On March 22, 2021, the European Council adopted EU Directive 2021/514 (DAC7) which amends Directive 2011/16/EU on administrative cooperation in the field of taxation.
Member states have until December 31, 2022, to transpose the DAC7 directive into domestic law and are required to give effect to those provisions as of January 1, 2023.
The scope of DAC7 is to extend the tax transparency rules on digital platforms in order to tackle the lack of tax compliance and the non-declaration of income earned from business activities through such digital platforms.
This will be achieved by obligating:
Who is obliged to report
The reporting obligation lies on digital platforms operators who:
Non-EU platform operators must also comply with DAC7 if they facilitate relevant activities of sellers who are residents in the EU or they rent out immoveable property located in the EU.
Digital Platform Operators
Digital platform operators are defined as any software, including websites and mobile applications, that allow sellers to connect to other users to carry out a relevant commercial activity.
However, platforms that only allow for the processing of payments, users to list or advertise, or that redirect or transfer users to a platform are excluded from the definition.
Relevant Commercial Activity
Relevant commercial activity is the:
The activity must be carried out for consideration and may be cross-border or domestic.
A reportable seller is an EU resident individual, company or legal arrangement, registered on the platform that carries out a relevant commercial activity.
Government or publicly traded entities that are registered on a platform are excluded from DAC7 reporting. Casual sellers of goods for which the platform has facilitated fewer than 30 sales and for which the total consideration paid does not exceed 2,000 euros during a reporting period are also excluded from the reporting obligation.
An exclusion also applies to sellers engaged in high frequency renting of immoveable property, requiring more than 2,000 relevant transactions during a reporting period to qualify.
Once a reporting platform operator has identified the reportable sellers, reportable information must be submitted to the relevant EU Member State no later than January 31 of the year following the calendar year in which a reportable seller has been identified.
Non-EU platform operators must generally register with a member state of choice and report to that state. They may, though, be relieved from reporting in the EU if equivalent information is already exchanged under an agreement between the country in which the operator is located and a member state.
The digital platform operators shall report the following data:
Penalties for non-compliance
Reporting platform operators will be subject to administrative penalties for non-compliance with DAC7, which will be determined by individual EU member states.
Even though the reporting obligation remains with the platform operators, sellers are obliged to disclose required information to reporting platform operators to enable them perform the due diligence procedure Failure to do so might cause the closure of their account with the digital platform.
Kinanis LLC Commentary
EU and non-EU digital platform operators should assess whether they fall within the scope of DAC7 and if the activities taking place on the platform are reportable. If so, they need to identify any reportable sellers and determine what IT systems and processes are needed to comply with DAC7 due diligence and reporting requirements.
The digital platform operators should therefore consider updating their internal systems and contractual relationships with sellers to be able to collect the required data and comply with DAC7 obligations.
Kinanis LLC can assist in determining the potential implications of the DAC7 Directive on clients that identify as digital platform operators and provide with end-to-end support on all DAC7 compliance-related issues.
The deadline for the first reporting by platform operators is on January 31, 2024.