NEW REPORTING OBLIGATIONS FOR DIGITAL PLATFORM UNDER DAC7
The EU tax transparency regulations introduced by DAC7 require platform operators to generate reports on income received by sellers using platforms starting in 2023.With the release of Council Directive (EU) 2021/514 (also known as “DAC7”) on March 25, 2021, the EU’s tax transparency regulations will now apply to digital platforms, and platform owners will be required to disclose information on sales made through platforms starting in 2023.
In order to address the lack of tax compliance and the under-declaration of revenue obtained through commercial operations carried out with the intermediation of such digital platforms, the information gathered will be shared with the tax authorities of the respective Member States. Both EU and non-EU platform operators are impacted, with the latter having a reporting need if they assist the rental of immovable property located in the EU regardless of the sellers’ residences or the reportable business activity of EU sellers.
Digital platforms that enable peer-to-peer sales of goods or services between users (the so-called collaborative / pooling economy) and platforms serving the on-demand /access economy like car-pooling or ride-hailing apps, marketplaces for freelance services, tech companies that provide food delivery platforms, virtual marketplaces for all kinds of goods and services are some examples of platforms that could be impacted.
Any sellers (or service providers), whether they be natural persons or entities with legal personality, who utilize such platforms for commercial gain will have their information and income reported to the tax authorities of the EU Member States.
There should be reporting on both domestic and international commercial operations…
Reportable data comprises, among other things;
• Information on the vendors’ identification, such as their tax identification number and VAT number;
• The vendors’ residence will be determined in accordance with the Directive;
• A summary of the sums received or payable to sellers from the reportable activities each quarter, including platform fees, commissions, and taxes withheld;
• Where pertinent, the location of the rented immovable property.
DAC 7: Impacts of new obligations on income home owner:
What data will be gathered by the tax administrator?
The Financial Administration of the Czech Republic will automatically collect information on users (sellers) of digital platforms that sell items, provide personal services, or lease real estate, according to the proposed law. The Specialised Tax Office will assess the material received in this manner and forward it to certain tax administrators for possible inquiry.The tax administrator will ultimately have information on users (sellers) of both domestic and international digital platforms thanks to the automated exchange of information between the tax administrations of EU Member States. The real estate (or given portions of it) as well as the sellers will be included in the scope of the information that must be disclosed. The platform will give facts about the sellers’ bank accounts, theamount of revenue paid, and other information in addition to the identity information of the seller or the real estate.
What will the tax administrator do with the Data?
The tax administrator will be able to identify taxpayers who have not declared their income earned through digital platforms in their tax returns at all or who have done so in an incorrect amount, even before the inquiry stage, thanks to the reporting requirement for operators of digital platforms and the automatic international information exchange. The outcome of the tax administrator’s investigation stage is likely to be a request to submit a tax return or another tax return, or, in some circumstances, a tax audit, a subsequent extra assessment of income tax, and sometimes penalties.
E-commerce sites outside the EU
Digital platforms from outside the EU that offer cross-border services inside the EU will also be subject to the new regulations and will need to register in at least one EU Member State. Platforms that do not register will be included to a list of non-cooperating platforms that is available to the public. The proposed rule will provide the Specialized Tax Authority the power to enact a blanket ban forbidding all platform operators on the list of uncooperative platforms from granting sellers access to any area of the platform, not just the area where they may interact with users. The second phase involves the Specialised TaxAuthority issuing a general regulation that forbids any vendors from interacting with users on any portion of the platform that is included on the list of non-cooperative platforms. If an individual (seller) violates the general rule, they may be fined up to CZK 50,000; if a sole proprietor or legal company violates, they may be fined up to CZK 500,000. (seller).
The DAC7 will imply that platform providers will ask for additional information from parties that are selling goods or services online. Before sales may be made through the platform, the platforms will also perform a more complete due diligence. Also, it’s likely that the platform will transfer the risk and accountability for inaccurate information to the seller. This can require vendors to thoroughly check the information that has been supplied about them.