DAC7: Reporting Obligations for Online Platforms in the EU

August 31, 2022

DAC7, short for the 7th amendment to the EU’s Directive on Administrative Cooperation, is an initiative aiming to improve tax cooperation between EU member states. It allows EU countries to track taxable transactions on online platforms and simplifies the collection of taxes by local tax authorities. DAC7 was introduced on March 22, 2021, and the new reporting rules will apply from January 1, 2023. 

Online platforms need to collect and verify the identification information of EU sellers who use their services and report taxable sales activities each year to local tax authorities, which will then make the information available across EU member states. The new rules are similar to the OECD’s model rules for platforms with respect to sellers in the sharing & gig economy from 2020.

Who is concerned by the DAC7 rules? 

The new DAC7 rules will apply to digital platforms that facilitate the sale of goods or services, or also the rental of immovable property. 

Digital platforms include software applications (for mobile or desktop), websites or parts of a website that connect sellers to buyers and allow them to carry out a sales transaction (‚ÄúRelevant Activity‚ÄĚ).¬†

Some platforms are excluded, such as: 

  • Payment processing platforms (ie. Stripe, Wise, PayPal)
  • Platforms that only list items or services for sale or rent but do not take part in facilitating the transaction and/or are not necessarily aware of the value of transactions (ie. Facebook marketplace, Craigslist).

The operator of a digital platform that facilitates sales transactions is called Reporting Platform Operator (RPO).

 

EU RPOs are either tax residents in an EU country, OR are companies registered in an EU country, OR have their headquarters or a permanent establishment in the EU.

Non-EU RPOs are platform operators who aren’t present in the EU in any way, but who might still be facilitating the sales transactions of EU sellers. They might not need to report sales activities in the EU under the new rules of the DAC7 if there’s already an existing agreement between the country where they’re located and EU member states (e.g. it is expected that the UK will become an EU-approved jurisdiction for reporting). 

 

What are the reportable transactions and who are the reportable sellers? 

The transactions that RPOs need to report are known as Relevant Activities and include: 

  • Immovable property rental, including residential and commercial property and parking spaces (ie. Airbnb, Booking.com)
  • The rental of cars, motorcycles, and electric scooters (ie. Turo)
  • Time or task-based personal services carried out at the request of a user (ie. Uber, Upwork, Fiverr)
  • The sales of goods (ie. eBay, Amazon)

Transactions need to have a monetary value to be considered reportable, and need to be paid to the seller in a way that’s verifiable by the digital platform.

Reportable sellers are either EU tax residents (individuals or companies) who carry out taxable transactions according to the above definition, or sellers who rent out an immovable property that is located in the EU. 

Sellers who sell physical goods and have less than 30 transactions and for less than ‚ā¨2,000 (in total, per year) are excluded from the platform‚Äôs reporting obligations.¬†

Platform operators need to collect and report details on: 

  • The seller‚Äôs personal information
  • Their tax identification (TIN and/or VAT number)
  • Transaction amounts
  • Financial accounts used
  • Fees and taxes withheld by the platform operator
  • The rental property‚Äôs address & rental periods (for each property)

Platforms need to report this information by January 31 following the year in which the reportable seller has used their services for selling goods or services. For pre-existing sellers, platforms have until 31 December 2024 to validate sellers’ personal and tax identification information and collect any missing information. Member states will determine the penalties for a failure to disclose all relevant information. Platform operators will also need to close the accounts of sellers who fail to provide all necessary information after 2 reminders. 

How can Fonoa help?

In less than 6 months DAC7 will take effect across the EU and platforms will not only have to start collecting all required data points from new sellers, but will also need to collect and validate data of their pre-existing sellers. With Lookup, Fonoa’s Tax ID validator, you can already validate any VAT ID via our API and our dashboard (in bulk and individually) and find out all the relevant details of your seller. 

Additionally our Data Sharing solution (currently in production) will help platforms with data ingestion, validation, transformation and submission to the tax authorities.

 Get in touch to learn more about how Fonoa is helping clients with data sharing obligations. As well as how we plan to support our customers with DAC7. 

Fonoa Overview

Our suite of products automate your global tax obligations across the entire transaction, with one API. We validate tax IDs, calculate the correct tax rate, issue compliant invoices, report relevant information to local tax authorities.  Get in touch to start automating all things indirect tax.

 

 

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Attila Felföldi
Tax Manager

Attila is an experienced tax professional specialized in international taxation with a focus on different data sharing regimes across the EU like DAC6 and DAC7. He has several years of Big4 tax consultancy experience helping clients from a wide range of industries including e-commerce with their data sharing obligations and international tax planning.