DAC7 – new obligations for digital platform operators

On 22 March 2021 the Directive (EU) 2021/514 (called DAC7) amending the Directive 2011/16/EU introducing a solution to this problem was approved and on 25 March 2021 published in the EU Official Journal, with entry into force on 14 April 2021. The EU Member States have now time until 31 December 2022 to transpose the new regulations into their national law.

Reportable activities (both domestic and cross-border) via the digital platforms include rental of real estate, personal services, sale of goods and rental of any mode of transportation.

Reportable sellers are those with tax residence in the EU or who rent real estate located in the EU. Excluded sellers are governmental entities, listed entities including their related entities, large hotel chains (with over 2 000 services per property) and sellers who sell goods and have less than 30 relevant activities, in aggregate not exceeding revenues of EUR 2 000 during the reporting period.

Platform operators will have to report to the tax authorities reportable seller’s revenues, platform’s commission and reportable seller’s due diligence information, such as the identification data of the platform operator (including the business name of the digital platform to which a report is filed and web-address of the platform) and each seller (including the number of activities of each seller on the platform and e.g. the certificate of ownership), financial account of the seller, amount of remuneration paid and credited to the account, any fees, commissions and taxes, lease periods, address of immovable property, land register number, and more.

Platform operators are expected to not only collect information, but also to verify the data received from the sellers. Therefore, they will need certain information and documentation from the sellers. The new provisions require that if the seller fails to provide the requested information and documents to the platform operator even after the second reminder, the platform operator must block the seller’s account after 60 days from the first deadline for the provision of the information. In addition, the platform operator must prevent the seller from registering with the platform again. If the seller provides the relevant data later, the platform operator may unblock the seller’s account after the expiry of the blocking period. Because of the platform operator’s obligation to enforce the collection and verification requirement, there is a particular tension between sanctions and customer relations. For example, under no circumstances may a seller be wrongly blocked.

The new provisions covering digital platform operators will apply from 1 January 2023. There is no retroactive period, thus there will be no reporting for periods before 2023. The first report will have to be made by the platform operators by 31 January 2024 for the reporting period of 2023. For sellers registered at the platform as at 1 January 2023 due diligence procedures will have to be performed by the platform operators by 31 December 2024.

Digital platform operators have now time until the end of 2022 to update their internal systems and contractual relationships with the sellers to be in the position to collect the required data.