Students reported for PwC on the impacts of new EU legislation on Finnish platform companies

Platform economy is a relatively new phenomenon, and related tax procedures have not kept pace with the rapid development. In the future, however, the taxation of transactions conducted on digital platforms will be under much closer scrutiny. At the moment, many purchases facilitated by platforms enable grey economy and taxable income flowing to a country other than where the service is consumed.

‘Understanding changes in legislation and their impacts on business models in different sectors is very important to us, because we are constantly advising our customers on specific issues related to the interface of business and legislation. It is a challenging task to draft international and EU legislation for the fragmented system of digital business, such as platform economy. New regulations can have far-reaching and even surprising impacts on companies’ business in different countries, and we want to understand the impacts of regulations as thoroughly as possible at an early stage’, says Tuomas Leinonen, Senior Associate, Tax & Legal, PwC.

The aim of the tailored business project implemented in summer 2021 was to examine the readiness of Finnish platform economy companies to implement new EU legislation and to assess their capabilities in data management. Participating in the project were business law student Pinja Laine and information and service management student Vivi Mattsson. Timo Seppälä, Professor of Practice at the Department of Industrial Engineering and Management and Senior Researcher at ETLA, provided the project with solid expertise in platform economy and digitalisation.

‘One of the main reasons platform economy has spread as a phenomenon has been the fragmentation of customer needs. This fragmentation has then led to a significant increase in the amount of customer-specific data which has been freely shared between different platform operators. The aim of international and EU-level legislation is to give control back to the customer when it comes to sharing data. But is there too much regulation already?’ asks Timo Seppälä.

Literature review and interviews

The purpose of the first stage of the project was to conduct a literature review and expert interviews to determine which new EU-level regulations will have an impact on Finnish platform companies in the near future. In the next stage, representatives of different platform operators were interviewed with a focus on the companies’ capabilities and readiness to implement future legislation in their business operations and their potential needs for external support. Finally, the customer received a business case on the project results.

‘Free-form discussion proved to be a fruitful research method in this project. The concept of platform economy and the related regulations in particular are still unclear for many, so it was really interesting to have the opportunity to exchange ideas on the subject with experts’, Vivi Mattsson explains.

For EU legislation, the study particularly examined the DAC7 proposal for a directive on administrative cooperation in the field of taxation, which will introduce new reporting requirements for platform companies with regard to the entities operating on the platforms. The new reporting requirements especially apply to vendors operating on platforms – both individuals and companies. The DAC7 Directive is due to enter into force in 2023.

The study also looked into the interaction of the DAC7 Directive with GDPR and the Digital Services Act (DSA) and Digital Markets Act (DMA) included in the EU Digital Services Act package. But the requirements imposed by the DSA and DMA particularly relate to the operations of large international companies, mainly providing protections for Finnish platforms, so they were not the main focus of the literature review.

‘Being involved in this project, I gained a lot of practical experience in creating a real business case from start to finish, which was inspiring. The topic was very interesting and it was great to have the opportunity to discuss it with experts in the field. As a whole, the project taught me a lot and made me aware of very different perspectives on the topic’, says Pinja Laine.

Finnish platform companies’ data management methods and the requirements of digital business in the DAC7 Directive

With regard to data management, the project looked into the ability of platform companies to collect, analyse and report data. The current capabilities of platform companies in data management and data structuring have a strong impact on the companies’ capacity to implement new legislation effectively.

A key question was whether the data management methods of Finnish platform companies are at all suitable for digital business matching the requirements of the DAC7 Directive. In general, platform companies face a challenge in identifying the data that is important to them and the possibilities of utilising it. When the DAC7 Directive enters into force, platform companies may also have to collect data that is useless for their specific business, which increases the workload for these companies. On the other hand, the data required by the DAC7 Directive had often already been collected on platforms requiring strong identification.

The study highlighted the different starting points of platform companies for the implementation of the new EU legislation and data management. Many participants perceived the new EU legislation to involve significant effort up front, which would slow down innovations, for example. As a whole, however, the introduction of new regulation into the platform economy sector was seen as positive and something that will clarify the market.

‘The project achieved its objectives nicely, and the results have been summarised in a report that is easy to read and understand. The project enforced our initial hypotheses, but it also introduced new perspectives. We now have a better overall picture of the readiness of Finnish platform economy operators to comply with the requirements of the upcoming regulations’, says Tuomas Leinonen from PwC.

Likewise thinks Jari Kärkkäinen, Director, Tax and Legal Technology, PwC. ‘I am very pleased with the project. At first, I wondered whether the subject was too abstract for the students, but I was proven wrong. We discussed regulations very broadly at the start, and I wondered whether we are making the research subject too broad. Fortunately, the students got the right idea and understood the topic correctly. The results were packaged neatly in a business case. Having free-form discussions about the world of regulation was also valuable and eye-opening.’