The extraordinary period associated with the wave of the pandemic, widespread reductions in personal contact and closures suggested that the digitalisation trend was more than desirable and practically necessary from the point of view of maintaining operations in certain market segments.
Digital platforms represent an online space, a kind of online marketplace within which supply and demand meet remotely. It is an online environment that allows you to easily establish contacts from anywhere, even outside the narrower community of the vendor (for example, outside the circle of regular customers or outside the geographical boundaries of the region or state). It is the operators of digital platforms that are the focus of the draft DAC7 Directive.
What is the DAC7 Directive?
In March 2021, the Council of the European Union adopted rules to revise the Tax Administrative Cooperation Directive 2011/16/EU (through the so-called "DAC7") in order to extend the scope of automatic information exchange in the EU to operators of digital platforms. The aim of this measure is to increase the tax transparency of the digital space, to ensure the proper payment of taxes on income from the sale of goods or services through digital platforms, while ensuring that EU Member States can easily exchange information on this income.
Member States are required to implement DAC7-based obligations in their national legislation by 31 December 2022.
Who does the DAC7 Directive apply to?
For the purposes of DAC7, the platform means any software, including websites or parts thereof, and applications, including mobile applications, accessible to users and enabling vendors to connect to other users to perform targeted activities for those users, directly or indirectly.
In this respect, it does not matter where the digital platform is located, but it depends on whether the revenue is generated by vendors established in one of the Member States. The rules introduced by the DAC7 Directive will therefore apply to digital platforms inside and outside the EU.
The obligation for digital platforms consists in identifying certain vendors and reporting information on revenues generated by vendors from selected activities. These activities include, for example:
- rental of real estate;
- sale of goods;
- vehicle rental; or
- personal services (e.g. legal, accounting, management consulting, investment banking, etc.).
On the other hand, the above reporting obligation according to DAC7 does not apply to digital platforms that only process payments, place advertisements or redirect customers to other electronic interfaces.
Scope of reported information
DAC7 will require digital platforms to collect certain information from users who offer goods or services on the platform and to report it to tax authorities.
Digital platforms will be required to report details about vendors and their location, as well as information on service fees paid to the platform. If the vendor does not provide the required information even after reminders from the platform, the vendor is entitled to limit the vendor's activities on the platform after 60 days. Until the vendor provides the required information, the platform may close access to the vendor's registered account on the platform or stop payments to it.
The platforms must forward the specific information to the tax administrations of the Member States concerned by 31 January of the following calendar year at the latest. In the case of a platform outside the EU, this can be the tax office of any EU Member State.
The obligation to report information according to the draft DAC7 excludes those vendors who make less than 30 sales of goods on the platform per year for a total amount of less than EUR 2,000.
Once the entity reports this information to the tax office, the tax administrations of all 27 EU Member States will be able to share and pass this information to each other. Subsequently, the information will be stored in a central register to which all Member States' tax authorities will have permanent access.
In addition to digital platforms, DAC7 also introduces measures to contribute to better cooperation between Member States. It regulates, for example, the legal framework for conducting joint audits between two or more Member States or the international exchange of information on licence fees between individual tax authorities.
What does the Directive mean for you?
It will be essential for digital platform operators to properly assess the scope of their responsibilities and then prepare in time for these newly imposed obligations in order to avoid possible sanctions. It is also possible to introduce processes in advance, which the platform operator can only extend in 2023 to meet the requirements of DAC7 from 1 January 2023.