The EU Council recently announced the adoption of new tax transparency rules for digital platforms under a directive called “DAC 7” (Directive 2021/514). Adopted on 22 March 2021 by the EU Council, the directive introduces specific reporting obligations for digital platforms. The overall aim of this Directive is to improve administrative cooperation in the field of taxation and address the challenges posed by the digital platform economy.
What is DAC7?
In practice, DAC 7, translates at EU level concepts already developed by the Organisation for Economic Co-operation and Development (OECD) and it’s Base Erosion and Profit Shifting Project (“BEPS Project”). Action 12 of the BEPS Project in 2015 recommended that States should adopt an international standard of compulsory data reporting, aka “Mandatory Disclosure Rules”, with the purpose of strengthening tax transparency and countering international abusive practices. The Directive was introduced to render more efficient exchange of information for tax purposes among Member States to the greatest possible extent, in order to assess tax violations.
Essentially – DAC 7 will transfer the operators’ reporting obligations to digital platforms in order to help Member States fight against tax evasion. Covering a wide range and type of earnings, these activities will include; inter alia, the rental of real estate, the provision of personal services, the sale of goods, and the rental of any means of transport. However, in order to reduce unnecessary compliance costs for the real estate sector, including hotels and tour operators, there should be a threshold of a number of rentals per property that will be out of the scope of reporting obligation. Safeguards will be introduced in order to avoid any circumvention to such exemption.
DAC 7 will therefore allow national tax authorities to identify the income profits realised through digital platforms. Simplifying the process even further – the reporting will take place in only one Member State, according to a common framework adopted at EU level and platforms located outside the EU will have to report to the authorities of their home country, which will be responsible for exchanging information with EU Member States. Furthermore, Member States will be required to automatically exchange data received from the platforms with another country within one month following the reporting, through a common communication network that has already been established.
What information will I have to report?
The updated reporting obligations will include information relevant to the vendor, i.e. name, date of birth, registered office, Taxpayer Identification Number (TIN), Value Added Tax (VAT) number, and business registration number, as well as each Member State of residence of the vendor. In addition, the obligation will include information related to the profits realised on the digital platform, such as the revenues received, the account number where the monies are credited, the address of the property being rented out, and the number of days for which it was rented out and type of property. This information should be reported by the following 31 January of the year in relation to the relevant calendar year.
What do I need to do now?
DAC 7 requires Member States to adopt and publish, by 31 December 2022, the laws, regulations, and administrative provisions necessary to comply with the Directive, with the new rules due to enter into effect on 1 January 2023.
There is the potential for applicable penalties in case of failure to report and each Member State has the discretion to lay down the relevant measures for their country provided that these penalties are effective, proportionate, and dissuasive.
How can Animo help?
Our expert consultants are fluent in the necessary requirements to support your business in keeping compliant under these legislation changes. We can offer expert advice and guidance to ensure that your business operations are optimised. For any relevant queries to the above mentioned, get in contact with one of our expert consultants today by calling (0)207 060 0835, emailing info@animoassociates.com, or filling in a contact form below and our team will be happy to assist.
