What Is the DAC7 Tax for Online Platform Sellers?

The term DAC7 has created confusion for many online sellers, leading some to believe it is a new tax on their digital sales. In reality, DAC7 is not a tax but a directive from the European Union aimed at increasing tax transparency. It mandates that digital platform operators collect and report the income earned by sellers to the tax authorities of EU member states. This applies to platforms based in the EU and many foreign platforms that facilitate transactions for sellers residing in the EU. The first reports, covering the 2023 calendar year, were submitted by platforms in early 2024.

Who is Subject to DAC7 Reporting

The reporting obligations under DAC7 apply to platform operators, but sellers engaged in specific activities are the subject of this reporting. These “reportable activities” are broadly defined and include:

• The rental of immovable property, such as vacation homes
• The provision of personal services, like freelance work or consulting
• The sale of goods
• The rental of any mode of transport

A seller becomes reportable once they meet certain thresholds within a calendar year. Reporting is triggered if a seller earns more than €2,000 from the platform or completes 30 or more transactions for the sale of goods. For example, a seller who rents their property once for €2,500 would be reportable, as would a seller who sells 35 items for a total of €500.

A specific exemption is designed for casual sellers of goods. A seller who exclusively sells goods is not reportable if they have fewer than 30 sales and the total revenue is less than €2,000 during the reporting period. The directive also excludes certain entities from reporting, such as government bodies and publicly traded companies.

Information Platforms Must Collect and Report

To comply with DAC7, digital platforms must collect, verify, and report a detailed set of information for each reportable seller. Platforms will contact sellers to request this information and may have to suspend accounts or withhold payments if a seller fails to provide the necessary details.

For individual sellers, the platform must report:

• Full name
• Primary address
• Date of birth
• Tax Identification Number (TIN), or the seller’s place of birth if a TIN is not available

For sellers operating as a business entity, the platform will report:

• Legal name
• Primary address
• Business registration number
• Tax Identification Number (TIN)

Platforms must also report the bank account number to which payments were made. They are also required to report the total revenue paid to the seller each quarter, along with the total amount of fees, commissions, or taxes withheld or charged by the platform during that same period.

Seller Tax Compliance and Record-Keeping

The implementation of DAC7 places a renewed emphasis on the seller’s personal tax responsibilities. With income data being automatically shared with tax authorities, sellers must accurately report this revenue on their annual tax returns. Failure to report this income can lead to audits, back taxes, and penalties.

Sellers should understand the difference between reported revenue and taxable profit. The amount reported by the platform is the gross revenue paid to the seller, from which sellers can deduct legitimate business expenses. These can include:

• The original cost of goods sold
• Shipping fees
• Marketing expenses
• Software subscriptions
• A portion of home office expenses, depending on local tax laws

Meticulous record-keeping is a necessary practice for any reportable seller. Sellers must maintain detailed records of all sales transactions and associated expenses, including receipts, invoices, and bank statements. Without proper documentation, a tax authority could disallow claimed expenses, resulting in a higher tax liability.

Depending on the seller’s revenue and location, Value Added Tax (VAT) obligations may also arise. The increased visibility from DAC7 could prompt tax authorities to scrutinize a seller’s VAT compliance. Consulting with a tax professional is advisable to navigate these complexities.