On 22 March 2021, the EU Council adopted a seventh Directive on Administrative Cooperation between EU Member States in the field of taxation (2021/514/EU) (“DAC7”). It imposes digital platform operators to collect and report information about the sellers on their platforms to the competent tax authorities.
What is the purpose of DAC7?
“DAC7” or the 7th Directive on the Administrative Cooperation aims at assisting Member States with the challenges posed by the digitalised economy by tackling hard-to-trace taxable events on digital platforms and by ensuring a fair allocation of tax revenues to all relevant Member States.
In a nutshell, the new rules introduce a due diligence obligation on digital platform operators in order to collect and verify information on reportable sellers making use of the platform and to annually report such information to the competent tax authority, which will share this with any other relevant Member State.
The new rules are largely inspired by the OECD Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy (‘Model Rules’) which were published in June 2020.
The new due diligence and reporting rules will apply from 1 January 2023 onwards.
Which digital platforms are targeted?
The definition is large and encompasses “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 purpose of carrying out a Relevant Activity, directly or indirectly, to such users”.
Platforms which solely allow processing of payments related to the Relevant Activities (see below), allow users to list/advertise a Relevant Activity or redirect/transfer users to a platform are excluded from the reporting obligations (e.g. PayPal, Stripe, Facebook marketplace, etc.).
Who are Reporting Platform Operators?
Reporting Platform Operators (“RPO”) are entities that contract with sellers to make available all or part of a digital platform to sellers and who are either resident for tax purposes in a Member State, is incorporated under the laws of a Member State, has its place of management in a Member State, or has a permanent establishment in a Member State (i.e. EU RPOs).
If a platform operator does not have any presence in a Member State, it may still qualify as RPO if it facilitates relevant activities of EU sellers or the rental of immovable property located in a Member State (i.e. non-EU RPOs). Non-EU RPOs may, however, be exempt from the reporting obligation insofar as “equivalent information” is already exchanged under an agreement between a non-EU country and an EU Member State. What are Relevant Activities?
The Relevant Activities triggering a reporting obligation are:
- the rental of immovable property, both residential and commercial, as well as any other immovable property, and parking spaces (e.g. Airbnb, booking.com);
- personal services involving time- or task-based work whether performed alone or not, carried out independently or not, at the request of a user, and which were facilitated by a platform (e.g. Uber);
- the sale of goods, i.e. any tangible property (e.g. Amazon, eBay, Vinted); and
- the rental of any mode of transport (e.g. Turo, Click & Boat).
In order to be reportable, said activities will need to be carried out for a consideration of any form (net of any withholding by the digital platform operator) paid/credited to the seller and which the digital platform operator can verify.
Both cross-border and domestic Reportable Activities will be covered by the new obligation.
Who are the Reportable Sellers?
The reporting obligation only relates to the individuals, companies and legal arrangements (i) that carry out a Relevant Activity and are EU residents or (ii) that rent out immovable property in an EU Member State through facilitation by the digital platform.
Sellers who have had less than 30 Relevant Activities facilitated by the digital platform for the sale of goods and for which the consideration received did not exceed 2,000 EUR during the reporting period will also be excluded from the reporting (as may predominantly be the case for most sellers who use second-hand sale platforms such as e.g. Vinted). An exclusion further applies to listed entities, government bodies and sellers in the immovable property rental sector if certain thresholds are not exceeded.
Which information needs to be disclosed and when?
The information which should be reported includes a.o. the seller’s identity (name and address), the consideration received/credited and tax/financial account identification details. In case of immovable property rental services, the address of the rented property must also be provided.
The required due diligence may well be outsourced to 3rd party service providers but will nonetheless remain the responsibility of the RPO.
The information must be reported by the end of January following the calendar year in which a Reportable Seller has been identified.
Can RPO’s be sanctioned for a failure to disclose?
Penalties, which will be determined by each EU Member State independently but in a way to be “effective, proportionate and dissuasive”, will be applicable, whilst other measures will be implemented to ensure compliance, e.g. should a RPO fail to register itself.
What if Sellers refuse to cooperate in disclosing relevant information?
RPOs will need to close the user account of any Reportable Sellers who have received a reminder twice to provide the relevant information and failed to do so. Such closure should occur if 60 days have passed since the last reminder, without reaction from the seller and re-registration should be blocked for as long as the seller has not disclosed the requested information.