DAC7 Directive: New reporting obligations for digital platform operators

19.11.2020

The European Commission has proposed an amendment to the 2011/16/EU directive concerning administrative cooperation in the field of taxation. In accordance to the amendment, EU Member States would begin to automatically exchange information regarding revenue made on digital platforms, such as online stores and marketplaces. This would allow Member States to more effectively identify deficiencies in the taxation of digital platforms.

‘Digital platforms’ are defined in the DAC7 directive as all software, web pages and mobile applications that allow Sellers to either directly or indirectly carry out reportable activities. An activity is reportable if it concerns the sale of goods or services, rental of immovable property, rental of any mode of transport or crowdfunding.

Why?

Trading on digital platforms is supranational by nature, as it facilitates commerce between virtually anyone irrespective of national boundaries or legislation. In practice, it is possible for a Seller to gain revenue from every other country except the country where they are resident for tax purposes. The growing popularity of online marketplaces has created unprecedented challenges, which the EU is unable to resolve with its current legislation.

What effect does DAC7 have on companies?

The introduction of DAC7 would result in additional costs for operators of digital platforms but the envisioned benefits would include a decrease in reporting burdens. Currently digital platforms, irrespective of their line of business, often have to follow the reporting demands of several different Member States.

Reporting obligations

Should the DAC7 directive be accepted, it would go into effect 1.1.2022. The responsibility for identifying Sellers, as well as reporting any reportable activities falls on the operators of digital platforms. However, the fulfillment of those responsibilities can be transferred to the operator of another digital platform or a third party. 

Reporting on Sellers

Due diligence Information regarding Sellers identified as reportable entities needs to be collected by the end of a reportable period. In that case, the first possible deadline for collecting information would be 31.12.2022. However, if a Seller has registered on the digital platform already before DAC7 came into effect or if the digital platform starts operating in the middle of a reportable period, the first deadline for collecting and verifying all necessary information would be at the end of the second reportable period. Due diligence information collected on Sellers would include, for example, VAT identification numbers, any TIN issued, as well as possible addresses and land registration numbers, where applicable. This information should be reverified at a minimum of every three years.

Reporting on reportable activities

Information on reportable activities needs to be delivered to tax authorities within one month of the end of a reportable period. In other words, the first possible deadline for reporting would be 31.1.2023. In addition to reporting collected due diligence information, the operator of a digital platform should also report the total consideration paid or credited to Sellers during each quarter of the reportable period, as well as any fees, commissions or taxes withheld or charged by the digital platform. Digital platform operators should submit reports only to the Member State in which they have a residence for tax purposes. If a digital platform operator is not tax resident in a Member State, it should report to the tax authorities of the Member State in which it has its place of management or where it has a permanent establishment.