Tax professionals are sure to encounter two things at the end of each calendar year: awkward small talk at company holiday parties and annual reporting obligations. For tax team members working for digital platforms operating in Austria, the discussion may now also cover local data sharing obligations outlined in Section 18 of the Austrian VAT Act.
What is Data Sharing?
Data Sharing is the automatic exchange of tax information involving the systematic and periodic transmission of “bulk” taxpayer data by businesses to tax authorities. Typically, it is used by governments to ensure the timely detection of tax non-compliance.
When was it introduced and why?
Austria introduced its Data Sharing rules beginning on 1 January 2020. In parallel, the European Commission and the OECD held discussions at an intra-governmental level -- most notably the EU’s discussions on DAC7 and the various OECD’s discussions which resulted in the publications of the Model Rules for Reporting by Platform Operators and The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration. These publications are the cornerstones of data-sharing obligations globally and are a concrete effort to harmonise (if not standardise) the rules in this space.
In the early stages, both the EC and OECD discussions focused on direct taxes but were subsequently adapted to include, in part, information required for consumption taxes (although direct taxes remain the primary target of both DAC7 and the OECD’s Model Rules). We know that’s a lot of discussions to keep track of, but the good news is that it’s (almost) the last time you’ll have to read the word “discussion” in this article. End of discussion.
Austria was one of the countries leading the way in Europe in locally implementing data-sharing obligations. While, several other EU Member States did implement similar rules these were focussed either on a specific sector (accommodation or ridesharing) or had another tax in mind (income taxes, tourism levies, regulatory concerns). In a press release, the Austrian Ministry of Finance stated that their aim was to “ensure tax justice and fair competition in the digital world.”
The tax authority lacked visibility over the identity of gig economy workers and taxes being paid. It was perceived that Data Sharing would enable the tax authorities to reconcile sales via platforms with the tax returns of platform sellers, as taxable transactions for service providers and additional sales data – including the month of purchase – are now required to be provided.
It was perceived that Data Sharing would enable the tax authorities to reconcile sales via platforms with the tax returns of platform sellers
Is my company affected by these laws?
All digital platforms operating in Austria have the obligation to keep records of identification and transaction data of platform sellers - no mater whether or not these platforms have any local presence. Importantly, platforms with total annual domestic sales exceeding EUR 1 million are also required to report information to the tax authority electronically by 31 January of the following year.
Non-compliant companies with missing or incomplete information can expect audits or follow-up questions and in the worst case: penalties.
How does it work?
The Austrian Ministry of Finance (Bundesministerium fuer Finanzen) manages the Data Sharing. Their website provides helpful information such as the XML schema requirements and API documents needed to share information with the Ministry.
At a high level, marketplaces affected by Austria's Data sharing rules need to:
- Collect and validate relevant data points (including the name, address, VAT number, and income earned thorugh the platform);
- Extract, consolidate and transform data based on the data requirements as specified by the Ministry of Finance; and
- Submit the data using the Simple Object Access Protocol (SOAP) API technology. This is a protocol specification for exchanging structured information such as XML through a web service.
What are the challenges?
Here’s quite a few, but here is a shortish list:
- Easy to read step-by-step instructions for a tax audience are not (yet) available.
- The requirements are intertwined with the technical documentation and concepts, and not every tax professional is fluent in XML or WSDL.
- Sharing specific data points requires their collection in the first place. This collection must be integrated in the business process, such as during the sign-up flow or enforced at a more appropriate time in the funnel – like the pay-out stage. Requesting information at a later stage from platform sellers is usually more complicated.
- Tax departments are often not equipped to comply with the rules on their own and often need to enlist the support of technical operations in the Data Sharing compliance process. For example, data analysts or engineering support is usually needed.
Will Austrian Data Sharing be influenced by the introduction of DAC7?
Data Sharing for gig-economy platforms has been approached on a country-by-country basis until the OECD picked up the topic and provided a global model. Based on these efforts, the EU also initiated the seventh amendment of its Directive on Administrative Cooperation (aka DAC7).
Under DAC7, Platforms operating in the EU connecting Sellers with Users must collect, validate and report to tax authorities the identification data of Sellers and the transactional information. At the moment, DAC7 is being enacted into the local legislations of EU Member States (to stay on top of its progress, it’s worth bookmarking this page).
As the data requirements between existing Austrian Data Sharing Rules and DAC7 overlap quite a bit, a question is raised as to whether both sets of rules will exist in the future.
Put bluntly, will Austria ditch its existing VAT Data Sharing obligations for DAC7?
While many tax practitioners would strongly prefer a consolidation, some believe that Austria is likely to keep it’s existing laws on top of DAC7. This seemingly coincides with the fact that Austrian officials did not yet provide any public indication that they are contemplating ditching the existing rules.
At the time of writing, the proverbial jury is still out, but here are the most salient arguments tax professionals have given as to why Data Sharing will last beyond DAC7 – or why it won’t.
Reasons why existing Austrian Data Sharing may persist:
- Perhaps the strongest reason for keeping both sets of data sharing rules is that they are designed for different purposes: the existing Austrian legislation approaches the need for data sharing from an indirect tax perspective, whereas DAC7 is primarily concerned with collecting information relevant for income taxes.
- Keeping both data-sharing obligations running in parallel is necessary precisely because the basis for calculating income tax is quite different to the basis for calculating VAT. Therefore, it will be necessary to collect different data points to satisfy these two purposes.
Reasons why existing Austrian Data Sharing may be abolished:
- The government may face pressure from platforms to recognize that the new rules place a heavy burden on them, and are therefore untenable.
- The costs incurred by businesses in the collection, verification, storage and ultimate sharing of this information (now twice!) should not be underestimated – and we mean costs in the broadest sense of the word.
- The government will realize that because many of the requirements overlap, a large subject of the data shared in both cases is identical.
How can Fonoa help?
Regardless of whether Austria decides to merge or keep its existing rules, you can rely on support from Fonoa in either case. Fonoa enables you to easily understand the data and administrative requirements of these Austrian regulations. No need to worry about XML schemas and government-run APIs anymore. Reach out to learn how Fonoa’s Data Sharing product can automate the technical complexities and streamline the end-to-end process.