December 22, 2019
Airbnb is not Uber. If one is to point straight to the core of the CJEU’s decision in Airbnb Ireland (C-390/18) released on 19 December 2019, the main conclusions of the Court are that the two platforms in question, although both pertaining to the sharing economy domain, are not comparable, neither indeed the services that those platforms offer to their users are of the same nature. It seems that for the CJEU comparing the two platforms is almost like comparing apples and oranges.
Just to be clear at the outset, VAT and tax lovers: the subject matter of the case is neither VAT nor it does involve taxation, as, in fact, the main issue attains to the classification for EU law purposes of a service such as that of Airbnb, consisting in connecting hosts with accommodation to rent with guests seeking that type of accommodation. In particular, the question put forward by the referring French Court (the Regional Court of Paris) concerns whether the services provided by Airbnb can be seen as ‘information society services’ and thus benefit from the freedom to provide services as guaranteed, inter alia, by Council Directive 2000/31/EC (the so-called e-Commerce Directive), a query to which the CJEU eventually replied in the affirmative.
It is not about tax, then. And yet, please consider waiting before shutting this blog off. As the Commission held with regard to the CJEU’s judgment in Asociación Profesional Elite Taxi (C-434/15), which dealt with the activity of Uber, from the case at hand one may in fact derive helpful ‘reflections on the possible VAT consequences of the relevant supplies’ (Working Paper No. 947, p. 4). This article aims to do just that.
Determining the exact nature of the services provided by sharing economy platforms like Uber and Airbnb certainly is not clear-cut. This is not because the services in question are not electronic services. Indeed, in both Asociación Profesional Elite Taxi and Airbnb Ireland, the CJEU did not press its analysis too far to conclude that the intermediation services of Uber and Airbnb are services provided at a distance by electronic means. Rather, it was far more challenging for the learned judges to assess whether the intermediation services provided by the two sharing economy platforms are sufficiently detached from the underlying services, or if, instead, the intermediation services must be regarded as forming an integral part of an overall service whose main component is the underlying service (Asociación Profesional Elite Taxi, para. 40; Airbnb Ireland, para. 50).
The relevant question in either case was, essentially, ‘who is supplying what to whom’, that is whether Airbnb and Uber do not just connect the two parties of the underlying transaction through their electronic platforms, but they also provide the underlying services of accommodation and transport themselves. Should this be the case, then the services supplied by those platforms could no longer be seen as electronic services, rather they would be regarded as ‘blunt’ accommodation or transport activities.
This is precisely the point where the two decisions at hand diverge. Notably, in Asociación Profesional Elite Taxi the CJEU, following the conclusions of Advocate General Szpunar, held that a service like that of Uber is a service in the field of transport, in so far as the intermediation service is inherently linked to the underlying service of urban transport (Asociación Profesional Elite Taxi, para. 48). In Airbnb Ireland, on the contrary, the CJEU, following the conclusions of Advocate General Szpunar, ruled that the nature of the links between the intermediation and the underlying service of accommodation does not justify departing from the prima facie classification of the services at hand (Airbnb Ireland, para. 52).
The CJEU offered various justifications to the diametrically opposite findings of the two aforementioned cases.
First, it was maintained that the essential feature of the Airbnb’s platform is simply to put hosts and guests into contact, by creating, through its algorithm, a list of places available for short-term accommodation (Airbnb Ireland, paras 53-54). In the case of Uber, on the contrary, the CJEU argued that, rather than simply matching the supply of urban transport to demand like a mere taxi booking application, the platform makes it possible and organizes itself, through the eponymous software application, urban transport on demand for the benefits of both drivers and passengers (Asociación Profesional Elite Taxi, para. 38).
Second, the Court contended that a service like the one of Airbnb is in no way indispensable to the provision of accommodation services, given that both hosts and guests have a number of other channels available to enter into contact. The mere fact that Airbnb actually competes with estate agents, classified advertisements, or even property lettings websites does not permit the inference that the service provided by the platform is any more indispensable (Airbnb Ireland, para. 55). Uber, by contrast, provides an application without which drivers and passengers would not otherwise be able to enter into contact with one another (Asociación Profesional Elite Taxi, para. 39).
