DAC7

To ensure proper functioning of the internal market, reporting rules have been designed to be both effective and simple. DAC7 places the reporting obligation on platforms operators. The rationale for this is that platform operators are better placed to collect and verify the necessary information of all sellers operating on and making use of a specific digital platform.  

Given the nature and flexibility of digital platforms, the reporting obligation covers platform operators that are resident for tax purposes in an EU country and those that are incorporated, managed, or have a permanent establishment in an EU country (union platform operators). 

To ensure simplification and reduce compliance costs, the Directive provides specific criteria which enable these platform operators to report in only one EU country. 

The reporting obligation also extends to platform operators that do not meet any of the above-mentioned criteria yet perform commercial activity in the Union (non-Union platform operators). Non-Union Platform Operators are required to register and report in one single EU country. 

To ensure a level playing field and reduce the administrative burden on digital platforms, the reporting obligation covers both cross-border and non-cross-border activities. The activities that are within the scope of the reporting obligation are: rental of immovable property, personal services, sale of goods and rental of any mode of transport. 

The rapid growth of digitalisation in the economy has given rise to an increasing number of complex scenarios linked to tax fraud, tax evasion and tax avoidance. There’s a broad spectrum of services using digital platforms. Especially in cross-border situations, this has created a complex environment where it can be challenging to enforce tax rules and ensure tax compliance. 

National tax administrations often have insufficient information to correctly assess and control gross income earned in their country by commercial activities using digital platforms. This is particularly problematic when the income or taxable amount is transferred via digital platforms established in another jurisdiction. 

Since most of the income or taxable amounts of the sellers on digital platforms flow across borders, the reporting of information related to the relevant activity should support the concerned EU country to collect tax revenue. 

In this context, the automatic exchange of information between tax authorities is crucial in providing them with the necessary information to correctly assess due amounts under income tax and value added tax (VAT).

DAC7 does not impose any new tax or in any way regulate the taxation of income earned by sellers on digital platforms. Income earned by sellers on digital platforms is taxed in accordance with the existing taxation rules of the EU country based on their national legislation.

Article 8ac(7) of DAC7 sets out the process by which equivalence with the reporting rules of the Directive may lead to the partial or full relieving of the reporting obligation for foreign platform operators. The detailed rules for the assessment and determination of equivalence can be found in Commission Implementing Regulation (EU) 2023/823. 

The process of establishing equivalence entails several steps which aim to ensure that information equivalent to the information required under DAC7 is exchanged between a non-Union jurisdiction and EU countries. 

The Commission is responsible for carrying out determinations of equivalence, which require an assessment of a non-Union jurisdiction’s legislation and the competent authority agreement that provides the legal basis for the automatic exchange of information with the Member States. 

The Commission’s determinations are subject to the approval of EU countries at the Committee on Administrative Cooperation for Taxation (CACT) and take the form of a Commission Implementing Regulation. 

Once approved and after the formal adoption of the equivalence decision, the application of the decision requires the entry into force of the assessed legislation and activation of the exchange relationship between the non-Union jurisdiction and EU countries. 

Determinations of equivalence have now been adopted for the United Kingdom, New Zealand, and Canada. The relevant Commission Implementing Regulations are listed below.

Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation 

Commission Implementing Regulation (EU) 2023/823 

Commission Implementing Regulation (EU) 2023/2389 of 29 September 2023 determining that the information to be automatically exchanged pursuant to the agreement to be concluded between the competent authorities of Finland and the United Kingdom is equivalent to the information specified in certain provisions of Council Directive 2011/16/EU 

Commission Implementing Regulation (EU) 2023/2693 of 30 November 2023 determining that the information to be automatically exchanged pursuant to the agreement signed by the competent authorities of New Zealand and certain Member States is equivalent to the information specified in certain provisions of Council Directive 2011/16/EU 

Commission Implementing Regulation (EU) 2024/432 of 2 February 2024 determining that the information to be automatically exchanged pursuant to the agreement signed by the competent authorities of Canada and certain Member States is equivalent to the information specified in certain provisions of Council Directive 2011/16/EU