DAC7

Main provisions

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. 

Rationale

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).

Taxation of income earned by sellers

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.

Equivalence mechanism

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.

Simultaneously, the current status of activated exchange relationships between EU Member States and these jurisdictions is included below.

Obligations from non-Union Platform Operators under DAC7

Non-Union Platform Operators are defined as Platform Operators where they have Reportable Sellers resident in the EU.

In order to secure a level playing field, non-Union Platform Operators shall be subject to DAC7 requirements as long as they facilitate at least one type of relevant activity within the internal market, allowing customers to be connected to sellers in exchange for consideration, or involving the rental of an immovable property located in a Member State.

When starting activity in the EU involving EU reportable resident sellers, non-Union Platform Operators shallregister in one Member State serving as a one-stop shop for DAC7 purposes. They are subsequently assigned with an individual identification number. 

Platform Operators shall report information related to their EU-resident sellers on an annual basis to the tax authorities of the Member State of single registration. The reporting shall be made no later than 31 January of the year following the calendar year in which activities have been performed by EU sellers through the Platform. 

Platform Operators shall report two main categories of information on their EU-Sellers: (i) personal identification information, (ii) financial information related to the activities performed through the Platform Operator, including the total amount of consideration paid or credited to each seller. 

Platform Operators are responsible for conducting due diligence procedures to ensure the collection and the accuracy of the information reported concerning EU-sellers.

Any Platform Operator being in breach of DAC7 requirements is liable for administrative and penal sanctions provided for by Member States’ legal frameworks. In case of continued non-compliance after two reminders from the Member State of registration, the registration of the Platform Operator is permanently revoked. Member States may also organise in a coordinated manner the blocking of the Platform Operator, thereby prohibiting any activity from the Platform Operator within the EU.