EU DAC7: New Tax Reporting Rules for Platforms

The European Union has implemented Council Directive 2021/514, known as DAC7, to increase tax transparency across the digital economy. This directive requires operators of digital platforms to collect, verify, and report information about the income earned by sellers using their services. This information is then shared among the tax authorities of EU member states, enabling them to accurately assess the taxes owed by sellers. The rules took effect on January 1, 2023, with the first reports for the 2023 calendar year submitted in early 2024.

Scope of DAC7

The regulations define a “platform” as any software, including websites and mobile applications, that allows sellers to connect with other users to perform specific commercial activities. The “platform operator” is the entity that contracts with sellers to make its platform available. These rules apply not only to operators based within an EU country but also to non-EU operators that facilitate relevant activities for sellers residing in the EU or involving property located there.

Four distinct categories of “Relevant Activities” fall under the DAC7 reporting requirements.

• The rental of immovable property, such as residential or commercial real estate and parking spaces.
• Personal services, where individuals offer their time or perform tasks for a fee, which can include transportation and delivery services.
• The sale of goods, encompassing transactions on online marketplaces.
• The rental of any mode of transport, from cars to scooters.

Identifying Reportable Sellers

A “Seller” under DAC7 is any individual or legal entity registered on a platform to perform one of the relevant activities. A seller becomes a “Reportable Seller” if they are a resident of an EU Member State, which is determined by their primary address. Additionally, any seller, regardless of their residency, who rents out immovable property located within an EU member state is also considered a reportable seller.

Certain sellers are explicitly excluded from the reporting requirements. Government entities, entities whose stock is regularly traded on an established securities market, and large-scale hotel providers that facilitate more than 2,000 rentals per year for a specific property listing are not considered reportable sellers.

A significant exclusion exists for small-scale sellers of goods, often referred to as a de minimis threshold. Sellers who complete fewer than 30 sales of goods within a calendar year AND receive a total consideration of less than €2,000 are not subject to reporting. This specific exemption applies exclusively to the sale of goods, as sellers providing personal services, renting property, or renting modes of transport are reportable regardless of their transaction volume or income.

Required Information and Due Diligence

Platform operators are mandated to collect specific identifying information from their sellers.

Individual Sellers

For individual sellers, this includes their full name, primary address, Tax Identification Number (TIN) issued by their country of residence, and their date of birth. If the individual is registered for Value Added Tax (VAT), their VAT identification number must also be collected.

Entity Sellers

For sellers that are legal entities, such as corporations or partnerships, a different set of information is required. Platforms must collect the entity’s legal name, primary address, TIN, and business registration number. Similar to individuals, if the entity has a VAT identification number, it must be provided.

Transactional Data

Beyond seller identification, platforms must gather detailed transactional data. This includes the total amount of money paid to the seller each quarter, as well as any fees, commissions, or taxes withheld by the platform from those payments. The platform must also track the number of relevant activities the seller performed. For sellers renting immovable property, the address of each property listing is also required information that must be reported.

Due Diligence

Platform operators have a “due diligence” responsibility to ensure the information they collect is accurate. This means they must take reasonable steps to verify the seller’s data. This can involve checking the information provided by the seller against the platform’s own records or using electronic interfaces made available by governments to confirm the validity of a TIN or VAT number.

The Reporting Process and Seller Consequences

The reporting cycle under DAC7 is based on the calendar year. Platform operators are required to collect data on their reportable sellers throughout the year. By January 31 of the following year, the platform must submit a comprehensive report containing all the required seller and transactional information to the tax authority of a single designated EU Member State.

Once a platform submits its report to one EU tax authority, that authority then automatically shares the information with its counterparts in other Member States. The data is exchanged with the tax authority of the country where the seller is a resident. If the reported income relates to the rental of immovable property, the information is also shared with the tax authority in the country where the property is located.

Sellers who do not provide the necessary information face direct consequences. If a seller fails to supply the required data after receiving reminders from the platform operator, the platform is obligated to take action. The operator must either close the seller’s account, preventing them from conducting further business, or freeze payments owed to the seller. These measures remain in effect until the seller provides the complete and accurate information required for DAC7 reporting.