DAC-7 Directive – what it means for operators and users of digital platforms
Bernhard Schwechel
by Bernhard Schwechel
Directive (EU) 2021/514 on administrative cooperation in taxation, known as “DAC 7”, applicable on 01 January 2023, creates specific due diligence and reporting obligations for digital platform operators across the European Union.
Business models based on digital platforms are popular and successful – almost all goods and services are marketed on digital platforms. However, due to unclear regulations, not all transactions are correctly taxed, and the tax authorities of EU states thus miss high tax revenues.
The government’s draft bill on the implementation of DAC-7 in Germany establishes far-reaching reporting obligations for digital platform operators, which go far beyond the recording obligations already existing for operators of electronic interfaces.
The scope of application of DAC-7 not only includes online marketplaces which support the delivery of goods, but also platforms through which suppliers, for example, can sell goods and provide rental revenues or personal services.
The government draft stipulates plausibility checks of the reported data by the platform operators. Insofar as there is an assumption that the information is incorrect, the platform operator becomes the “external auditor of the tax office”, as the platform operator must then, at the request of the Federal Central Tax Office, ask the provider to correct the information or confirm it with supporting documents.
German authorities are provided with tools to identify and monitor
These legal adjustments are intended to strengthen cooperation between authorities (i.e. administrative assistance), and to increase the efficiency of investigations to ensure the lawful taxation of cross-border situations and effectively combat tax evasion, tax avoidance, and tax fraud.
Which platform users are affected?
This data should make it possible to identify providers (users) active on platforms and to evaluate the transactions carried out by them for tax purposes. Reportable providers are persons and companies which are residents or liable to pay tax in Germany, and those subject to taxation in other member states.
EU tax authorities gain access to data
Due to the Mutual Assistance Directive, all EU member states should have access to the information relevant to them. Therefore, all data ascertained by the BZSt (German federal tax agency) on domestic providers are forwarded to the tax authorities of the countries.
Additional reporting of providers’ transaction totals by platform operators
In the future, operators of digital platforms must disclose information about transactions of their registered merchants to the European tax authorities. In addition to the number of transactions, , the income the traders earned from the platform’s commercial use must also be disclosed, even if the service or goods were settled via the platform or otherwise.
Which platform operators are affected?
The tax authorities are focusing on a specific segment of digital platform operators: systems that enable their users or traders to communicate with each other via software and conclude legally valid transactions.
Fines and other sanctions for breaches of duty
In case of late or incomplete reporting, an administrative offence may be reported, and a fine of up to EUR 50,000 may be imposed.
Result
The implementation of the DAC-7 Directive in Germany has far-reaching consequences for platform operators., and the information to be transmitted goes far beyond that which already applies to operators of electronic interfaces under German VAT law. It, therefore, makes sense to adapt the existing systems and deal with the possible new specifications.
FACT GmbH Wirtschaftsprüfungsgesellschaft is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The experienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.
GGI member firmFACT GmbH WirtschaftsprüfungsgesellschaftKassel, GermanyT: +49 561 316 6860Tax, Auditing & Accounting, Advisory, Corporate Finance, Fiduciary & Estate Planning
Bernhard Schwechel is a Managing Partner of FACT GmbH and is experienced in the field of International Taxation. His areas of expertise include tax and business advice for large multinational corporations and mid-size companies, as well as for internationally-oriented individual clients. He supports his clients in inbound and outbound M&A projects. Contact Bernhard.
