On 22 March 2021, the Council of the EU amended the directive on administrative cooperation (through the so-called "DAC7") to expand reporting obligations and exchange of information to cover sales through digital platforms. These rules would apply from 2023.
In addition, DAC7 amends the actual exchange of information and cooperation between EU member states, focusing on joint actions and joint audits. These rules would apply from 2024.
1. New Reporting obligation for digital platforms
Digital platform operators with nexus in the EU will have to identify certain sellers and report information about income realised by their sellers from certain relevant activities. The information must be shared with the tax authorities of the relevant Member States no later than 31 January of the following calendar year, i.e. the reporting deadline for 2023 is on 31 January 2024.
Reporting platform operators
The platform operator is the entity that contracts with sellers to make available all or part of a platform to the sellers. The platform operator qualifies as a Reporting Platform Operator ("RPO") if it is resident for tax purposes in, is incorporated under the laws of, has its place of management in, or has a permanent establishment in a Member State. If a platform operator does not have any presence in a Member State, it may still qualify as RPO if it facilitates relevant activities of EU sellers or the rental of immovable property located in a Member State.
RPOs only need to report income realised by sellers from relevant activities. These are personal services, the rental of immovable property, the sale of goods and the rental of any mode of transport. The rules provide for a carve-out from reporting tax information for certain types of sellers.
The reporting obligations by platforms are meant to cover both cross-border and domestic relevant activities. Sellers either having their primary address, a tax identification number (TIN), or, for entities, a permanent establishment in an EU Member State, are all considered as EU residents for purposes of DAC7 and therefore covered by the tax information reporting filed by the platform. Furthermore, tax information on sellers who rent out immovable property located in an EU Member State must also be reported, regardless of whether these sellers are EU resident.
The new reporting obligation will have an impact on both platforms and sellers. Although DAC7 is not a proposal for a digital tax, it may have consequences for sellers, as Member States may decide to increase tax audits based on information received under DAC7. Furthermore, the broad scope ensures that domestic, intra-EU and third country activities are covered. From a perspective of RPO's, the obligation to report tax information might facilitate the collection of information for purposes the future implementation of Pillar 1 if there is consensus at OECD/G20 level . The Pillar 1 proposal seeks to create new taxing rights in "market jurisdictions" (for further details, please refer to our tax newsletter on the Pillar One Blueprint published mid-October 2020).
2. Improvements administrative cooperation
DAC7 further aims to strengthen administrative cooperation between Member States. The changes include:
(i) clarifying the notion of foreseeable relevance of information,
(ii) introducing new provisions on requests of information for group of taxpayers,
(iii) adding royalties to the categories of income subject to mandatory automatic exchange of information,
(iv) laying down new rules for using simultaneous controls and allowing the presence of officials of a Member State during an enquiry in another Member State, and
(v) establishing a framework for the competent authorities of two or more Member States to conduct joint audits.
The reporting obligation for platforms must be implemented in domestic legislation by 31 December 2022. The other amendments to improve administrative cooperation must be implemented in domestic legislation by 31 December 2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.