Government Ordinance no. 16/2023 for the amendment and completion of the Romanian Fiscal Procedure Code has been published in the Official Journal of Romania, no.86 of 31 January 2023. The Ordinance represents the transposition into Romanian legislation of Directive 2021/514/EU of 22 March 2021 (the DAC7 Directive) which modifies Directive 2011/16/EU on administrative cooperation in the field of taxation.
Tax authorities of Member States currently consider they do not possess sufficient information in relation to the income obtained though digital platforms and estimate that there is a significant amount of undeclared income. The DAC7 Directive introduces a new set of reporting requirements for platform operators which will need to disclose to their tax authorities certain information about the income obtained by sellers operating on such platforms. Unlike the previous initiative (the DAC6 Directive) which had in scope only cross-border transactions and was mainly targeted at intermediaries, the DAC7 rules also include transactions carried out in the same jurisdiction.
After this information is reported to the tax authorities, it will be subject to the automatic exchange of information between Member States, in an effort to quickly identify any attempt to avoid reporting the income derived through digital platforms.
Who needs to report?
Digital platform operators are required to report to the tax authorities information about the income earned by the sellers on their platform.
Platform operators are entities that contract with sellers to make available all or part of a platform to such sellers, allowing sellers to be connected to other users for the purpose of carrying out a relevant activity.
Platform means any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users.
The term platform does not include software that without any further intervention in carrying out a relevant activity exclusively allows any of the following:
- Processing of payments in relation to a relevant activity.
- The listing or advertising of a relevant activity by users.
- Redirecting or transferring of users to a platform.
A reporting platform operator means any platform operator which is in any of the following situations:
- It is resident for tax purposes in Romania or another Member State or, where the platform operator does not have a residence for tax purposes in Romania or another Member State, it fulfils any of the following conditions:
(i) it is incorporated under the laws of Romania or another Member State.
(ii) it has its place of effective management in Romania or another Member State.
(iii) it has a permanent establishment in Romania or another Member State.
- It is neither resident for tax purposes, nor incorporated or managed in Romania or another Member State, nor has a permanent establishment in Romania or another Member State but facilitates the carrying out of a relevant activity by reportable sellers or a relevant activity involving the rental of immovable property located in Romania or another Member State.
In other words, a non-EU digital platform operator (foreign platform operator) is required to register and report information under the DAC7 rules if a relevant activity is carried out, as previously detailed.
The platform operator has the option to choose one Member State to register. After the platform operator registers in one Member State, the relevant tax authorities in that Member State will notify the registration number to all the relevant tax authorities in the other Member States.
The relevant activities mean an activity carried out for consideration, which is any of the following:
- The rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces.
- A personal service - a service involving time or task-based work carried out by one or more individuals, acting either independently or on behalf of an entity, and which is carried out at the request of a user, either online or physically offline after having been facilitated via a platform.
- The sale of goods.
- The rental of any mode of transport.
Platform operators are required to collect and report information about reportable sellers’ activities. Reportable sellers mean platform users, either individuals or entities, that are registered at any moment during the reportable period on the platform and carry out a relevant activity. Reportable sellers are only the active ones (any seller that either provides a relevant activity during the reportable period or is paid or credited consideration in connection with a relevant activity during the reportable period), resident in Romania or another Member State or those which have carried out a relevant activity involving the rental of immovable property located in Romania or another Member State.
Given the wide use of digital platforms, the reporting requirement applies regardless of the legal nature of the seller.
There are, however, certain categories of excluded sellers:
- Governmental entities.
- Entities the stock of which is regularly traded on an established securities market or a related entity of an entity the stock of which is regularly traded on an established securities market.
- Entities for which the platform operator facilitated more than 2000 relevant activities by means of the rental of immovable property during the reporting period.
- Entities for which the platform operator facilitated less than 30 relevant activities by means of the sale of goods and for which the total amount of consideration paid or credited did not exceed the equivalent in RON of 2000 EUR during the reporting period.
