Estonia: block VAT on platforms

On Friday 12 July, at the EU’s Council of Finance Ministers in Luxembourg, Estonia disagreed with the proposed introduction of VAT on platforms.
Thus, it was not possible to reach an agreement.
The press release issued after the meeting states that “the Council exchanged views, making progress towards an agreement, on the VAT package for the digital age, which aims to tackle VAT fraud, support businesses and promote digitalisation”.
Estonian Finance Minister Mart Võrklaev said that Estonia does not agree that a small business or an individual who provides its services through a digital platform and is not subject to VAT should pay VAT.
“In our view, this is not fair for small businesses and we cannot accept such an arrangement,” said Võrklaev.
Võrklaev also disagreed with the assessment published in various international media that Estonia is acting in the interest of Estonian Bolt, a platform-based company.
“Of course, it has nothing to do with Bolt. It’s just a ploy to try to influence us and say we are lobbyists. But, again, we’re not talking about imposing an additional burden on platforms in the form of VAT – the VAT obligation actually affects small businesses or individuals on platforms and their costs go up. And ultimately prices will increase and the consumer will pay for that,” the finance minister said.
“Unfortunately, it’s not that some platforms will start paying more. The impact and the pain will still hit the smallest entrepreneur, and indeed, Estonia is here to protect both Estonian and European small businesses,” he added.

The baton passes to the Hungarian presidency

Võrklaev also said that Estonia offered the Belgian Presidency the possibility to make the application of the VAT obligation optional for Member States.
However, the Belgians did not accept this option.
Finding a solution will now be the responsibility of the new Hungarian presidency, which will start its six-month term on 1 July, said Võrklaev, who also heard supportive voices in the Council: “During the Hungarian presidency, these discussions will continue and in today’s debate there was also an understanding from many countries that yes, there is an argument in the case of Estonia, an agreement could be pursued and they are ready to consider it. I still believe that this agreement is possible, and that is because Estonia’s offer takes into account the interests of all. I think it is possible,” the minister explained.
VAT on platform services is currently paid by the service provider and not by platforms such as Bolt or Airbnb.
However, the European Commission has proposed a change to the VAT rules, which would mean that platforms would be required to add VAT to the services they purchase themselves if the individuals or small businesses providing those services are not liable for VAT.
An agreement to this effect was not approved by the previous Council in May due to Estonia’s opposition.
While Võrklaev justified Estonia’s opposition on the grounds that it would not be fair for people who want to earn some extra money from their home by renting it out through Airbnb, Killu Maidla, CEO of the Estonian Hotel and Restaurant Association, told ERR that the association considers the agreement proposed by the European Commission to be a very reasonable solution.

The publications

On Friday, the US financial daily Bloomberg, citing unnamed diplomats, reported that Italy and Spain are among those who want the deal to go ahead to collect VAT from companies such as Airbnb and Booking.com, while Bolt has lobbied the Estonian government against such a measure.
According to Bloomberg, French Finance Minister Bruno Le Maire said that “there is an absolute need to have a fair taxation of digital activities.”
Politico also wrote on Friday that Estonia’s actions appear to be heavily influenced by Bolt’s lobbyists.
Politico also highlighted an earlier case from the spring of this year, when Estonia blocked the adoption of the Platform Work Directive.