Council of the EU extends tax transparency rules to digital platforms

Deloitte Malta Tax Alert

24 March 2021

On 22 March 2021, further to the European Commission’s proposal originally submitted as part of tax package for fair and simple taxation in July 2020, the Council of the EU adopted a directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (‘DAC7’). DAC7 aims to improve administrative cooperation in the field of taxation and to address the challenges posed by the digital platform economy by extending the EU tax transparency rules to digital platforms.

The growing digitalisation of the economy has given rise to an increasing number of complex situations linked inter alia to tax fraud, tax evasion and tax avoidance. Income earned by individual or corporate sellers through digital platforms is often unreported and tax is not paid, in particular when digital platforms operate across several countries. This has created a challenging environment for tax administrations to enforce tax rules and ensure to compliance.

DAC7 introduces an obligation on digital platform operators to report income earned by sellers on their platforms and to facilitate the automatic exchange of information between Member States. 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 and covers digital platforms located both within and outside the EU, where they have a qualifying nexus with the EU. The new rules will apply starting from 1 January 2023.

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 a Member State to be present in another 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.

The press release issued by the Council of the EU may be accessed here.

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