Uber has over 160,000 drivers here in the U.S. only, and needless to say that their global reach is expanding rapidly. They are now faced with the question whether the drivers are employees or contractors. The answer has great impact for tax, and also for health benefits, labor regulations – you name it.
It is not a novel issue at all. Truck drivers, cabbies and similar commercial motorists face similar challenges, not to mention the increasing and diverse group of free-lance, “independent” consultants that only work for one single client.
Today (July 10) the New York Times discussed the Uber case – see the article here: http://nyti.ms/1J6JT7h. Uber says that the employees are independent, because they are free to pick their rides and have total flexibility. The drivers (or at least some of them) say that they are employees, because Uber dictates the circumstances under which they do their work. For more on the drivers’ position, have a look at page 4 of the pdf below – “Statement Of Facts”.
The lawyer for Uber says “That people have flexibility in their work hours does not make them independent contractors.”. That seems to be a narrow interpretation of the facts, but, on the other hand, there does not seem to be much more flesh to the idea that Uber drivers are independent.
For VAT, individuals can be taxable persons – there is no requirement of incorporation. Also, even if the work you do is illegal (like Uber in some countries), VAT is still due – have a look at the “Happy Family” case of the European Court of Justice (click the link for a pdf). The notion of a taxable person for VAT is different from a taxable person for income tax!
The determination whether a person is independent is key. The EU VAT Directive states in article 9(1):
‘Taxable person’ shall mean any person who,independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
and in article 10, addressing the issue of independence:
The condition in Article 9(1) that the economic activity be conducted ‘independently’ shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.
So “working conditions, remuneration and the employer’s liability” all play a role in determining whether a person is a taxable person.
There are also a number of national and European court cases, that invariably point to VAT being a broad-based tax, and thus the definition of a VAT taxable person is very broad as well. Because I don’t know the minute facts of the Uber-driver relationship, I will stop here and reserve my opinion for a later moment.
But needless to say that even if a Uber driver is not an employee, but a taxable person for VAT (i.e. he is independent), not all is well. He might be a ‘small undertaking’, which would relieve him from many compliance requirements. And he will still need to understand the legal relationship with Uber and the customer – is Uber buying his services, or is the driver selling the services directly to the customer, with Uber as a disclosed intermediary? What about the legal and practical differences between the various Uber offerings (Uber-T, Uber POP, etc.)? All very interesting from an academic perspective, but unfortunately a major challenge in practice!
Obviously, the outcome of the U.S. lawsuit will not have any direct effect on the position of Uber drivers outside the U.S. But it will add ammunition to tax authorities who will want to test the “independence” of all contractors – be it drivers or other consultants!
BTW – the definition of taxable person for VAT/GST is largely the same across the globe. I provided the EU definition above as an example.
UPDATE: also see the comment below.
PS1: Although I’d love to be an independent VAT consultant for Uber, I have not recently provided them with any tax advice.
PS2: If you read Dutch, have a look here: https://dathetklopt.wordpress.com/2015/04/21/uberpop-chauffeur-draag-toch-gewoon-btw-af/. Unfortunately, the writer does not address the question of independence of the Uber driver.
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