In this overview article we help you understand the impact of the new legislation and the obligations that have to be fulfilled.

We advise everyone doing business via software to verify whether the reporting requirement applies to them, as the scope is broader than the ‘typical’ platform.

Background

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 (“DAC 7”) that would extend the scope of the existing provisions on exchanges of information and administrative cooperation between the EU Member States by requiring digital platforms to carry out due diligence procedures by collecting information and to fulfil reporting requirements on the income realized by sellers offering certain services and selling goods.

The rules are designed to assist tax authorities identify situations where taxes (in particular VAT and income tax) should be paid by the sellers.

DAC7 is part of the Package for Fair and Simple Taxation issued by the European Commission to contribute to Europe’s economic growth after the COVID-19 pandemic.

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 (“OECD”) and covers digital platforms located both within and outside the EU, where they have a qualifying nexus within the EU. The rules will apply from 1 January 2023.

Checklist for platform operators

Platforms have to be ready to fulfill these reporting obligations in order to avoid penalties for non-compliance. If the following definitions apply to platforms and their activities, they are likely to be subject to the DAC7 reporting obligations.

Information to be reported

Under DAC7, reporting platform operators would be required to collect and report extensive information in respect of reportable sellers on their platform including:

• names;
• addresses;
• dates of birth;
• tax information numbers;
• 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

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 an EU Member State to be present in another EU 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 (this provision will apply from 1 January 2024).

VAT and e-commerce reporting obligations

In the field of VAT, digital platforms already are confronted with a number of VAT reporting and record-keeping obligations and may have processes in place for collecting and verifying information about platform sellers.

Since 1 July 2021 digital platforms are liable for the payment of VAT on certain B2C cross-border supplies of goods (i.e. in all situations where goods supplied have to be imported and have a value of no more than EUR 150 and in other situations where the supplier is established outside the EU under article 14a VAT Directive). Apart from similarities there are also many differences in the reporting an record-keeping obligations between DAC7 and the VAT Directive. Besides, there is a difference regarding the information to be collected.

What do platforms need to consider?

From 2024 onwards digital platforms will be required to submit their first reporting on their sellers that were active on their platforms throughout the preceding calendar year.

Considerations for platforms in relation to the increased reporting requirements:

• Determine whether the business model(s) of the company may be impacted by DAC7.
• Will any changes to the business model be required?
• If not registered in the EU, is a registration in an EU Member State necessary?
• Does the company already collect the necessary data? If not, what changes to the systems are required to collect such data?
• What processes (internal checks and procedures) will need to be put in place to validate the data during the reporting period?
• Set up to process to file an annual report to the tax authorities including the relevant information of the sellers and their generated revenues.
• 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?
   

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.

Finally, platforms that fall under the scope of the DAC7 reporting obligations have to be ready to determine how to fulfill these reporting obligations in order to avoid penalties for non-compliance. According to the Dutch law, failure to comply with the obligations may result in penalties of up to EUR 900,000 (for 2023 reports) or up to EUR 1,030,000 (for 2024 reports and beyond). Even criminal prosecution is a possibility. Penalties will have to be proportionate; circumstances of the case and the severity of the offence will be taken into account. The financial circumstances of the platform will also play a role in determining the amount of the fine, as well as collusion and recidivism. 

DAC7 FAQs document Dutch Tax Authorities 

The Dutch Tax Authorities published a FAQ document in relation to DAC7. This document contains questions and answers about the practical aspects of the reporting obligation for digital platforms. Platform operators, sellers on these platforms, and other stakeholders can quickly find information, e.g., where to
register/report under particular circumstances.

Policy Notice

To comply with the reporting requirements as a result of the implementation of the DAC7 regulation, reporting platform operators are required to collect specific information on sellers using their digital platform. The Ministry of Finance published guidance on the collection and verification requirements of platform operators by means of a Policy Notice. It also contains an explanatory memorandum on the interpretation and application of the requirements.

In addition to this Notice the Ministry of Finance have published a FAQs document. The document contains answers given by the Ministry on questions:

• related to the reporting obligation for digital platforms,
• where (in which country) to report
• the activities that are relevant
• the collection and verification of data,
• the reporting process, and
• formal aspects
• the ways to contact the DAC7 desk of the Tax Authorities

Most of the answers could already be found in the explanatory notes during the implementation process (in Dutch: ‘parlementaire geschiedenis’) and the Policy Notice. However, some answers are new.

Below we have highlighted the most important points of the FAQs document.

How can we help? The Deloitte DAC7 Reporting Solution

The DAC7 requirements pose different challenges on businesses. Deloitte offers an end-to-end solution to support businesses to be DAC7 compliant. As part of that we offer DAC7 software specifically designed to create and submit DAC7 reports in a cost-efficient manner, for the Netherlands as well as other EU countries

Learn more about our Deloitte DAC7 Reporting Solution here.