Dutch DAC7 implementation: increase reporting obligations of digital platforms on platform sellers

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National tax authorities are obliged to automatically share that information with tax authorities in other EU Member States. This allows tax authorities to tax the income that sellers earn from the sale of goods and services to EU customers via these digital marketplaces.

Currently the bill aiming to implement DAC7 in Dutch national legislation to the Lower House of Parliament is pending. Platforms have to be ready to determine how to fulfill these reporting obligations in order to avoid penalties for non-compliance.

In this article we help you understand the impact of the new legislation and the obligations that have to be fulfilled. We advise everyone doing business via software to verify whether the reporting requirement applies to them, as the scope is broader than the ‘typical’ platform.

Background

On 22 March 2021, the Council of the European Union formally adopted the Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC 7”) that would extend the scope of the existing provisions on exchanges of information and administrative cooperation between the EU Member States by requiring digital platforms to carry out due diligence procedures by collecting information and to fulfil reporting requirements on the income realized by sellers offering certain services and selling goods.

The rules are designed to assist tax authorities identify situations where taxes (in particular VAT and income tax) should be paid by the sellers.

DAC7 is part of the Package for Fair and Simple Taxation issued by the European Commission to contribute to Europe’s economic growth after the COVID-19 pandemic.

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 (“OECD”) and covers digital platforms located both within and outside the EU, where they have a qualifying nexus within the EU. The rules will apply from 1 January 2023.

Dutch implementation

After the presentation of a draft bill for internet consultation at the end of 2021, the amended bill was presented to the Lower House of Parliament on 23 March 2022, aiming to implement DAC7 in national legislation. The implementation will lead to amendments to the Dutch International Assistance in the Levying of Taxes Act (Wet op de internationale bijstandsverlening bij de heffing van belastingen, “WIBB”).

Checklist for platform operators

Platforms have to be ready to fulfill these reporting obligations in order to avoid penalties for non-compliance. If the following definitions apply to platforms and their activities, they are likely to be subject to the DAC7 reporting obligations.
 

Qualifying platforms

A platform is defined as any software including a website and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity, directly or indirectly, to such users. It also covers any arrangements for the collection and payment of a consideration in respect of an activity.

Platforms that do merely processing payments, listing or advertising a relevant activity or redirecting or transferring users to another platform are excluded from the DAC7 reporting obligations.

Please note that based on the Dutch implementing comments, one could qualify as a qualifying platform even in the situation when goods or services are sold in one’s own name, but for the account of a third seller.
 

Reportable sellers

A seller is a platform user who can be an individual or an entity that is registered at any moment during the reportable period on the platform and carries out a relevant activity. A seller is a reportable seller when it is a resident in an EU Member State and carries out a relevant activity or rents out immovable property located in an EU Member State.

There are exclusions for governmental entities, entities listed on a stock exchange, certain professional sellers with more than 2.000 relevant activities (e.g. hotel chains, tour operators) and small sellers who have less than 30 sales of goods and a total consideration of less than EUR 2,000.
 

Relevant activities

The reporting rules for platform operators apply in respect of platforms that allow sellers to be connected with customers for the provision of:

• the sale of goods;
• the rental of immovable property (e.g. residential and commercial property, other immovable property and parking spaces);
• personal services (time- or task-oriented activity carried out either online, or physically offline after having been facilitated via a platform, e.g. transport and delivery services, tutoring, cleaning, gardening or making repairs at home - or administrative, legal or accounting tasks); and
• the rental of any mode of transport.
   

All activities have to be carried out against consideration.

Information to be reported

Under DAC7, reporting platform operators would be required to collect and report extensive information in respect of reportable sellers on their platform including:

• names;
• addresses;
• dates of birth;
• tax information numbers;
• VAT identification numbers;
• business registration numbers,
• information in respect of any permanent establishments in the EU;
• financial account identifiers;
• the address and land registration number of each property listing;
• the number of days each property listing was rented;
• total consideration paid during each quarter; and
• any fees, commissions or taxes withheld or charged by the platform during each quarter.
   

The reporting platform operator must verify this information in accordance with due diligence procedures by 31 December of the reportable period. The reporting platform operator must provide a copy of the information to each individual reportable seller before it is reported to the relevant competent authority.

Additional provisions

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 an EU Member State to be present in another EU 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 (this provision will apply from 1 January 2024).
   

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

VAT and e-commerce reporting obligations

In the field of VAT, digital platforms already are confronted with a number of VAT reporting and record-keeping obligations and may have processes in place for collecting and verifying information about platform sellers.

Since 1 July 2021 digital platforms are liable for the payment of VAT on certain B2C cross-border supplies of goods (i.e. in all situations where goods supplied have to be imported and have a value of no more than EUR 150 and in other situations where the supplier is established outside the EU under article 14a VAT Directive). Apart from similarities there are also many differences in the reporting an record-keeping obligations between DAC7 and the VAT Directive. Besides, there is a difference regarding the information to be collected.

What do platforms need to consider?

In 2024 digital platforms will be required to submit their first reporting on their sellers that were active on their platforms throughout the calendar year 2023.

Considerations for platforms in relation to the increased reporting requirements:

• Determine whether the business model(s) of the company may be impacted by DAC7.
• Will any changes to the business model be required?
• If not registered in the EU, is a registration in an EU Member State necessary?
• Does the company already collect the necessary data? If not, what changes to the systems are required to collect such data?
• What processes (internal checks and procedures) will need to be put in place to validate the data during the reporting period?
• Set up to process to file an annual report to the tax authorities including the relevant information of the sellers and their generated revenues.
• Are any amendments to the terms and conditions required?
• What system changes will be required to ensure that the necessary data can be reported to tax authorities?
   

Also, there is an expectation that DAC7 will lead to increased joint Transfer Pricing audits in particular. Companies will need to consider whether they have appropriate resources to deal with such demands.

Finally, platforms that fall under the scope of the DAC7 reporting obligations have to be ready to determine how to fulfill these reporting obligations in order to avoid penalties for non-compliance. According to the Dutch draft bill on the implementation of these rules, failure to comply with the obligations may result in penalties of up to EUR 900,000. Even criminal prosecution is a possibility. Penalties will have to be proportionate; circumstances of the case and the severity of the offence will be taken into account. The financial circumstances of the platform will also play a role in determining the amount of the fine, as well as collusion and recidivism.

Next steps

The amended version of the draft bill has been send to the Lower House of Parliament for approval. Once a bill has been accepted, it is passed to the Senate for consideration. The bill needs to be implemented on 1 January 2023.

Our point of view

At this moment, the impact of these new reporting obligations is not entirely clear. For example, it is not a simple matter to establish the scope of the relevant activities or to assess which sellers and type of platforms will be hit by these rules. However, based on the checklist provided above, we are able to provide you with our assistance.

Currently, we are waiting for more guidance from the OECD on this matter, which is expected to be published this Summer. We are in close consultation with the Dutch Tax Authorities and other stakeholders and we will keep you updated on new developments.

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