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Tuesday, May 21, 2024

Home sharing and taxation

"Like acid to the tax system"

While the main problem of outlaw hotels, residential properties rented to tourists full-time, is the way they distort and disrupt the housing market, there is also another problem: tax.

Legal hotels are normally taxed at a high rate. In contrast, outlaw hotels are exempt from most taxes (including sales, tourist, and business property taxes) and, in many cases, the owners of these outlaw hotels – who are already breaking the law by operating – deliberately hide their revenue from the tax authorities.

What we are seeing are large amounts of business and money flowing away from the highly taxed hotel accommodation industry to a new “grey” or “black” short-term rental industry. In most cases, this short-term rental industry is completely untaxed. This robs local and national government of the money they need to fund vital services.

In many countries, the desire of outlaw hoteliers to avoid paying income tax is matched by Airbnb and the other short-term rental platform’s desire to avoid paying corporate tax. AirBnB and many other platforms have shifted the profits of their business away from the countries where they are made to low-tax countries. This has allowed them to avoid hundreds of millions of dollars in corporate tax.

In France, for example, AirBnB paid only EUR 163,000 euros in tax in 2017, far less than the average hotel in Paris. This is despite France being AirBnB’s second largest market, generate hundreds of millions of euros in revenue for the company. It’s a similar story in many other countries.

While AirBnB’s tax minimisation is, they assure us, legal. It is not socially or morally acceptable. Nor is it acceptable that so many hosts are currently not paying their fair share of tax.

Governments across the world must reform their tax codes to address this problem.