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EU DAC 7 – Digital platforms to report information on their users to the tax authorities

  • Belgium
  • Europe
  • Tax planning and consultancy - Digital tax

11-02-2021

The EU’s Directive on Administrative Cooperation in the field of taxation (2011/16/EU) was adopted in 2011 “… to give Member States the power to efficiently cooperate at international level to overcome the negative effects of an ever-increasing globalization”. The scope of this directive has ever since been extended many times.

Last summer, the EU Commission proposed a sixth extension (“DAC7”) to the directive, which may be expected to result in a significant compliance challenge for many digital platforms all over the world. The EU Council approved a modified version of the text in December of 2020. The EU Parliament is expected to deliver its opinion on that text in the course of next month, after which DAC7 should in principle be published in the Official Journal of the EU. In the meantime, the EU Commission has also published a roadmap for a seventh extension (DAC8), focusing this time on increasing transparency regarding crypto-assets and e-money.

Belgium just introduced reporting obligations in its national law that are somewhat similar to DAC7.

The present article contains a summary of the current text of DAC7 and some first observations regarding its potential impact on digital platforms. It further also seeks to shed some light on the similar unilateral reporting obligations that were recently adopted by Belgium. 

Key take-aways

  • DAC7 aims at tackling the underreporting of income generated through share and gig platforms, by requiring these platforms to report information on their users to national tax authorities in the EU;
  • Complying with DAC7 will require these platforms to invest considerably in their internal compliance procedures and may prompt them to modify their user terms and conditions;
  • The substantive scope is quite broad, as it includes the sale of goods & services as well as the rental of immovable goods and any mode of transport;
  • DAC7 also affects platforms that do not have a presence in the EU but facilitate the activities in scope in the EU;
  • Although the reporting obligation will only enter into force in 2023, it is recommended for digital platforms to already examine if and how DAC7 may affect them in the future.

1. DAC7

a) Objective

The digital platform economy hinders the traceability and detection of taxable events by tax authorities and leads to a shortfall of tax revenues. DAC7 is aimed at inter alia (i) remedying the ensuing underreporting of income and (ii) limiting the administrative burden of digital platform operators by introducing a standardized reporting obligation. This regime should replace the national reporting obligations that have already been introduced by certain EU Member States, such as Belgium (cf. further).

b) Scope & Definitions

Platforms are broadly defined as “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 for purpose of carrying out a Relevant Activity, directly or indirectly, to such users”.

The Relevant Activities are:

  • the rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces;
  • personal services[1];
  • the sale of goods[2];
  • the rental of any mode of transport;

when carried out for a consideration.

Consideration is defined as compensation in any form, net of any fees, commissions or taxes withheld or charged by the reporting platform operator, that is paid or credited to a seller in connection with the Relevant Activity, the amount of which is known or reasonably knowable by the platform operator.

Platforms that strictly limit their activity to the following are excluded from the scope of DAC7:

  • allowing processing of payments in relation to Relevant Activity;
  • allowing users to list or advertise a Relevant Activity;
  • redirecting or transferring of users to a platform.

Adding to the broad scope of application of DAC7 is its geographic reach. Platforms fall in the scope of DAC7 if they facilitate the carrying out of (i) a Relevant Activity by their sellers with residence in the EU or (ii) the rental of immovable property located in a Member State. This holds true even if these platforms are neither resident for tax purposes, nor incorporated or managed in a Member State, nor have a permanent establishment in a Member State[3]. This should ensure a level playing field among the platforms and prevent unfair competition.

Platforms should file information in relation to Reportable Sellers, i.e. individuals, companies or legal arrangements, that carry out a Relevant Activity and either are resident in the EU or rent out immovable property located in a Member State.

Sellers for which the platform 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 2,000 EUR during the reporting period, are not Reportable Sellers[4]. There is also a specific exclusion for sellers in the field of immovable property rentals who stay below a certain threshold.

c) Reporting Obligations

The platforms that are in the scope of DAC7 will have to put in place a due diligence procedure to collect and verify information on their users[5]. The said procedure should be completed by December 31 of each year. The information should be reported to the tax authorities as well as to the Reportable Sellers by January 31 of the following year. The national tax authority receiving the information will then forward it to the tax administration of the other relevant Member States (if any).

The information to be communicated will include the identity of the seller, the consideration received or credited, details of the Financial Account Identifier[6], etc. The reporting obligation should cover both cross-border and non-cross-border activities. The information may be used to levy income tax but also VAT and other indirect taxes.

d) Timing

Member States should implement DAC7 into their national law by the end of 2022. The first reporting should pertain to income year 2023 and should be submitted by the platforms by January 31, 2024.

e) Observations

This expansion of the Directive is quite meaningful as it will require platforms to deliver a substantial compliance effort and may prompt many of them to make significant changes to their user terms and conditions.

The broadly defined territorial scope is quite remarkable and is bound to affect platforms that have no taxable presence in the EU.

Also notable is that there is no exclusion for platforms based on size or turnover. This means more concretely that all the qualifying platforms, irrespective of their size, will have to perform a due diligence exercise and to report the required information related to Reportable Sellers.

Finally, the EU national tax authorities will be receiving the relevant information related to 2023 in the course of 2024. DAC7 may nevertheless affect taxpayers who already currently conduct an activity that falls in the scope of this regime and who do not properly report their income[7]. Indeed, upon reception of the information in 2024, tax authorities may show an interest for inquiring about the previous years that are still “auditable” in accordance with the applicable national tax laws.  

2. Belgium

Belgium recently introduced a reporting obligation for digital “collaboration” platforms, which entered into force on January 9, 2021. This clearly occurred in anticipation of DAC7, as the law explicitly states that the reporting obligation will cease to apply as soon as DAC7 will enter into force.

Compared to DAC7, the legal provisions underpinning the Belgian reporting obligation are less clear and sophisticated. The most striking features of this new regime are the following:

  • The obligation applies to digital “collaboration” platforms, but the law does not clearly define what these are;
  • The reporting obligation only applies to “services” and not to goods as under DAC7. Services are to be interpreted in the sense of the VAT Code, which defines that notion quite broadly (ie. “… any transaction which does not constitute a supply of goods as defined…” in the VAT Code) and should thus include e.g. the rental of immovable goods;
  • The scope of the services is limited to (i) services delivered to individuals or companies by individuals that are residents of Belgium or (ii) to services that are delivered in Belgium by non-residents. The capacity (business or consumer) of the buyer of the service is irrelevant. The concept of “delivery in Belgium” is not clearly defined and may therefore lead to discussions with the tax authorities;
  • Foreign platforms having no establishment in Belgium may also fall under the reporting obligation. Such foreign platforms will in such case have to appoint a representative in Belgium who is responsible for fulfilling the reporting obligations;
  • Platforms will also have the obligation to inform their users of their Belgian social and tax obligations.

[1] A personal service is defined as a service involving time- or task-based work performed 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.

[2] Goods are simply defined as “any tangible property”.

[3] “Non-EU platforms” may still be exempt from reporting if “equivalent information” is already exchanged under an agreement between a non-EU country and an EU Member State. It remains to be seen however how this exemption will play out in practice, as many conditions will have to be met for the “equivalent information” threshold to be met.

[4] The Directive also contains certain other exclusions, such as for listed entities and governmental bodies.

[5] Member States may set up an identification service which the platforms may use for this purpose.

[6] The unique identifying number of reference available to the platform of the bank account or other similar payment services account to which the consideration is paid or credited

[7] This is of course subject to whether the said income is effectively reportable under the applicable national tax laws.


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