The German government can count on millions of euros in tax revenue from services provided on digital marketplaces like Airbnb, the leading platform for connecting individuals offering or looking for accommodation. However, it remains to be seen whether the existing income and value-added tax regulations for service providers with digital businesses models are still adequate. In order to prevent future shortcomings, reforms for a competition-oriented taxation of service platforms could be implemented without much additional effort, thereby making taxation much more efficient.
This is the result of a study conducted by the ZEW – Leibniz Centre for European Economic Research in Mannheim, which is the first to comprehensively analyse the Airbnb market in 20 major cities in Germany.
The study is based on publicly accessible Airbnb data regarding the type of lodging offered on the platform (apartment or room), the price per night, the facilities and equipment, the location of the accommodation as well as booking trends in the cities considered over a period of three months. On the basis of this data, ZEW researchers carried out projections to estimate the annual turnover of Airbnb hosts as well as the tax revenue arising from this turnover. According to the study, the total turnover generated in these cities via this platform amounts to 57 million euros per year, with a mean price of 55 euros per night and an average number of 20 nights per month. The annual turnover of all Airbnb accommodations in the 20 considered cities is therefore approximately 683 million euros.
While 87 per cent of hosts offer only one accommodation on the platform, a total of 13 per cent are multi-listing hosts. “When offering accommodations on platforms like Airbnb, hosts may quickly face income and value-added tax liabilities,” explains Professor Christoph Spengel, ZEW Research Associate and Chair of Business Administration and Taxation II at the University of Mannheim andone of the study’s authors.”As a platform operator, Airbnb only assumes an intermediary role and passes the responsibility of reporting taxes on to the users.”
Based on the annual turnover projections, the analysis shows that the estimated tax revenue from income and value-added tax liability, is enormous for lodgings offered on Airbnb. As the projections show, more than 40 per cent of the hosts generate turnover of more than 17,500 euros per year, making them liable to VAT, according to German VAT regulations.
For the income tax, too, the projections point to high tax revenues for different scenarios. For a total net income of approximately 650 million euros, income-related expenses for furnishing and maintenance need to be taken into account in the income tax calculation.
Possible reforms can be implemented with relatively little effort
“If hosts state 50 per cent of their turnover as income-related expenses, this results in income tax liabilities amounting to 114 million euros at a marginal tax rate of 35 per cent. In the case that income-related expenses amount to 70 per cent of total turnover at a marginal tax rate of 35 per cent, this figure drops to 68 million euros,” explains Christopher Ludwig, a researcher in ZEW’s “Corporate Taxation and Public Finance” Department and one of the study’s authors. “If law makers were to opt for a withholding tax similar to the existing capital gains tax, it would be much easier to levy income tax,” says Ludwig. According to this reform proposal, the tax revenues would amount to between 65 and 130 million euros for tax rates between ten and 20 per cent.
In their study, the authors propose two additional reforms. As a short-term solution, the German VAT regulation introduced in early 2019 could be expanded to include platform providers offering services like Airbnb. “As a result, platform operators would be obliged to submit any transaction data to fiscal authorities, and they would have an incentive to promote fair taxation, so as not to be held liable in cases of doubt,” Christopher Ludwig points out. In the long term, the analysis indicates that a legally binding instrument in the form of a “fictional” service chain for service providers would lead to favourable outcomes. “In this case, the platform operator is treated as a service provider selling services directly to the end consumer,” Ludwig goes on to explain. “Online platforms would then be fully liable to VAT.”
According to the researchers, all these reform proposals can be implemented with relatively low regulatory effort, while establishing a competition-oriented taxation of service platforms.