ON 22 MARCH 2021, THE COUNCIL OF THE EUROPEAN UNION FORMALLY APPROVED THE SIXTH AMENDMENT (“DAC7”) TO COUNCIL DIRECTIVE 2011/16/EU ON ADMINISTRATIVE COOPERATION IN THE FIELD OF TAXATION (“DAC”). THE PROPOSAL HAD PREVIOUSLY BEEN DISCUSSED, AND AGREEMENT REACHED AT A TECHNICAL LEVEL, BY THE ECOFIN ON 1 DECEMBER 2020.
DAC7 extends the existing EU tax transparency rules to digital platforms. Broadly speaking, it requires platform operators to report information on income earned by sellers on their platforms, and Member States to automatically exchange this information. The objective is to enable local tax authorities to identify income earned by sellers through digital platforms and determine the relevant tax obligations.
Other amendments to the DAC aim, in particular, to improve the exchange of information (such as information on groups of taxpayers) between the tax authorities of the different Member States, introduce royalties in the categories of income subject to mandatory automatic exchange of information, improve the rules for carrying out simultaneous controls and provide a framework for Member States to conduct joint audits.
The new rules will apply from 1 January 2023 onwards. The new framework on joint audits will apply from 1 January 2024 at the latest.
Overview of the new EU tax transparency rules applicable to platform operators
DAC7 imposes an obligation upon reporting platform operators to collect and verify information on the reportable sellers making use of such platforms, and to report such information to the Member State concerned.
- Reporting platform operators are entities located within or outside of the EU that contract with sellers to make available all or part of a platform to those sellers (for example, a food delivery platform – a website or an application – that “buys-in” the services of third-party sellers to deliver food to its users in its own name).
- Non-EU platform operators falling within the scope of DAC7 should only be required to register and file reports in a single Member State. Furthermore, non-EU platform operators should be relieved of the obligation to report information which is equivalent to information that has already been exchanged between the relevant non-EU jurisdiction and a Member State.
- Reportable sellers are active sellers that are resident in a Member State, or that have rented out immovable property located in a Member State. There is a list of excluded sellers (including government entities, for instance).
- Reportable activities include the rental of immovable property, personal services, the sale of goods, and the rental of any mode of transport. The reporting obligation should cover both cross-border and non-cross-border activities.
- The information to be reported would include inter alia details on the reportable sellers, income earned from reportable activities, fees and commissions incurred, as well as specific information with respect to immovable property rental services.
The information collected is to be reported by the platform operator to the relevant tax authority before 31 January of the subsequent calendar year. Such information will then be automatically communicated by that tax authority in a standard computerised format to the competent tax authority of the Member State in which the reportable seller is resident, or in which the relevant immovable property is located, as the case may be.
Penalties for a seller that fails to provide the required information could encompass the closing of the seller’s accounts or the withholding of cash payments. Penalties would also apply to a reporting platform operator that does not comply with its registration obligations in a Member State, or with its reporting obligations.
Concluding remarks
DAC7 aims to strengthen administrative cooperation between Member States and sets out new provisions that target the challenges posed by the digital platform economy, in which income earned through digital platforms often goes unreported, and the tax due on it unpaid.
Member States are now required to implement DAC7 provisions into domestic law by 31 December 2022 and apply the new provisions as from 1 January 2023 (for the provisions on joint audits, 31 December 2023 / 1 January 2024, respectively).
This timeline still leaves players active in the digital platform economy an opportunity to assess the impact of the changes on their operations and internal processes.
