Marketplaces are gaining more and more popularity and influence on the world economy every day. That’s why government agencies are creating new tools to regulate their work, transparency of activities, and proper payment of taxes. One such tool is the DAC7 directive, which extends EU transparent taxation to digital.
In this article, we will analyze what the DAC7 directive is, what you need to know about it, what data will be required to file DAC7 reports, and how to prepare so that the changed regulation doesn’t affect your activities too much.
DAC7: what is this about and how does it work
DAC7 is a tax directive that includes collecting and processing data on merchants and their income that operate through digital online marketplaces and other platforms. It implies cooperation between member states to ensure correct and transparent taxation within the EU.
With the advent of DAC7, merchants will be required to report all commissions they receive from their activities. This includes various trading and work platforms such as Uber, Amazon, eBay, Fiverr, Upwork, etc.
However, not all platforms are subject to the directive – there are exceptions. For example, platforms where payment flows are not processed, but only goods/services are displayed, were exempted.
Exception platforms that aren’t subject to DAC7
From the list of platforms that fall under the DAC7 directive, sites that are engaged in the rental of movable property, but with the exception of vehicles, are excluded. Companies offering peer-to-peer lending were also included in the list of exceptions. But even such companies aren’t completely exempted from communications with the tax authorities. They will need to submit documents every year that prove exemption from DAC7.
Another type of exception platform is services that DAC7 doesn’t classify as marketing platforms. This includes some payment systems (such as Stripe and Klarna), instant messengers, free message boards, and directories that only redirect users to other services.
How will the directive affect marketplace founders?
Before the directive goes into effect, marketplace founders need to carefully evaluate and review their performance and understand exactly how future DAC7 reporting may affect their business. This will prepare you for possible difficulties and minimize risks. If the founder fails to submit a marketplace report on time, he or she could face significant fines.
We wrote about all the exceptions above. Also, if your business is one of the exceptions, we recommend that you check your local applicable laws, because there may also be special conditions that aren’t related to DAC7.
What kind of platforms need to register?
DAC7 covers almost all trading platforms that operate in the European Union. At the same time, they don’t have to be located in one of the EU countries; the directive also applies to sites with sellers in the European Union.
- Rental of all types of vehicles;
- Rental of commercial and residential property;
- Sale of physical and digital goods;
- Service provision.
For European Union marketplaces it’s a one-stop shop business registration. Countries can share the data they report with each other. Thus, each platform will communicate with the local tax office, even if the checks are from the tax office of another country.
What information needs to be submitted?
In accordance with the DAC7 directive, all marketplace operators must comply with the reporting platform, which includes the following data:
- Information about the seller (name, date of birth, address);
- Which country of the European Union does it belong to;
- Account ID or bank account number;
- Taxpayer identification and registration number (registration number doesn’t apply to individuals);
- Amount of remuneration per year;
- All types of payments held by the site for a given period;
- If the company’s services include the rental of real estate, you need its address.
At the same time, even among the trading platforms that fall under the directive, there are those that don’t need reporting. The first is inactive sellers who make less than 30 sales during the reporting period, and their income doesn’t exceed 2,000 euros. The second is active rental property providers, such as tour operators and hotels, where there is a large flow of bookings. They are subject only to local laws.
GDPR issue
GDPR is the EU data protection regulation. When collecting data for reporting under the DAC7 directive, it’s imperative to take into account compliance with GDPR requirements. The operator is also required to notify all suppliers of the specific information it collects. For third parties, it must be absolutely confidential. All collected data, the company must store for up to 10 years (the period depends on the laws of the country).
Due dates
The European Union must convert DAC7 into law by the end of 2022, because it should come into force as early as January 1. The 2023 report must be submitted by January 31, 2024. What exactly this report will be, each country decides separately, because only a specific EU member state will need to submit information. Only when necessary, countries can exchange data.
Conclusion
Due to constant growth and the large market segment occupied by digital platforms, it was decided to introduce a separate directive that would ensure correct and transparent taxation. According to the DAC7 directive, operators of digital trading platforms must submit reports to the country of the European Union to which they belong. The first report must be submitted by the end of January 2024. All operators are advised to prepare for changes in the regulation.
In order to comply with DAC7 reporting requirements seamlessly, marketplace founders can leverage the capabilities of our API for online marketplace.
