DAC7: New EU reporting obligations for digital platforms
Deloitte Malta Tax Alert
4 September 2021
On 22 March 2021, the Council of the EU adopted the Directive 2021/514/EU amending Directive 2011/16/EU on administrative cooperation in the field of taxation (‘DAC7’) with the aim of extending the scope of provisions relating to the exchange of information and administrative cooperation between EU Member States by requiring qualifying digital platform operators to collect and verify the information of their sellers and report, inter alia, income earned by such persons through the use of the digital platforms.
DAC7 mainly addresses the challenges of digital economy in detecting taxable events and failure to report income generated by platform sellers. By standardized reporting, it is also aimed at reducing administrative burdens as well as compliance expenses on platform operators. DAC7 is inspired by principles outlined in the ‘Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy’ as published by the OECD in 2020 and covers digital platforms located both within and outside the EU where such platforms have a qualifying nexus with the EU.
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Platforms and Platform Operators
As defined in DAC7, the term ‘platform’ is rather broad and covers any type of software, including websites and applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity. The term also covers any arrangement for the collection and payment of a consideration in respect of the relevant activity.
Furthermore, a ‘platform operator’ is defined in DAC7 as an entity that contracts with sellers to make available all or part of a platform to the sellers, and a platform operator shall qualify to be considered as a ‘reporting platform operator’ in any of the following situations:
- Where it is resident for tax purposes in an EU Member State, or incorporated under the laws of an EU Member State, or has its place of management (including effective management) in an EU Member State, or has a permanent establishment in an EU Member State; or
- Where it is neither resident for tax purposes, nor incorporated or managed in an EU Member State, nor has a permanent establishment in an EU Member State, but facilitates the carrying out of a relevant activity by reportable sellers or a relevant activity involving the rental of immovable property located in an EU Member State.
Sellers and Relevant Activities
A ‘seller’ is defined by DAC7 as a platform user, either in the form of an entity or an individual that is registered at any moment during the reportable period on the platform and carries out a relevant activity. To qualify as a ‘reportable seller’, the seller must be a resident in an EU Member State or rents out immovable property located in an EU Member State. Certain sellers, such as governmental entities, publicly-traded entities are excluded from the scope of DAC7.
The new reporting obligation shall apply to platform operators allowing the sellers for the provision of the ‘relevant activities’:
- Rental of immovable property and parking spaces;
- Personal services;
- Sale of goods; and
- Rental of any mode of transport.
Information with respect to sellers to be collected and reported by the reporting platform operators is rather extensive and consist of, inter alia, the following:
- Name and address;
- TIN and VAT identification number;
- Business registration number (where applicable);
- Financial account identifiers;
- Total consideration paid during each quarter;
- Any fees, commissions or taxes withheld or charged by the platform;
- Certain information in relation to each rented property via the reporting platform operator (where applicable).
Reporting platform operators shall complete the due diligence procedures by 31 December of each reportable period and report to the competent authority of the EU Member State to determine the information no later than 31 January of the year following the calendar year in which the seller is identified as a reportable seller.
The first due diligence and verification of the information processes shall be in place by 31 December 2023, and the reporting operator platforms shall file their first reports by 31 January 2024 for the reporting year 2023.
How can we help
Whilst DAC7 shall be applicable from reporting year 2023, it is highly recommended that digital platform owners assess their DAC7 reporting position and ensure that the relevant necessary actions are undertaken in a timely manner so as to comply with the new mandatory reporting obligations.
Deloitte Malta can assist in answering your queries, so please do not hesitate to reach out to us for any further guidance you may require.