The most important reason put forward by the CJEU is, however, the third. Notably, the Court observed that Airbnb does not set or cap the amount of the rents which the hosts charge to the guests using the platform. A dynamic pricing algorithm, which automatically adjusts, from a minimum to a maximum set by hosts, rental prices based on changes in demands due to seasonality or other events, is in fact offered by Airbnb to hosts only on an optional basis (Airbnb Ireland, para. 56). Uber drivers, on the other hand, are not able to set their own fare for each ride, as the price is calculated automatically by the platform’s algorithm based on a series of elements, such as distances and time recorded by GPS data obtained from the driver’s smartphone and, further, taking into account additional charges, such as tolls, surcharges, or other fees (Asociación Profesional Elite Taxi, para. 39).
Central to the classification of the services at hand in both cases is the ‘ancillary principle’. This principle, which is best epitomized in the Latin maxim ‘accessorium sequitur principale’ (for more on this principle, you may want to see my article published in Intertax), essentially demands not separating two services in situations where one of them does not constitute for the recipient an end in itself, but simply a means of better enjoying the principal one.
The ancillary principle finds an application in the context of composite supplies under EU VAT. As is apparent from the CJEU’s case-law (recalled in Airbnb Ireland, para. 58), there is a single composite supply if one or more elements of a transaction constitute a principal supply, whereas another or more other elements constitute an ancillary supply, which, as such, must share the treatment of the principal supply. In particular, a supply must be regarded as ancillary to another principal supply if it does not constitute for a customer an end in itself, but simply a means of better enjoying the principal supply (Card Protection Plan (CPP), C-349/96, para. 30).
Whether or not a supply is to be considered as ancillary to another principal supply requires a case-by-case evaluation, which is done by taking into account all the facts and circumstances of the relevant situation. As long as services provided by sharing economy platforms are composite services, part of which is provided by electronic means while the other part occurs in the ‘real world’, a detailed evaluation of all the facts and circumstances was also carried out by the CJEU in the cases at hand.
The ancillary principle was indeed found applicable to all the services offered by Airbnb to its users other than the activity of connecting the two parties of the underlying transaction via its electronic platform. Apart from the aforementioned optional tool for estimating the rental price, Airbnb in fact offers its users a number of other services, mostly on an optional basis. Notably, Airbnb provides payment facilitation as well as an optional photography service, liability insurance, and a guarantee against damages. The CJEU claimed that the provision by the platform of these additional services, which all have a material content, does not call into question the separate nature of its intermediation service, which remains that of an electronic service (Airbnb Ireland, para. 64). Following the reasoning of Advocate General Szpunar, the Court notably maintained that the two kinds of services are not inseparably linked, rather one may be provided independently of the other. In his opinion, the Advocate General indeed emphasized that these other services offered by Airbnb ‘are optional and, accordingly, are ancillary in nature by comparison with the service provided by electronic means’ (Opinion Airbnb Ireland, para. 82).
Uber apparently follows a different route. Notably, in Asociación Profesional Elite Taxi the CJEU maintained that transport services include not only transport in itself, but also any service inherently linked to any physical act of moving persons or goods from one place to another by means of transport (Asociación Profesional Elite Taxi, para. 41). Further in this regard, in his opinion Advocate General Szpunar contended that, in contrast to intermediation platforms such as those used to make hotel bookings or purchase flights, which give users a real choice between several providers whose offers differ on a number of important points from a user’s perspective, such as flight and accommodation standards, flight times and hotel location, the provision of the transport on Uber is standardized and determined by the platform, in a way that the passenger usually is leaned to accept the service of the most quickly available driver (Opinion Asociación Profesional Elite Taxi, para. 60).
Reverting back to the Airbnb Ireland case, the CJEU instead refuted to apply the ancillary principle to the intermediation and the underlying service taken as an inseparable whole, that is to view the intermediation service as ancillary to the underlying service, in a way that a single service is formed. As stated, the Court was of the view that the two services are provided independently from one another. The decisive criterion in this regard relates to the influence and control exercised by the platform over the economically significant aspects of the underlying service. The CJEU eventually excluded that Airbnb exercises such a decisive influence over the conditions for the provision of the accommodation services, particularly since the price at which listings are rented is determined only by hosts (Airbnb Ireland, para. 68).