A reporting platform operator must report to the tax authority the necessary information annually, no later than 31 January of the year following the year in which the seller is identified as a reportable seller on the platform. The first reporting deadline will be 31 January 2024 and will include information related to 2023.
Simplified reporting measures
Where there is more than one reporting platform operator, any of those reporting platform operators will be exempt from reporting the information in Romania if it has proof that the same information has been reported by another reporting platform operator.
If a reporting platform operator resident in Romania or another Member State is required to report in multiple Member States, an option can be exercised to report in only one Member State.
Furthermore, a foreign platform operator is required to report the necessary information in Romania if it registers in Romania (a foreign platform operator has the option to register in one Member State).
Penalties for non-compliance
The ordinance introduces a set of non-compliance penalties, as well as other restrictions which could negatively impact the activity of the entities involved – both platform operators and reportable sellers. The fine for non-registration of foreign platform operators, non-compliance with due diligence procedures or non-reporting/late reporting of the necessary information is generally set within a threshold ranging between 20.000 RON and 100.000 RON, but, as already mentioned, other restrictions might also apply which could have an impact on commercial activity:
- Where a seller does not provide the information required after two reminders following the initial request by the platform operator, but within 60 days of the initial request, the platform operator should close the account of the seller and prevent the seller from re-registering on the platform or withhold the payment of the consideration to the seller if the seller does not provide the information requested. The platform operator will be liable to a fine ranging between 20.000 RON and 100.000 RON if it fails to comply with these rules.
- Where a foreign reporting platform operator does not register in Romania or another Member State, it is liable to a fine ranging between 20.000 RON and 100.000 RON. If the platform operator does not register within 30 days of the last fine mentioned above, another fine ranging between 20.000 RON and 100.000 RON will be applied and access to the digital platform will be denied.
- Where a foreign platform operator registered in Romania does not comply with the requirement to report in accordance with the DAC7 rules after two reminders by ANAF, the latter will revoke the registration of the platform operator. The registration will be revoked no later than after 90 days but no earlier than 30 days after the second reminder.
The Ordinance also includes certain requirements and fines for non-compliance for network and electronic service providers, as follows:
- Where a foreign platform operator does not comply with the registration requirement or the registration has been revoked, ANAF will require network and electronic service providers to cut access to the platform operator’s website or application within 24 hours of the request being made. Access will be restored when the platform operator registers in Romania or another Member State, within 24 hours of receiving the notification from ANAF.
- Network and electronic service providers which do not comply with the above will be liable to a fine ranging between 20.000 RON and 100.000 RON.
The provisions of the DAC7 Directive have been transposed into Romanian legislation with minimum changes compared with the text of the Directive. The administrative information for the registration of platform operators with ANAF will be made available within 90 days of the publication of the Ordinance.
We have currently identified a series of issues which might be clarified in further detail by the tax authorities, especially where certain terms have been defined broadly, such as the definition of platform operators. For example, it is not clear whether cloud hosting services (allowing sellers to be connected with users in exchange for a consideration) would fall under the definition of a platform operator.
We consider that the first step in the compliance process with the DAC7 rules is to analyze whether a platform operator falls under the definition in the Directive as the conclusion is not always straightforward.
Up to now, we have identified certain categories of digital services which might be within the scope of the DAC7 rules:
- Marketplace platforms, where a diverse range of products and services are made available (such as clothing, retail, furniture, electronic devices, household appliances).
- Rent-a-car platforms (so called “car sharing” platforms).
- Catering service platforms.
- Live streaming applications where events can be accessed in exchange for a consideration paid by users.
- Licensed online training applications.
- Digital platforms for rental of immovable property (without the exclusions previously mentioned).
Nevertheless, we consider that platform operators will need to carefully carry out the due diligence measures for DAC7 purposes, as a potential freezing of a seller’s account would automatically translate into lower income for the platform operator.
We are not aware whether or not any DAC7 methodological guidelines will be released by the tax authorities, which would help clarify the practicalities of the implementation of these rules.