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Mirjam Zeldenrust
|3 min read|26 Jun 2023
International tax
DAC7: new regulations to increase tax transparency in the digital economy
The European Commission has adopted new rules to increase tax transparency in the digital economy (DAC7). Digital Platform Operators will have to identify, trace and report on revenues made by sellers on their digital platforms and will have to exchange this information to the tax authorities. EU Member States are required to transpose the provisions of the directive into national law by December 31, 2022 at the latest. The reporting obligations will take effect on the 1st of January 2023 and the information must be shared with the tax authorities no later than 31st of January of the following year. Therefore, the first reporting deadline for the year 2023 is on 31st of January 2024.
Contents
Background
Since the adoption of the Directive on administrative cooperation 2011/16/EU (DAC), the Directive has been amended six times. DAC7 – the sixth amendment - aims to further increase the automatic exchange of information between Member States with regard to the reported information concerning the reportable sellers on digital platforms. Whether or not the digital platform is located in the EU is irrelevant, the reportable information pertains to income realized by sellers established in an EU Member State.
Please note, if you are not a digital platform, as a seller you may still have to deal with DAC7. The digital platforms you do business with may ask you for additional information and documentation.
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Scope of the directive
DAC7 stipulates that digital platform operators qualify as a reporting platform operator when they make their platform available to sellers in order to carry out commercial activities. The following activities are deemed reportable:
The rental of any mode of transport
Personal services
The sale of goods
The rental of immovable property
Note that, in principle, digital platforms that process payments, place advertisements or refer users to a platform do not fall within the scope of DAC7. Digital platforms covered by DAC7 are required to:
Register in a member State;
Perform due diligence procedures with regard to the tax residence of sellers and relevant changes in circumstances; and
Report annually on sellers and their revenues generated on the digital platform.
Reportable information
Information deemed reportable to the tax authorities will include information in order to identify the seller (e.g., name, date of birth, Tax Identification number, VAT number, business registration number, the sellers Member State(s) of residence). In addition, the information required to determine the profits realized by the reportable seller through the platform (e.g., the amount of the consideration paid the seller, the platform fees, the number of activities for which it was paid).
Because of the aforementioned information, it is important for entrepreneurs to assess whether the qualification as a digital platform is met and, if so, to assess what information is already available.
Other amendments
DAC7 also adds other amendments to the DAC framework with regard to joint audits, group requests and exchange of information with regard to royalties.
Joint audits
DAC7 introduces new provisions that allow the competent authorities of two or more EU Member States to conduct an administrative enquiry. If deemed necessary by the competent authorities of those EU Member States one or more persons of common or complementary interest can be linked.
Exchange of information with regard to royalties
Additionally, DAC7 provides for an automatic exchange of information about royalty payments between tax authorities of EU Member States.
Group requests
Lastly, DAC7 introduces the possibility for tax authorities to make a general request that does not concern specific taxpayers but rather certain groups of taxpayers who cannot be identified individually.
Planning
EU member states are required to implement the DAC7 rules by December 31, 2022 at the latest. This means that 2023 is the first year in which reporting digital platforms must exchange information about the reportable sellers. The information for the first year (2023) must be shared with tax authorities no later than 31st of January of the following year. Therefore, the first reporting deadline will be on 31st of January 2024.
Basis digital tax?
The obligation to report the information required by DAC7 could form the basis for future implementation of Pillar 1 and Digital EU tax, depending the consensus at OECD/G20 and EU level. These proposals cover highly digitalized businesses such as social media platforms, online advertising services and businesses that sell goods and services primarily to consumers.
Way forward
The amount of data that digital platforms are required to report is substantial. Therefore, we recommend the following:
Make an early assessment whether your company qualifies as a digital platform operator that falls within the scope of DAC7; and if so
Determine the information needed for your company to comply with the obligations arising from DAC7; and
Determine how the process and monitoring of the compliance obligations should be set up, so that you can continue to meet your obligations in the future.
Of course we can assist you with the obligations arising from DAC7. We can assess the precise impact of DAC7 on your company as well as assist you with your compliance framework and annual reporting obligations. We will keep you informed and can help you in the complete process. Please contact us if you have any further questions.
