Welcome to Part 2 where we take a closer look at DAC7 which introduces an automatic exchange of information between Member States’ tax administrations for income generated by sellers on digital platforms.
In its political guidelines (“A Union that strives for more”) for the next European Commission 2019-2024, the EU Commission reiterated its willingness to achieve “an economy that works for people”. In light of this, “fair taxation allowing a level playing field in the European Union” is one of the biggest struggles facing the European social market economy.
According to the EU Commission, a fair tax system should impose the same rules on everyone. As a preliminary requisite, everybody – whether a business or a taxable person – should understand and apply these rules in the same way.
The EU Commission made it clear that the COVID-19 pandemic has urged the authorities to protect public finances and stay alert to its potential socio-economic consequences. The focus points, therefore, are tax fairness via the prevention of tax fraud, tax evasion and tax avoidance, as stated in the introduction to Directive 2021/514. This is where administrative cooperation and exchange of information intervene.
As mentioned in Part 1, due to the digitalization of the economy, we have seen an increase in complex situations linked to tax fraud where it can be challenging to enforce tax rules and ensure tax compliance. Indeed, the EU Commission emphasizes that “the value of unreported income appears to be significant and national tax administrations may face difficulties to monitor and solve such situations due to insufficient exchange of information”. This is particularly problematic when income is generated via digital platforms established in another Member State.
On 22 March 2021, Council Directive (EU) 2021/514 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (so-called DAC7) was adopted.
This document lays down rules and procedures that digital platforms must follow and share with the tax authorities of the Member State concerned. The aim is to address “the lack of tax compliance and the under-declaration of income earned from commercial activities carried out with the intermediation of such digital platforms”.
Obligations of digital platforms
| Who? | Where? | Which activities? | Reportable information | Deadlines |
EU platforms Non-EU platforms* *Are considered “qualified non-Union Platform operators” when facilitating commercial activities of EU sellers of the rental of immovable property located in the EU regardless of place of residence of sellers. |
Jurisdiction where tax residence or where other conditions are fulfilled [1] Jurisdiction of choice |
Rental of immovable property (including residential and commercial as well as parking space) Provision of personal services (e.g.: catering services etc.) Sale of tangible goods Rental of any mode of transport |
Identification details of the sellers (including VAT and tax identification number) Sellers’ residence Amounts paid/payable to sellers Location of the immovable property when relevant |
Member States must implement the DAC7 into national law on 1 January 2023. The reporting of data should be made available no later than 31 January of the year following the calendar year in which the seller is identified as Reportable Seller (i.e. by 31 January 2024 for sellers identified in 2023 and related transactions) |
So, what does all this mean? Well, from what we can see in the above table, it appears that the EU legislator is striving to keep pace with the development of new technologies by adapting to new consumption patterns and proposing pragmatic solutions.
Time will now tell whether this new way of reporting/record-keeping will be better to tackle VAT fraud linked to e-commerce or whether this significant problem calls for even more critical measures. For more insight, don’t miss our blog article where we explore how blockchain could solve VAT fraud, once and for all.
KPMG expertise
KPMG’s Indirect Tax Team is here to answer any questions and help you understand exactly what you need to do. Get in touch with Laurence Lhote or Quentin Warscotte!
[1] Annex V, Section 1:
(i) it is incorporated under the laws of a Member State
(ii) it has its place of management (including effective management) in a Member State
(iii) it has a permanent establishment in a Member State and is not a Qualified non-Union Platform Operator
