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Airbnb aims to boost number of tax agreements to reduce risks

Airbnb hopes to circumvent regulatory battles with city authorities by creating more agreements to collect hotel taxes and pass them on.22 Nov 2016

The short-term accommodation rental company already has 200 such agreements and hopes to add 500 more to cover the cities that generate 90% of its revenue, chief executive Brian Chesky told the Financial Times

The deals help Airbnb to manage risk, Chesky said.

"When you have a tax agreement, you have an explicit agreement, therefore there is not an existential risk," he told the newspaper.

VAT expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com said: "This method is clearly administratively burdensome for Airbnb. However, the concept of dealing with such taxes on a centralised basis is likely to enhance tax compliance and increase tax authority confidence in the business model. Airbnb has had issues in some locations with compliance with local leasing laws, this move is clearly aimed at getting ahead of the curve in terms of similar issues with local consumption taxes."

Airbnb is struggling to reach agreement in some cities, including New York City where "outdated laws, designed for large hotels" mean that Airbnb cannot collect and remit taxes, it said in a blog post earlier this year. New York’s short-term rental laws also prohibit most apartments in New York City from being rented out for less than 30 days.

Airbnb said in August 2015 that it had reached an agreement with French authorities on collecting the tax through its platform via a "fully automated process". It would start charging tax in Paris from 1 October, and then extend this to other cities across France, it said at the time.

The move came after the French government published a decree demanding that internet platforms take on this role. Previously, people renting out their homes to others were expected to collect the tax and send this to the authorities themselves.

The company is believed to have paid almost €1.2 million in tourist tax to Paris city authorities during the final three months of 2015.