Last year, the EU Council approved the Directive 2021/514, known as DAC7, amending the Directive 2011/16/EU on administrative cooperation in the field of taxation. The DAC7 Directive introduces new reporting obligations for digital platform operators towards the Financial Administration and consequently, the scope of the automatic exchange of information between member states’ tax authorities is being extended. Digital platform operators will be required to report revenues generated by sellers using the digital platform. Reportable activities performed through digital platforms will include:
New rules will apply from January 1, 2023 and will apply to digital platforms operated by operators from Union, as well as Non-Union jurisdictions. Member states have time to transpose the new rules into national law until December 31, 2022.
Download our overview of the most important information resulting from DA7 Directive, or read more below.
Implementation of DAC7
What is the purpose of the DAC7 measures?
The main purpose is to support tax transparency, prevent tax evasion and avoidance in business activities performed via digital platforms. Standardization of reporting requirements for platform operators at Union level should avoid excessive administrative burden through individual tax administration requirements and unilateral reporting obligations implemented by some member states.
The exchange of information between tax authorities will allow platform operators to comply with the reporting obligation on the revenue generated by the sellers using the digital platform in a single member state.
What falls under digital platforms for such purposes?
It is important to understand the term digital platform broadly. It may be any software or electronic interface that allows a connection between the seller and buyer for the purpose of providing relevant selected activities. For example, websites or their parts, different apps, including mobile apps.
However, a company’s website that exclusively facilitates online sales of own goods of that company, is not considered a platform for the purposes of DAC7.
Which digital platform operators will have to comply with DAC7?
The platform operator is an entity that makes the platform available to sellers based on a concluded contract. However, the form of the contract is not specifically specified, it can take any form, not just in writing. Natural persons are excluded from the scope of DAC7 platform operators.
The reporting obligation will apply to the following digital platform operators who are:
Qualified non-Union platform operators are excluded from the reporting obligation as they comply with the reporting obligation in a qualified non-member state of establishment which cooperates with the member states and apply the automatic exchange of equivalent information.
If an operator, who would otherwise have had to report information, demonstrates in advance and on annual basis to the competent authority of the member state, that the platform´s entire business model is such that it does not have reportable sellers, it will be excluded from the reporting obligation.
What qualifies for reporting from the seller’s revenue?
The seller’s revenue that qualifies for the reporting includes income from the rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces. We note that these are both long-term and short-term rentals, regardless of the form of the seller’s ownership rights to the leased property.
Furthermore, it is revenue from personal services – services performed by natural persons who act either independently or on behalf of an entity, and which are provided either online or physically offline after having been facilitated via a platform.
It is also income from the sale of goods and the rental of any mode of transport.
Income is to be understood as a remuneration in any form, excluding any fees, commissions and taxes withheld or charged by the reporting platform operator, that is paid or credited to the seller in connection with the relevant activity, and the platform operator knows or can reasonably determine the remuneration.
The reporting obligation should apply to cross-border activities as well as activities that do not have a cross-border character.
Which sellers qualify as reportable?
A seller qualified as reportable is a natural person or a legal entity that is registered on the platform during the reportable period and carries out a relevant activity. The reporting obligation applies to sellers with a residency in a member state or to those who rent immovable property located in a member state.
Non-reportable sellers are:
Do digital platform operators have a special obligation to verify sellers?
The platform operators will be obliged not only to collect information about the seller (basic identification data such as name, primary address, date of birth, all assigned TIN-s in Union, VAT number, company registry code, information on permanent establishments, real estate information, if relevant), but also verify the data received from the sellers (with the exception of information on permanent establishments) and that the conditions for fulfilling the definition of an excluded seller are met.
They will have to keep records of the steps taken and the information based on which they carried out the verification, for at least 5 years.
The due diligence procedure will have to be completed by 31 December of the reportable period. A transitional period is also introduced; for sellers who will be registered on the platform on January 1, 2023, platform operators will be required to carry out due diligence procedure by December 31, 2024.
What data will operators report to the tax authority?
The platform operators shall report the following data:
In which member states will the operators have to comply with the reporting obligation?
If the platform operator qualifies for reporting in more than a single member state, they shall choose one of the states in which they will comply and shall inform the authorities of the other member states of which member state they have chosen.
What will be the deadline to comply with the reporting obligation for digital platform operators?
The reportable period will be a calendar year. For the reportable period, the platform operators will be obliged to make the relevant reporting to the tax authority by January 31 of the following year i.e., for 2023, which will be the first reportable period, it will be necessary to fulfil the reporting obligation by January 31, 2024.
Within the same period, the operator will also have to provide certain information to the reportable seller.
Will non-compliance be penalized?
The choice of sanctions remains at the discretion of the member states, but the penalties should be effective, proportionate, and discouraging.
What do we recommend for digital platform operators?
The digital platform operators should consider updating their internal systems and contractual relationships with sellers to be able to collect the required data and comply with DAC7 obligations.
Our service portfolio covers:International tax services | Tax retainer | Tax advisory | Tax compliance | VAT services | IFRS consultancy and services | Personal income tax | Expat tax and global mobility | Transfer pricing | Transaction advisory | Advisory online portal | Online consulting Fixed service pakages