The EU is introducing new measures to increase tax transparency in the digital economy. Digital Platform Operators are targeted to identify, trace and report on revenues made by sellers on their digital platforms. We can help you understand the impact and meet the requirements of these disclosure rules. Need to know more? Please contact us!
About DAC7
DAC7 is another addition to the already existing Directive 2011/16/EU on administrative cooperation in the field of taxation. It introduces new reporting obligations that will apply to Digital Platforms Operators that make their platform available to Reportable Sellers. Member States shall implement DAC7 by 31 December 2022 and apply their transposing DAC7 legislation as of 1 January 2023. Digital Platform Operators will then be required to report on the year 2023 for the first time in 2024. Digital Platform Operators should already have seller due diligence procedures and controls in place as of 1 January 2023.
DAC7 is designed to ensure that Member States automatically exchange the reported information on the Reportable Sellers on digital platforms, whether the platform is located in the EU or not. Digital Platform Operators are required to report to a Competent Authority in a Member State. The Competent Authority in that Member State will then exchange the information with the Competent Authority in the Member State where the Reportable Seller is tax resident. Digital Platforms Operators that are not located in the EU will be required to register in a Member State in order to comply with this Directive.
Income tax and VAT
The reported data is to be used for both income tax and VAT purposes. This may help tax authorities to trace and detect taxable events in the digital economy, because they would be able to use this data as counter information for income tax and VAT return purposes. Regarding VAT, European rules for e-commerce will dramatically change on 1 July 2021. This means that Digital Platform Operators will be dealing with changes on multiple fronts. Read more about the E-commerce and VAT rules here.
How does DAC7 impact Digital Platform Operators?
Digital Platform Operators that make their platform available to Reportable Sellers in order to carry out commercial activities fall, in principle, under the scope of DAC7. The commercial activities in scope are broadly formulated, and include the rental of immovable property, personal services, the sale of goods, the rental of any mode of transport and investing. Note that not all activities on a platform are in scope. Digital platforms that exclusively process payments, list or advertise or redirect or transfer users to a platform are under conditions not in scope. Digital Platform Operators that are in scope of DAC7 are subject to:
- Registration in a single member State, regardless of whether the Digital Platform Operator is located in the EU or in a third country
- Ongoing seller due diligence procedures to establish a.o. the tax residence of sellers and monitor for relevant changes in circumstances
- Annual reporting on sellers and their revenues generated on the digital platform to the competent authority in the EU member state where you are registered.
If you are not a Digital Platform Operator, you may still be impacted by DAC7 as a seller. The Digital Platform Operators with whom you do business may request you for additional information and documentation.
When and how should Digital Platform Operators prepare?
Digital Platform Operators will be required to report on sellers for the year 2023 for the first time in 2024. Digital Platform Operators will need to design and execute Reportable Seller identification procedures and implement and test the required reporting infrastructure well before the first reporting deadline. Considering the time required to obtain specific data from sellers, perform data cleansing and test reporting infrastructure it is recommend to already start early with:
- Assessing whether you are a Digital Platform Operator within the scope of DAC7
- Determining the impact to your organization, such as on which type of sellers and transactions do you need to report
- Assessing which required data elements you already obtain from sellers and which further data elements need to be obtained on an ongoing basis
- Assessing which procedures and controls should be implemented to meet DAC7 requirements on an ongoing basis. For example, in relation to seller due diligence these procedures and controls should cover seller data collection and validation, and seller change in circumstance monitoring.
What can PwC do for you?
We can assist you in the full end-to-end process, from identifying the exact impact of DAC7 on your business to assisting and implementing within your compliance framework and digital infrastructure, as well as assist in your annual reporting towards your local tax authority. Please contact us to find out what we can do for you.
PwC has a broad international network of tax and information reporting experts available to help you assess whether your business is impacted by this new Directive. Both in the Netherlands and abroad we have multi-disciplinary teams available with specialists, including specialists in the areas of client identification, IT, risk management, local regulatory legislation and assurance. We can leverage our in-depth knowledge and experience obtained on work with the earlier amendments to Directive 2011/16/EU, such as in relation to the Common Reporting Standard (or ‘CRS’, or ‘DAC2’).
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