Tax authorities in many countries impose additional reporting obligations to digital platforms in order to increase transparency, reduce tax fraud, and tax transactions that are often under-reported or untracked.
This increases the administrative and accounting burden on online platforms, as platform operators need to adapt to new rules to make sure they’re staying tax compliant.
The context of reporting obligations for digital platforms
Digital platforms drive economic growth and tax authorities across the globe are now trying to get more information on who’s making money on them, in order to be able to tax it. In the past few years, the obligations of online platforms have been increasing. They’re gradually expected to:
- Collect VAT on digital services
- Charge VAT on goods of low monetary value (we can take as an example the latest reforms in the UK and in the EU)
- Report sales transactions information in the EU
Platforms need, therefore, to collect and keep lots of different types of information, and also to charge and remit VAT whenever necessary on transactions that were previously in a gray zone.
In the EU, the DAC7 (the 7th Directive on Administrative Cooperation) that was approved by the Council of the EU on March 22, 2021 is stipulating new reporting obligations, starting from January 2023.
Similarly, Mexico and France have already adopted additional reporting obligations on property rental platforms, such as Airbnb.
The goals of the added reporting obligations
The sharing and gig economies have transformed the world in the past years. Many people are using gig platforms either as a main source of income, or as an additional income stream. Tax offices are progressively reaching the conclusion that a lot of the transactions that happen on such platforms are cross-border sales, and are, therefore, often not properly taxed.
Improving the information exchange between platforms and tax offices has a few goals:
- Identify taxable transactions and income
- Address tax and VAT gaps, i.e. the difference between expected and collected tax and VAT
- Reform outdated tax systems and adapt them to the realities of the digital economy
- Stimulate local businesses and improve their competitiveness by properly taxing foreign competitors
- Get better visibility on cross-border transactions and sellers’ activities
- Minimize tax fraud and tax evasion and facilitate tax collection.
Governments are implementing different strategies to get a more clear picture on the digital economy, and be able to tax it accordingly.
The model rules of the OECD’s 2020 report
In 2020, the OECD published a report on their model rules for reporting in the sharing and gig economy. Its goal was to provide additional guidance and support to governments on how to gather information on taxable transactions and income, and also how to streamline information exchange between countries.
The DAC7 was developed in this context, and its main objectives are to:
- Define clear reporting obligations for the operators of online platforms
- Set up automatic data exchange procedures between member states.
It concerns both EU and non-EU based platforms.
As for the reporting obligations recommended for implementation by the OECD (and implemented in DAC7), they concern mostly sellers, and include:
- The seller’s personal details (name, address)
- Their tax ID information (TIN or VAT/GST number)
- Payment methods and financial information
- Transaction details and amounts + fees collected by the platform
Although the DAC7’s scope doesn’t include VAT, it might also affect and facilitate VAT collection in the future.
What to do?
We recommend e-commerce businesses to prepare for these new rules timely. For volume businesses, this means ensuring your IT systems and e-commerce software are ready to handle the complexity these new rules bring and provide you (or your tax accountant) with adequate data to file your tax returns.
At Fonoa, we have developed a platform that is ready for the future and automates all aspects of your e-commerce VAT obligations.
A digital one-stop shop for online retailers with standard integrations to the world’s leading marketplaces and e-commerce tools like Shopify, Woocommerce, Magento and Opencart.
What’s more, reach out to us and we can help you handle your tax registrations, tax filings and representation where needed.