Key takeaways
- Mandatory reporting: DAC7 requires digital platforms to collect and share seller data with EU tax authorities to prevent undeclared income and strengthen tax transparency.
- Broad scope: The directive applies to both EU and non-EU platforms facilitating goods, services, property rentals, or transport within the EU.
- Strict compliance rules: Platforms must verify seller information, report annually by January 31, and may face penalties or account suspensions for non-compliance.
DAC7, a directive from the European Union, requires digital platforms operating within the EU to disclose specific details about the sellers on their platforms. These rules first came into effect on January 1, 2023, although the first reports from platform operators only became due on January 31, 2024.
As the seventh version of the EU Directive on administrative cooperation in taxation, DAC7 mandates online platform operators to automatically share data on taxable events and incomes with EU tax authorities to facilitate joint audits and curb lost tax revenues from unreported digital earnings. Adopted by the European Council to enhance tax authority collaboration, DAC7 subjects non-compliant platform operators to member state-defined penalties.
What businesses does DAC7 apply to?
DAC7 targets online marketplaces within and outside the EU, encompassing those that sell goods, offer personal services, facilitate sales and services, and rent out real estate and transportation. Activities covered by DAC7 range from livestreaming and food delivery to ride-hailing and online training.
The online platforms are used by sellers to conduct business in the EU. For instance, an app for vacation rentals might link property owners (sellers) wishing to lease their properties to vacationers (buyers) seeking short-term accommodations.
Under DAC7, platform operators are required to gather data from "reportable sellers" involved in these specified activities. Those termed “excluded sellers”, such as government agencies, publicly listed companies, hotel chains, large tour operators, and sellers not meeting specific activity and cost criteria set by the directive, are exempt from this data collection requirement by platform operators.
Significantly, DAC7 extends beyond EU-based digital platform operators to include foreign platform operators not tax-resident, incorporated, managed, or with a permanent establishment in the EU. Any operator engaging in commerce across EU borders, even if they don’t have a local base, must still comply with DAC7. Despite operating in multiple EU nations, these foreign operators are obliged to register and report in just one EU member state.
What information needs to be collected?
Operators of digital platforms are required to gather specific details from sellers using their services. These sellers may be either individuals or legal entities. The required information, which applies to both groups unless specified, is not limited to the following list. Additional data must be collected, for instance, when the transactions involve the rental of immovable property.
- Legal name (for individuals only)
- Primary address
- Tax Identification Number (TIN) for the seller, including the country of issuance. For individuals: if no TIN is available, the seller's place of birth is required.
- The seller's VAT identification number, if applicable
- Date of birth (for individuals only)
- Business registration number (for legal entities only)
- For legal entities: details of any permanent establishment in the EU through which the seller conducts activities covered by DAC7, including the location of such establishments
It's crucial for platform operators to verify the accuracy of the collected information using their records, electronically searchable databases, or other methods. Should any data be found inaccurate, the seller must be requested to update it. While platform operators can delegate these due diligence tasks to third parties, the ultimate responsibility for their completion remains with the operator.
What are the reporting requirements?
The deadline for reporting by platform operators under DAC7 is January 31 of the following year. Operators based in the EU must file with their local tax authority, or choose one if they're resident in multiple member states, while foreign operators are required to register and report in just one EU state.
Reporting requirements include details on whether the activity involves immovable property, with all operators needing to disclose the total consideration (defined as compensation net of fees, commissions, or taxes by the platform) paid or credited quarterly, the number of relevant activities, and any fees, commissions, or taxes withheld by the platform, among other information.
Are there penalties for non-compliance?
Failure to submit all required data by January 31 will result in financial penalties for online platforms. If a seller fails to provide the necessary information, the operator is required to issue two reminders. Following a 60-day period without compliance, operators must terminate their relationship with the non-compliant seller and deactivate their account.
Frequently asked questions
What is DAC7 and why was it introduced?
DAC7 is an EU directive requiring digital platforms to report seller information to tax authorities. It aims to improve tax transparency, prevent tax evasion, and ensure fair taxation of income generated through online platforms.
Which businesses are affected by DAC7?
DAC7 applies to both EU and non-EU digital platforms that facilitate the sale of goods, services, property rentals, or transport within the EU. This includes marketplaces, apps, and other online intermediaries.
What are the main reporting obligations under DAC7?
Platform operators must collect and verify seller details—such as names, tax IDs, and income—and submit an annual report to an EU tax authority by January 31 each year. Non-compliance can lead to financial penalties or account suspension for non-cooperative sellers.
