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DAC7 increases reporting obligations of digital platforms

On 22 March 2021, the Council of the European Union formally adopted the Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (also known as DAC 7) that would extend the scope of the existing provisions on exchanges of information and administrative cooperation between the member states by requiring digital platforms to collect and report information on the income realized by sellers offering certain services.

Additional reporting rules for platform operators
The reporting rules for platform operators apply in respect of platforms that allow sellers to be connected with customers for the provision of:

  • The sale of goods.
  • The rental of immovable property (e.g., accommodation);
  • The provision of personal services (time- or task-based work carried out either online, or physically offline after having been facilitated via a platform); and
  • The rental of any mode of transport.

The rules are designed to assist tax authorities to identify situations where taxes (in particular VAT and income tax) should be paid, and to reduce the administrative burden on platforms by standardising the reporting requirements in each Member State and requiring reporting in only one EU Member State.

The directive generally follows the principles outlined in the Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy developed by the Organisation for Economic Co-operation and Development and covers digital platforms located both within and outside the EU, where they have a qualifying nexus with the EU. The rules will apply from 1 January 2023.

Information to be reported
Under the directive, reporting platform operators would be required to collect and report extensive information in respect of reportable sellers on their platform including:

  • names;
  • addresses;
  • tax information numbers;
  • dates of birth;
  • VAT identification numbers;
  • business registration numbers,
  • information in respect of any permanent establishments in the EU;
  • financial account Identifiers;
  • the address and land registration number of each property listing;
  • the number of days each property listing was rented;
  • total consideration paid during each quarter; and
  • any fees, commissions or taxes withheld or charged by the platform during each quarter.

The reporting platform operator must verify this information in accordance with due diligence procedures by 31 December of the reportable period. The reporting platform operator must provide a copy of the information to each individual reportable seller before it is reported to the relevant competent authority.

Additional provisions in DAC7
Other improvements to the EU administrative cooperation in the field of taxation introduced by DAC7 include:

  • The clarification of the term ‘foreseeable relevance’ for the purposes of exchange of information upon request;
  • The rules on exchange of information upon request for group of taxpayers;
  • The extension of categories of income subject to mandatory exchange of information to royalties;
  • The new rules for carrying out simultaneous controls and allowing officials of a Member State to be present in another Member State during an enquiry; and
  • A framework for joint audits to be conducted by the competent authorities of two or more EU Member States.

The press release issued by the Council of the EU may be accessed here.

What do companies need to consider?

Considerations for companies in relation to the increased reporting requirements:

  • Does the company already collect the necessary data? If not, what changes to the systems are required to collect such data?
  • What processes will need to be put in place to validate the data during the reporting period?
  • Are any amendments to the terms and conditions required?
  • What system changes will be required to ensure that the necessary data can be reported to tax authorities?
  • Will any changes to the business model be required?

Also, there is an expectation that DAC7 will lead to increased joint Transfer Pricing audits in particular. Companies will need to consider whether they have appropriate resources to deal with such demands.

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