to March period in the following years’ information exchange, Inland Revenue could use that information to ensure that sellers had declared the right amount of income.

Figure 3

3.33 Pre-populating sellers’ income tax returns relies on the information exchanges containing high quality data which requires minimal processing. For example, if Inland Revenue received information where New Zealand resident seller IRD numbers were inaccurate, this would make it difficult for Inland Revenue to attribute income to the correct seller. This could mean more manual intervention from Inland Revenue given the need to then contact sellers to confirm that income information it received from other tax authorities should be attributed to them.

3.34 The clear advantage of pre-population is that it would make it easier for sellers to comply with their tax obligations and therefore reduce their compliance costs. It also makes it difficult for sellers to hide incomes earned on digital platforms in the gig and sharing economy from Inland Revenue. Individuals would just need to confirm that the income information was correct and complete, and include any expenses incurred in the return. This would simplify the obligations for these individuals and would treat this income source like salary, wages, and investment income.

Implications for digital platforms that are tax resident in New Zealand

3.35 The model rules would require digital platforms that were tax resident in New Zealand to collect and report to Inland Revenue information about sellers’ activities on those platforms to the extent that they related to accommodation rental, personal and professional services, and, if New Zealand implemented the extended rules, the sale of goods, and vehicle rental.

3.36 Digital platforms would need to collect information about New Zealand tax residents and non-residents. The information would need to be reported to Inland Revenue for the calendar year, by the end of February of the following year. That will enable Inland Revenue to share that information with other tax authorities where their jurisdictions had also implemented the OECD rules (and, if applicable, the extended rules).

3.37 Digital platforms tax resident in New Zealand that collected information about the activities of European sellers would also report information to Inland Revenue so this information could be provided by Inland Revenue to the relevant European countries. This would mean that platforms would not need to provide the information to those individual European countries themselves.

Optional de minimis exclusion for small New Zealand resident digital platforms

3.38 Jurisdictions that implement the OECD’s model rules can implement a modification to the definition of “platform operator” which would exclude digital platforms that operated below a threshold of €1 million in the preceding calendar year from the reporting requirements.

3.39 If New Zealand implemented this modification, the effect of it would be that smaller-scale New Zealand digital platforms that were below the threshold in the preceding calendar year would not need to provide Inland Revenue with information about the activities of sellers on its platform.

3.40 Implementing the modification may reduce upfront compliance costs for new digital platforms starting out in New Zealand. These compliance costs, however, would eventually be borne by the digital platform once it stopped meeting the criteria for exclusion. Further, the information held by these digital platforms would still be useful to Inland Revenue, which could use its information gathering powers to require the information be provided in an alternative format. For these reasons, an initial view is that this modification should not be implemented if the Government decided to implement the OECD’s model rules. Submissions on this point are encouraged.

An alternative approach

3.41 Another option would be for New Zealand to design and implement its own rules for information collection and reporting. One clear advantage of developing bespoke rules is that we could prescribe the data we wanted to collect from platforms along with the frequency and timing of this information, which would allow for easier pre-population of income information. This advantage could be outweighed by the increased compliance costs on digital platforms that might end up needing to build their systems to be compliant with the OECD’s rules and bespoke New Zealand rules thereby significantly increasing compliance costs.

3.42 Table 1 summarises the advantages and disadvantages of both options.

Table 1: Summary of options to improve information collection on incomes earned through digital platforms