What is DAC7?
The DAC7 directive is the latest addition to the administrative cooperation in (direct) taxation in the EU. It imposes new due diligence and reporting obligations on digital platforms, such as marketplace, rental and restaurant platforms starting January 1, 2023.
All digital platform operators operating in any EU Member State will be required to register for a ‘Platform Operator ID’, gather information on their reportable sellers and report all relevant activities annually to an EU member state’s tax authorities. Reportable relevant activities are the sales of any goods or services and renting vehicles or property. Operator registration and reporting obligations will be triggered even if only a part of the company’s business model fills the criteria of a ‘Digital platform’ and ‘Reportable relevant activities’.
Gathered and reported information includes identification and address information, financial information and residence information. Even operators that are considered excluded from these obligations will need to annually file relevant documentation to prove their exemption.
Transportation industry
Mobility as a service providers like Uber are an obvious example of potential digital platforms within the scope of DAC7 reporting obligations. An important consideration is whether the drivers are considered employees or self-employed individuals, as employees are not considered ‘Sellers’. However, digital platform operators operating in several EU member states should be wary that if a single member state interprets drivers as self-employed, reporting obligations may be triggered.
Similarly, traditional taxi service providers or digital platform operators providing platform facilities for traditional taxi service providers should consider potential implications. In addition, the business model of a digital platform may trigger reportable activities even if the reportable portion of the business model is not client-facing. An example of this could be the charger/juicer services provided to e-scooters and other micro mobility service providers.
Hospitality industry
Lodging and homestay rental platforms like Airbnb are one of the primary targets of the DAC7 Directive. In addition to identifying information and sales activities of the lodging provider, the operator will need to provide information on the rental property and how many rental days or activities have occurred during the reporting period.
However, there are some alleviating factors for established hotels enterprises and digital platforms for hotels. A digital platform operator does not have to report activities on ‘Sellers’ with more than 2000 relevant activities during a reporting period for a particular property listing. In addition, depending on the particular business model, some platforms may be exempted if they only offer, without any further intervention, users to list or advertise a relevant activity, redirecting or transferring of users to a platform or only process payments in relation to a relevant activity.
Restaurant industry
Food delivery platforms like Wolt and Foodora are likely targets for potential DAC7 reporting obligations. The operators of these digital platforms will need to report the due diligence information and platform sales activities of the restaurants and establishments operating on their platform. In addition, similar to the transportation industry, the status of the deliverers as employees or self-employed is vital when considering the reporting obligations of delivery activities.
Online marketplaces
Whether it be larger online marketplaces like eBay and Amazon or small second-hand marketplace or online auctioneers, DAC7 Directive will have significant implications.
Along with transportation and hospitality, these are one of the primary targets of the DAC7 Directive and any digital platform with any portions of its business model being similar to an online marketplace will most likely be within the scope of DAC7. Potentially this could even include communication platforms such as Whatsapp or Telegram depending on the local interpretations of DAC7 and whether they are seen as only facilitating the listing and advertising of relevant activities.
However, there are some alleviating factors on the scope of reportable sellers. Digital platform operators will not be required to report any sellers that have less than 30 reportable activities or the sum of the activities does not exceed 2000€ during the reporting period. It should be noted that if a seller exceeds these thresholds by any amount even on the last day of the reporting period, that seller and its activities become reportable.
Traditional & Other industries
The DAC7 Directive is not industry specific and it should not be overlooked even at organisations focusing on more traditional industries and conventional business models, as the liability to register as a digital platform operator and become responsible for DAC7 reporting may be triggered even if only a small portion of the business fills the criteria set in the DAC7 Directive. For example, areas where particular care should be taken include ESG, recycling and circular economy initiatives or supply chain optimisation programmes containing any form of electronic B2B, B2C or C2C collaboration and platform aspects.
An example of an unconventional industry that may fall within the scope of DAC7 is the healthcare industry. It is a quite common practice that doctors working for a hospital will work under their own trade name or limited company instead of being employees. As a customer can book a time for a specific doctor from the hospital’s website and may be billed by the doctor instead of the hospital, the criteria for a digital platform operator containing sellers performing relevant reportable activities could be met.
How can we help you with DAC7
We can provide our clients with end-to-end support on all DAC7 compliance-related issues from preparation for the legislative changes to actual execution of due diligence and reporting and the transition to ‘Business as usual’.
Initial assessment & preparation
We can assist in determining the potential implications of the DAC7 Directive on our clients’ business model from both a legal and technological perspective and support in the preparation and planning for the potential changes needed in the organisation.
Design, construct and implement
We can assist in designing, constructing and implementing the required governance and data management strategies, including potential technical solutions, to sufficiently respond to the requirements set by the DAC7 Directive.
Due diligence & Reporting
Once the DAC7 Directive comes into force, we can assist in the due diligence and reporting tasks, including the verification of sellers, gathering of information, compiling the DAC7 return file, filing and answering potential follow-up questions from tax authorities.
Digital business model & strategy development in conjunction with new legislation
Legislation regarding digital business is changing at an unprecedented pace and it is not always easy to keep up with. Due to our deep knowledge of digital legislation, technology and digital business models, we can assist the planning, assessment and realignment of our clients’ digital business models and strategy. This includes but is not limited to any implications the DAC7 Directive may have on digital business models.
Change management & Upskilling
The DAC7 Directive is a very significant legislative change in the EU with broad implications for a multitude of different industries and business models in all EU member states, even for businesses operating mostly outside of the EU. We can assist in preparing our clients and their employees for the change, potential new processes and policies required through change management support and DAC7 training.
What needs to be done and when
DAC7 due diligence must be completed by the end of each reporting period, which is a calendar year. The first due diligence deadline is December 31, 2023. The deadline for reporting relevant activities is the end of January the following year. The first reporting deadline is January 31, 2024.
DAC7 key terminology
- What is a ‘Digital Platform’?
- What is a ‘Platform Operator ID’?
- What is a ‘Relevant reportable activity’?
- What is ‘DAC7 due diligence’?
What is a ‘Digital Platform’?
A digital platform is any software, website or app that enables sellers to reach buyers with the intent of performing relevant activities either directly or indirectly.
What is a ‘Platform Operator ID’?
All identified digital platform operators must register with an EU Member State's tax authority in order to receive a Platform Operator ID, which is required for the reporting of relevant reportable activities. Failure to register may result in sanctions and even the barring of operations within the EU. If a platform operator is registered to another EU member state or is otherwise exempt, it may still need to provide notification of this exemption to some member states in writing.
What is a ‘Relevant reportable activity’?
A relevant reportable activity is the sales of any goods or services and renting vehicles or property.
What is ‘DAC7 due diligence’?
Digital platforms will need to start verifying their sellers and collect relevant information for reporting purposes. This information includes but may not be limited to: seller name, person id if person, address, TIN, VAT numbers, bank information, earnings per quarter, possible commissions, fees and taxes paid. It is the responsibility of the digital platform to ensure this information is correct and up to date. Non-compliant sellers will need to be barred from using the platform.
Why PwC
We have a unique combination of deep EU legislation knowledge, tax and legal technology capabilities and understanding of the requirements and challenges of digital business. We can provide support in all DAC7-related issues for all EU countries and even for very complex digital platform business models spanning multiple jurisdictions.
