DAC 7 - Also leads to new VAT requirements

Introduction of DAC7

DAC7 is 7^th amendment of Directive for Administrative Cooperation which is introduced to ensure the systematic exchange between EU Member States, of predefined information regarding digital platform sellers and service providers. It is expected that DAC7 will mitigate the risk that those sellers and service providers are not fully declaring their revenues. As such, DAC7 also standardizes the possibility of joint audits of several EU Member States and the minimum reporting requirements applicable across the internal market.

What are the implications of DAC7?

As of 1 January 2023, platform operators are required to collect and monitor predefined data of platform sellers and service providers. Both the definition of a platform and the minimum list of predefined reporting requirements is broadly formulated. DAC7 defines a digital platform as, “any software, including websites and mobile applications, that allows sellers and service providers to connect to other users to carry out a relevant commercial activity”.  Platforms that only process payments, refer users to a platform or simply place advertisements are, under conditions, excluded from DAC7 scope. The minimum list of predefined reporting requirements concerns cross-border and domestic activities that generate income and are known or should be known to the platform operators.

As of 2024, the information needs to be sent to the EU Member State national tax authorities where the platform operator is registered. The EU member state that receives the information will further exchange this information with the other EU Member State tax authorities in scope, i.e., where the platform seller or service provider is tax resident.

Given the nature and flexibility of digital platforms, DAC7 also applies to non-EU platform operators. Where the tax authorities of non-EU jurisdictions cannot assure the effective implementation of due diligence procedures and reporting requirements, non-EU platform operators should register in a member state to comply with the DAC7 obligations.

DAC7 will also affect platform sellers and service providers directly, because platform operators may request the additional information from them. Further, platform sellers and service providers need to review whether this information is correct and should act if it is not.

Conclusion

Because of the implementation of DAC7, it is important for platform operators to take responsive measures. Platform operators should connect with the sellers and service providers acting through their platform and implement proper due diligence procedures and the predefined reporting requirements as of 1 January 2023.