On March 22, 2021, the European Council adopted EU Directive 2021/514 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC).
Member states have until Dec. 31, 2022, to transpose the DAC7 reporting obligation into their domestic law and are required to give effect to those provisions as of Jan. 1, 2023.
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What is DAC7?
Primarily, the DAC7 directive extends tax transparency rules to digital platforms by requiring (i) reporting platform operators to collect and report prescribed information on reportable sellers using their platforms for certain commercial activities, and (ii) EU member states to automatically exchange this information.
DAC7 is broadly aligned with the OECD’s Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, although the scope of reportable activities under DAC7 is wider.
The information reported is to be used by tax authorities for assessment of both income tax and value added tax (VAT).
Who will be affected by DAC7?
DAC7 defines a digital platform as any software, including websites and mobile applications, that allows sellers to connect to other users to carry out a relevant commercial activity. However, platforms that only allow for the processing of payments, users to list or advertise, or that redirect or transfer users to a platform are excluded from the definition.
DAC7 reporting applies to operators of digital platforms who are tax residents in the EU, incorporated or managed in the EU, or have a permanent establishment in the EU, provided the platform is engaged in a relevant commercial activity.
Non-EU platform operators must also comply with DAC7 if they facilitate relevant activities of sellers who are residents in the EU or the rental of immoveable property located in the EU. Consequently, DAC7 impacts companies in the U.S. and around the world, and even those outside the EU will need to become familiar with its requirements.
What activities are covered by DAC7?
The relevant activities that trigger an obligation to report under DAC7 are:
- rental of immoveable property, both residential and commercial, including parking spaces
- provision of personal services
- sale of goods
- rental of any mode of transport
To apply, the activity must be carried out for consideration and may be cross-border or domestic. The rental of moveable assets, and peer-to-peer lending, do not currently fall under the directive. An important difference between DAC7 and the OECD Model Rules is that only DAC7 applies to the sale of goods (though the OECD has now presented an option to extend its Model Rules to sales of goods).