Conversely, in Asociación Profesional Elite Taxi the CJEU maintained that Uber exercises a decisive influence over the conditions under which the transport is provided, in particular by determining the maximum fare, by collecting that price from passengers before paying part of it to drivers, and by exercising a certain control over the quality of the vehicles and their drivers as well as over the drivers’ conduct, which could, in some instances, result in their exclusion from the platform (Asociación Profesional Elite Taxi, para. 39). In this regard, in his opinion Advocate General Szpunar indeed maintained that ‘one should not be fooled by appearances’ and that, by encouraging drivers to work when and where demand is high, ‘Uber is able to tailor its supply to fluctuations in demand’ (Opinion Asociación Profesional Elite Taxi, paras 47 and 52).
The question on the actual nature of the services supplied by sharing economy platforms like Airbnb and Uber is highly relevant for the assessment of VAT.
The classification of a service provided by a platform as an electronically supplied service, which is defined by Article 7(1) of the VAT Implementing Regulation narrowly, since this provision requires the use of only minimal human intervention by the supplier, rather than an intermediary service pertinent to the field of accommodation or transport activities, implies that different place of supply rules would apply. This is particularly true in case a customer is a non-taxable person (B2C). Should, in fact, the intermediation service provided by a platform qualifies as an electronically supplied service, then Article 58 of the VAT Directive would apply, which means that the relevant place of supply would be where the customer is established, has his permanent address, or usually resides.
Conversely, if the service provided by a platform is classified as an intermediary service, then, pursuant to Article 46 of the VAT Directive, the place of supply would correspond to that of the underlying service, which, in so far as this latter consists in the provision of accommodation, would be found where the rented immovable property is located, pursuant to Article 47 of the VAT Directive, while, if pertinent to the provision of transport, would be located where the transport actually takes places, pursuant to Article 48 of the VAT Directive. These latter place of supply rules would also be relevant if the intermediation service provided by the platform is considered as being part of the underlying service, as a result of the application of the ‘ancillary principle’, so that the platform is in fact considered as acting as a ‘double service provider’, situation which also occurs if the individual supplier is not genuinely independent from the platform, as some employment tribunals have found in the case of Uber drivers (e.g. Uber BV v Aslam  EWCA Civ 2748).
As is apparent from the case-law examined above, the CJEU seems to believe that the first scenario applies to services provided by Airbnb, whereas the activity of Uber must follow the second route. In this regard, the author finds the first and second CJEU’s reasons for drawing a distinction between Airbnb and Uber rather unconvincing, as they appear to be based only on a series of quite controversial assumptions. It looks more grounded the third reason put forward by the Court, that is the fact that, contrary to Uber, Airbnb does not set or cap the price of the underlying service. As regards the influence and control exercised over the underlying services, against the conclusions of the CJEU, it should be noted that Airbnb’s algorithm displays, orders and organizes available listings as much as Uber’s one does for available drivers.
Overall, such a different qualification of the services provided by Airbnb and Uber by the CJEU confirms that the sharing economy, rather than being unitary, is a ‘patchwork’ phenomenon with ‘fifty shades of grey’ at its inside, which must be duly taken into account and dealt with. From a VAT and tax perspective, this might indeed suggest the need for a uniform approach to the qualification of the services provided by sharing economy platforms in order to avoid instances of double or non-taxation. As seen, the actual nature of Airbnb and Uber, as well as the classification of the services provided by those platforms, are in fact decisive for the assessment of VAT.
Although it may provide a useful point of reference for tax matters, Airbnb Ireland is not a tax-related case. And yet, a case concerning tax collection obligations imposed by Italian legislation upon Airbnb is currently pending before the CJEU (Airbnb Ireland and Airbnb Payments UK, C-723/19). It will then be interesting to see whether the CJEU would confirm its foregoing findings in this regard.
While waiting for a case on the sharing economy in the specific realm of VAT, I wish Happy Christmas Holidays to all VAT and tax lovers!
For more on this and other issues, in 2019 the author has published a book titled ‘European VAT and the Sharing Economy’ available for purchase on Wolters Kluwer. Should you be interested in purchasing the book, please contact the author at firstname.lastname@example.org or the publisher at email@example.com.
For more information on my research projects or on teaching and consulting collaborations, you may send me an email to: