It is impossible to imagine today's economy without digital platforms. Such platforms allow entrepreneurs to sell goods or services and connect suppliers and customers, and have been a catalyst for the proliferation of the sharing economy. At the same time, globalization and digitalization have made it more difficult for tax authorities to get a grip on entrepreneurs and individuals that trade via digital platforms.
Two sets of measures addressing these concerns will apply throughout the EU, i.e., the amended Directive on Administrative Cooperation (DAC 7) and updated EU VAT rules.
DAC 7, which represents the sixth amendment to the Directive on Administrative Cooperation, extends the scope of the automatic exchange of information in the EU to apply to digital platform operators. The objectives of DAC 7—which was adopted by the EU Council on 22 March 2021—are to ensure that persons deriving income from the sale of goods or services on digital platforms pay their fair share of tax and that EU member states automatically exchange information on income generated by sellers or service providers on the platform, regardless of whether the platform is situated in the EU; in other words, the DAC 7 rules will apply to digital platforms both within and outside the EU.
As from 1 January 2023, DAC 7 will require digital platforms to collect certain information from users offering goods or services on the platform and report this information to the tax authorities. That information then will be exchanged between the tax administrations of the 27 EU member states. Although these obligations will apply as from 1 January 2023, certain platforms will be required to collect information and provide it at the request of the tax authorities at an earlier stage (i.e., see below under the new VAT rules, where platform operators have new administrative and recordkeeping obligations as from 1 July 2021).
Under the DAC 7 rules, platforms will be required to report certain information about persons and businesses offering goods or services for sale via a platform and carry out due diligence procedures. The information will be provided to the tax authorities of the EU member state with which the platform has nexus (any EU member state for platforms outside the EU), then exchanged with the tax authorities of the other member states and subsequently recorded in a central EU register, which can be accessed by all tax authorities in the EU. The platform will need to obtain the information from the persons and businesses operating on the platform.
For the purposes of these rules, a platform is defined as any software accessible by users and allowing sellers to be connected to other users for the purpose of carrying out certain activities (see below) and includes any arrangement for the collection and payment of consideration in respect of those activities. The activities for which the reporting obligation apply are the provision of personal services, the sale of goods, the rental of means of transport and the rental of immovable property. Payment service providers, entrepreneurs that only provide services regarding listing or advertising of activities and platforms only redirecting or transferring customers to other electronic interfaces are exempt from the reporting/due diligence obligations.
The first DAC 7 reporting period will start on 1 January 2023. The due diligence procedures must be completed annually by 31 December, with the information reported by 31 January of the following year.
Information that the platforms will have to report includes details of the sellers and where they are located, as well as service fees paid to the platform by the person offering goods or services for sale on the platform. If a seller does not provide the information requested by the platform, the platform will need to take action after two reminders, but not before 60 days have expired. This action includes closing the account of the seller, preventing the seller from registering on the platform or stopping payments to the seller until the seller has provided the requested information.
Under the new VAT rules for e-commerce that apply as from 1 July 2021 (postponed from the original effective date of 1 January 2021), a platform operator may be responsible for the remittance of VAT on business-to-consumer (i.e., B2C) e-commerce transactions that are commercially/legally carried out by the actual supplier and may have new recordkeeping obligations. (A platform in the EU is called an “electronic interface,” and includes platforms, online marketplaces, portals, websites, etc.) The purpose of the new rules is to ensure the collection of VAT and reduce the administrative burden on suppliers, consumers and the tax authorities.
In cases where a platform operator facilitates an underlying supply of goods via an electronic platform in a B2C transaction with EU consumers, it will be deemed to be the supplier (i.e., it will be deemed to have received and supplied the goods to the consumer) and will be required to collect the VAT due on the transaction. It is not necessary for the person trading via the platform to be a taxable person. An electronic platform facilitates a transaction when it allows a customer and a supplier offering goods or services for sale through the platform to make contact that results in the supply of goods or services through that platform.
Certain transactions fall outside the scope of the deemed supplier rule, i.e., payment service providers, entrepreneurs that only provide services regarding the listing or advertising of goods or services and platforms that merely redirect or transfer customers to other electronic platforms. Electronic interfaces are also excluded if they (i) do not set any of the terms and conditions under which the supply is made, (ii) are not involved in the payment and (iii) are not involved in the ordering or delivery of the goods.
Online platforms will be required to keep records for the transactions they facilitate, regardless of whether they are deemed suppliers; the records will have to be maintained for 10 years and made available to the tax authorities of EU member states upon request. The recordkeeping obligations commence from the end of the year in which the transaction was carried out.
Impact of the new rules
It is important that platform operators determine the extent of their obligations as from 1 July 2021 and from 1 January 2023. Advance preparation will help taxpayers comply with their new obligations and avoid penalties for noncompliance. Businesses that are subject to obligations under DAC 7 and the new EU VAT rules may wish to consider setting up a process now that can be expanded in 2023 to meet the obligations under DAC 7 from 1 January 2023.
Niek de Haan