Incorporation of the EU Directive on administrative cooperation in the field of taxation, or DAC7, into Latvian law

Incorporation of the DAC7 into Latvian law

Incorporation of the EU Directive on administrative cooperation in the field of taxation, or DAC7, into Latvian law.

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Incorporation of the DAC7 into Latvian law

During recent years, the economy has been digitising rapidly, involving more extensive use of digital platforms for trading in goods and services. The use of digital platforms has also promoted cross-border transactions. The digital and cross-border nature of such transactions has given rise to a complicated environment, which may present challenges to businesses to comply with tax legislation. Currently, the State Revenue Service (hereinafter – the SRS) and tax administrations of other member states of the European Union (hereinafter – the EU) do not have information that would allow them to control business conducted on digital platforms.

On 22 March 2021, Council Directive (EU) 2021/514 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (hereinafter - DAC7) was published. The objective of DAC7 is to strengthen tax transparency throughout the EU. To that end, the various regulations of member states will be harmonized and common rules on wider cooperation in the field of taxation will be issued to extend also to digital platforms. Under DAC7, digital platform operators both within and outside the EU will be required to report income that vendors generate from the sale of goods and certain services through digital platforms. Then, member state tax administrations will exchange this information automatically to encourage taxation of this income.

DAC7 is being incorporated in Latvian law. Effective from 1 January 2023, the amended law On taxes and duties will enter into force and require digital platform operators to provide information on income generated by vendors. In addition, for the purpose of secure data exchange, it is planned to supplement the law On taxes and duties with rules on data protection in the field of international automatic exchange of information. The draft law has been approved by the Cabinet of Ministers and forwarded to the Saeima for review.

The more detailed requirements of DAC7 are intended to be incorporated in to Latvian law by means of a Cabinet Regulation on automatic exchange of information on vendors that generate income through digital platforms. The regulation is planned to address:

  1. conditions under which platform operators will be required to provide information to the SRS on vendors that generate income in the particular digital platform;
  2. the volume of disclosures to be made;
  3. the procedure for obtaining, checking and providing such information to the SRS;
  4. measures to be taken to ensure automatic exchange of information;
  5. rights and obligations related to the exchange of information;
  6. the procedure to be used by the SRS to automatically exchange information with tax administrations of other member states.

These Cabinet Regulation is currently under public discussion. According to DAC7, the regulation should be incorporated in member state law by 31 December 2022 and applied from 1 January 2023.  Digital platform operators will be required to submit their first report (for 2023) by 31 January 2024. The Cabinet Regulation is expected to enter force on 1 January 2023.

 

 

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The article provides an insight into what KPMG Baltics SIA considers to be key changes in tax legislation in the 4th quarter of 2022.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Authors

Jevgēņija Ivušina, Manager in Tax, KPMG in Latvia

Linda Kamola, Senior Advisor in Tax, KPMG in Latvia

© 2023 KPMG Baltics SIA, a Latvian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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