Introduction to New EU Reporting Requirements for Digital Platforms under DAC7

Council Directive (EU) 2021/514, also known as DAC7 or the seventh version of the European Union (EU) directive on administrative cooperation in the field of taxation, addresses the taxation of income generated through digital platforms. The aim of the directive is to ensure greater transparency by introducing new reporting requirements and allowing for the automatic exchange of information between EU member states. Platform operators will be required to adapt their practices and provide more extensive information on the sellers who use them. The guide below will offer a primer on the subject, allowing you to better understand the implications for your business.

What is the purpose of DAC7 and when did it come into force?

DAC7 aims to address the issue of lost tax revenue that comes about when income earned via digital platforms goes unreported. Under the new directive, platform operators need to begin reporting the newly required data by 31 January 2024, with data collection starting on 1 January 2023.

What businesses are affected?

DAC7 affects all platforms irrespective of their size if they engage in connecting sellers with customers to facilitate the sale of goods, rental of immovable property provision of personal services, or the rental of any mode of transport.

The new directive applies regardless of whether a business is based in the EU or not. If the platform is facilitating commercial activity by a seller in the EU or is engaged in activities relating to immovable property within the EU, they should be reporting the required information. The same applies to companies that are resident in an EU country. However, platforms only need to be registered in a single EU member state and do not need a different registration for each one where their sellers perform reportable activity.

Are there any exemptions to DAC7?

Government entities and sellers that perform fewer than thirty transactions for less than 2,000 EUR are exempt from reporting obligations of DAC 7. The same applies to those listed on a stock exchange, or who rent the same immovable property through the same platform more than 2,000 times during a reporting period.

What information should be collected from sellers?

DAC7 platform operators must collect detailed information from sellers. This includes both individuals and legal entities. In both instances, this will involve the total consideration paid or credited to reportable sellers during each quarter of the period in question; the number of activities that took place; any fees, commissions or taxes withheld or charged by the platform; and, the financial account identifier, if available.

Specifically in the case of individuals, DAC7 platforms should collect the following:

• First and last name.
• Their primary address.
• All Tax Identification Numbers (TINs) issued to that seller, including each member state of issuance.
• In the absence of a TIN, the place of birth of the seller.
• The VAT identification number of the seller if they have one.
• Their date of birth.

In the case of legal entities, DAC7 platform operators should be collecting the following:

• Their legal name.
• Their primary address.
• Details for each reportable seller of each member state where the activities in question are carried through via a permanent establishment in such states, where available.
• All Tax Identification Numbers (TINs) issued to that seller, including each member state of issuance.
• The VAT identification number of the seller if they have one.
• Their business registration number.

What should digital platforms be reporting?

It is incumbent upon the platform to report the information required by DAC7 to the relevant tax authority and to ensure the accuracy of the data they collect from their sellers. To this end, platforms may employ third parties for due diligence processes, but the ultimate responsibility still lies with the platform operator.

Platform operators should also provide their own name, address, tax identification number, trade name and web address to the relevant tax authorities.

What compliance measures are in place?

Digital platform operators are encouraged to establish and update their processes for collecting and storing seller information. While they must comply with DAC7, they should also be considering data protection implications under both EU and non-EU law.

Penalties for non-compliance has delegated to individual member states. For example, Irish legislation allows for penalties of 19,045 EUR, with an additional 2,535 EUR levied each day a return remains outstanding. As such, it is essential for businesses to ensure they remain compliant to avoid these hefty charges.

What next?

DAC7 represents a significant step towards enhancing transparence and cooperation within the EU, allowing governments to recover lost revenue. This presents new challenges for digital platform operators, with non-compliance potentially leading to substantial penalties.

If you are a digital platform operator looking to navigate the complex world of VAT within the European Union, you can speak to one of our experts. Our experience in the field has helped hundreds of customers successfully remain compliant and enhance their business operations.