DAC7: Is your business under scope?
What is DAC7 really and who will be affected by it?
Many unexpected challenges are arising since the transposition of the Directive into EU member’s national laws. Who is really affected by it? How is changing data going to be monitored and how will transactions be categorised?
14 February 2023
DAC7 is a European co-operative reporting regime that aims to identify sellers of goods and services across borders to ensure that sellers are correctly taxed of earned profits. The aim of DAC7 is somewhat similar to CRS – Common Reporting Standard; where financial institutions are obliged to report financial data of their clients to local authorities – and the data then gets shared among participating jurisdictions’ governing authorities.
A month into its implementation, plenty of companies seem to find the line for its applicability to be diffuse. Even though the relevant activities and platform operators are clearly defined by the Directive’s rules, real market activities include transactions which only partially fall into the scope defined.
Who does DAC7 apply to?
DAC7 obligations apply to multiple types of electronic platform operators that can be active in the form of a website, a part thereof or a mobile application, and include the following characteristics:
- Platform operators that allow buyers and sellers to connect and trade goods and services
- Platform operators that have a legal or commercial presence in the EU
- Platform operators whose platform’s intention is to carry out the described relevant activities, such as:
- Rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces
- Sale of personal services (time- or task-based work performed by one or more individuals, carried out at the request of a user, either online or physically offline after having been facilitated via a platform)
- Sale of goods
- Rental of any mode of transport.
In order for these relevant activities to fall under the legislation’s scope, they must include an arrangement for the collection and payment of a consideration in respect to the above-mentioned activities. This “Consideration” includes compensation in any form, and the amount of it must be known or reasonably knowable by the platform operator.
If you are planning on assessing whether your platform falls under the above listed criteria, please note that the Danish Tax Agency offer an assessment service under the following link. Though, please beware that long response times may be expected. For a fast assessment service carried out by experienced professionals, make sure to contact Deloitte.
Registration has been set out as a simple straight-out process; nevertheless, it is identifying the scope of the above-mentioned activities that has provoked many questions among companies. Due to the novelty of this legislative requirement, grey areas have floated through its implementation. As an example, online platforms that provide a marketplace, but where negotiation of the price takes place privately, cannot register transferred amounts effectively. The current situation is that the price has to be “reasonable known” – however, when is something reasonable known – and when is it not?
Apart from keeping track of transaction amounts and seller data, platform operators also need to consider implementation of a logic to separate some transactions from others – i.e. where prices are reasonable known and when they are not – depending on the functionalities of the platform and nature of transactions.
A second topic of discussion is focused on the collection and retention of data. There are multiple activities in the data collection process, such as mapping and quality control of existing data, ensuring collection of necessary data from new sellers, and, equally important, monitoring of changing data, i.e. keeping a log of old and new data, in case transactions during a year have happened both prior to and after a seller has changed residence.
Deloitte’s delegated reporting solution
Deloitte has extensive theoretical and hands-on knowledge within similar reporting regimes and is, further, aiming to develop an electronical reporting solution that can assist Danish companies becoming DAC7 compliant as soon as the Danish Tax Agency issues the technical specifications for this new report (expected in September 2023).
Should you be interested in hearing more about our delegated reporting solution – please do not hesitate to contact us. Time is running – and it takes time to set up both onboarding processes, to validate existing and new client data, to ensure compliant record keeping, and to export all reportable data in a correct format.