Room for debate: tackling the sharing economy’s tax advantage

In 2007, a shortage of hotel rooms in San Francisco inspired two roommates to create a webpage offering visitors to stay on air mattresses in their flat. Just 10 years on, Airbnb now operates in over 65,000 cities across almost 200 countries, and has found more than 200 million guests a bed to stay in.

The flourishing peer-to-peer (P2P) sector is on the verge of profoundly disrupting the way the economy functions. Yet, for all its benefits, its dramatic expansion has left governments grappling with a fresh problem: how to craft tax rules that will enable them to squeeze revenue from this new brand of business.

The P2P economy often comes under fire for slipping through the net of taxation; Airbnb has roused frustrations from its competitors in the hospitality sector, which tend to face much higher taxes for essentially delivering the same product.

For example, in London, hotels must pay a 20 percent charge on all bookings, yet for the thousands of Airbnb transactions taking place in the very same city, the owner of the room will not be charged VAT. Instead, Airbnb is charged VAT on its own slice of the revenue.