DAC 7 - New reporting obligations for digital platforms from 1 January 2023

The EU institutions introduced legislation that will impact digital platforms and online sellers. These rules are introduced to enforce more transparency. The new obligations will increase data volumes of the affected parties and are a challenge on how to deal with these new data flows. In this newsletter we will inform you on what is DAC 7, why the rules are introduced, who are impacted by the new rules and what kind of information should be reported.

What is DAC 7?

Even though improvements have been made in the automatic exchange of information over the last years, there is still a need to improve the exchange of information and administrative cooperation between EU tax authorities. Therefore, the EU Council adopted in March 2021 the (seventh) Directive on administrative cooperation in the field of taxation (“DAC 7”). Digital platforms must collect and report certain information to the tax authorities. The new reporting obligations will take effect from 1 January 2023 onwards.

Why is DAC 7 introduced?

The digitalisation of the economy has been growing rapidly over the recent years. This has given rise to an increasing number of complex situations linked to tax fraud, tax evasion and tax avoidance. The cross-border dimension of services offered through the use of platform operators has created a complex environment where it can be challenging to enforce tax rules and ensure tax compliance. It seems that tax authorities in the EU have insufficient information to correctly assess income taxes and VAT due in their countries from activities performed with the intermediation of digital platforms. Therefore, a standard reporting requirement (“DAC 7”) is necessary according to the EU institutions.

Which platforms fall under the scope of DAC 7?

There is a broad definition for platforms introduced ”any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing Sellers to be connected to other users for the purpose of carrying out a Relevant Activity, directly or indirectly, to such users. It also includes any arrangement for the collection and payment of a Consideration in respect of Relevant Activity.

However certain platforms are excluded that:

  • exclusively allow the processing of payment related to the Relevant Activity;
  • users to list or advertise a Relevant Activity;
  • redirecting or transferring of users to a Platform.

Platforms that are tax resident in the EU, incorporated in the EU, have their place of management in the EU or have a permanent establishment in the EU are so-called ‘Reporting Platform Operators’. Also, non-EU tax residents, non-EU incorporated platforms or platforms that have a non-EU place of management, may fall under the scope of DAC 7. They could however be relieved from reporting if there is an agreement to exchange information between the EU and the non-EU country.

Which activities (“Relevant Activities”) trigger a reporting obligation?

The following commercial activities  are considered Relevant Activities in terms of DAC 7 reporting obligation:

  • the rental of immovable property, including residential and commercial property, as well as any other immovable property and parking spaces;
  • personal services (involving time- or task-based work whether performed by one or mode individuals, carried out independently or not, at the request of a user, either online or physically offline and which were facilitated by a platform);
  • sale of goods;
  • the rental of any mode of transport.

Who are the sellers on the platform (“Reportable Sellers”) to whom DAC 7 applies?

The Reportable Sellers are individuals, entities or legal arrangements that carry out Relevant Activity that are EU resident or that rented out immovable property in the EU. Needless to say, the activity should be carried out with the help of a platform.

Several sellers are excluded:

  • Governmental entities;
  • Certain listed entities;
  • An entity for which the platform facilitated more than 2,000 Relevant Activities by means of the rental of immovable property during the Reporting Period, and
  • Sellers who have less than 30 Relevant Activities for the sale of goods and for which the consideration received did not exceed € 2,000 during the Reporting Period.

What information should be reported?

For example the sellers name and address, VAT identification number of the seller, financial account details to which the consideration is paid or credited, the total consideration paid or credited and fees, commissions and taxes withheld or charged by the platform. For immovable property also the address of the property should be reported.

The information should be reported by the end of January following the calendar year of which reporting is being completed.

What do you need to do?

If you are impacted by these rules, you should review whether all required date is available and implement a process of correct data collection and reporting. The digital infrastructure in this respect is key. RSM is happy to assist you with this process.