30/03/21

EUROPE: DAC7 imposes transparency on digital companies.

As published on step.org, Monday 29 March, 2021.

European Member States' finance ministers have formally adopted an amended EU Directive on administrative cooperation in taxation, expanding automatic exchange of information to digital platform operators.

Council Directive (EU) 2021/514 of 22 March 2021 (DAC7) amends Directive 2011/16/EU to give tax authorities the information necessary to enforce cross-border tax rules on commercial operators of digital platforms. The new rules introduce an obligation for digital platforms located both inside and outside the EU to report the revenues generated by sellers on these platforms from 1 January 2023. This information will then be automatically exchanged between Member States' tax administrations.

The new digital platform rules were developed by the European Commission and published in July 2020. They are inspired by similar work done at the OECD, but are much wider in terms of the scope and businesses affected, say tax advisors at global firm EY. A key difference is that sale of goods is included in DAC7 but not in the OECD Model Rules.

The text requires Member States to adopt the proposed amendments to DAC7 by 31 December 2022 and apply the new provisions from 1 January 2023. Reporting of seller data must take place by 31 January of the year following the calendar year in which the seller is identified: that is to say by 31 January 2024 for those sellers identified in 2023.

Reportable activities include property rentals; personal services; sale of goods; and rental of any mode of transport. They will be subject to reporting obligations regardless of whether they are cross-border in nature and regardless of the legal nature of the seller. Information to be reported will include identification of the seller; country of residence; the seller's profits or turnover; bank account details; and details of property rented out.

Non-EU platforms will be exempt from reporting to EU tax administrations in cases where 'adequate arrangements' exist to ensure that equivalent information is exchanged between a third-party jurisdiction and a Member State. However, it is ‘not clear whether a non-EU digital platform would be relieved from reporting to an EU tax administration if that platform is subject to OECD-type rules in its home state,’ notes EY

DAC7 also introduces standardised reporting requirements intended to limit the administrative burdens on affected businesses. It also expands the existing administrative assistance rules, including the introduction of automatic information exchange on royalties, and the facilitation of joint audits.

The European Commission (EC) has already started its work on the next amendment to the Directive, DAC8, which will mandate exchange of tax-relevant data for crypto-assets and e-money. The EC is currently consulting on this until 2 June 2021 and expects to put forth a proposal in the third quarter of 2021.