In March 2021, as the world was adapting to an increasingly online existence, the European Commission unveiled a pivotal plan known as the Administrative Cooperation in the realm of taxation. The plan’s primary aim? To establish equitable and uncomplicated taxation practices within the European Union (EU). This article delves into the specifics of the DAC7 directive, which took effect on January 1 of this year, significantly impacting tax compliance.
DAC7, or the “Directive on Administrative Cooperation,” is a taxation directive implemented in the EU. It mandates that digital platform operators within the EU must furnish tax authorities with personal and business details concerning their service providers. Essentially, DAC7 defines digital platforms as any software facilitating transactions between sellers and buyers. This encompassing definition spans peer-to-peer lending, services, products, and platforms, including food delivery apps, car rentals, and ride-sharing services.
DAC7 was conceived with the goal of enhancing tax transparency. It addresses the challenge of unreported income tax, a problem that has been exacerbated by the proliferation of the sharing and gig economy.
Who Does DAC7 Affect?
The platforms subject to DAC7’s reporting obligations are quite straightforward:
· Rental of immovable property – Residential and commercial property rentals fall under this category. Notable examples include Airbnb and Peerspace.
· Rental of any mode of transport – Platforms offering rentals of various transportation methods, such as cars and recreational vehicles, like Getaround and Outdoorsy.
· Providing personal services – This category includes on-demand services, from ride-sharing (e.g., Uber and Bolt) to food delivery (e.g., Wolt).
· Sale of goods – E-commerce platforms that facilitate the sale of goods, such as Etsy and eBay.
It’s essential to note that non-EU companies are also subject to the reporting requirement if they operate in EU member states or have sellers operating within EU member states.
There are two primary exceptions:
· Casual sellers – Individuals with fewer than 30 transactions in a year that do not exceed 2000 euros.
· High-frequency real estate renters – Hotel chains and tour operators fall into this category.
What Information Falls Under DAC7 Reporting?
The information to be reported is straightforward and includes:
· Seller’s identifiable information: name and date of birth.
· Demographic seller information, such as their primary address.
· Tax Identification Number (TIN).
· VAT registration numbers.
· The seller’s financial account identification code.
· Business registration numbers.
· Amounts paid to sellers and platform fees for each quarter.
· The number of relevant activities for which the seller has been paid.
· For sellers of rental immovable property, details of the underlying properties that have been rented.
This information must be provided before January 31, 2024, and by January 31 each subsequent year.
Additional DAC7 Requirements
While DAC7 may appear straightforward on the surface, it comes with a few essential requirements:
· The reporting platform operator is responsible for determining the seller’s primary address.
· All reportable data must be provided to the seller before submission.
· Reporting platform operators must retain the reportable information for five years after the reporting period ends.
· All reportable information must be validated by the platform operator before the January 31 deadline for submission.
Each EU member state offers a method for information reporting, and affected platform operators need only report to one member state.
GDPR (Global Data Protection Regulation) and DAC7
It’s crucial to note that reporting platform operators must remain compliant with GDPR regulations. Sellers need to be informed about what data is collected and how it will be used, as all reportable data is considered sensitive and classified information.
Possible Penalties for Non-compliance with DAC7
Failure to provide all reportable data by January 31 will result in penalties. In cases where sellers and marketplace providers fail to share the required data, operators are obligated to issue two reminders. After 60 days without data provision, operators must sever ties with the seller and close their account.
What Should Affected Platform Operators Do?
This shift marks a substantial change for many platform operators. Fortunately, solutions are available to simplify compliance. FACEKI can efficiently automate the data collection process, enabling platform operators to outsource the additional workload imposed by DAC7. If your company falls under this directive, your first steps should include being aware of the submission deadline and devising a strategy for data collection and reporting.