The States of the European Union will automatically exchange with their partner countries the data received from the so-called “web giants“. In this way, they will monitor the numbers of those who use their digital platforms to do business. This is the aim of the new Directive DAC 7 – no. 2021/514 – adopted by the Council of the European Union on March 22, 2021 and published in the European Official Journal on March 25, 2021.
The Directive is part of the European Union’s new initiatives in the aim of tax transparency. These started with the original Directive No. 2011/16/EU on administrative cooperation between Member States (the DAC 1). The aim is to continue the important international action carried out by the OECD with the BEPS Project of the so-called “Mandatory Disclosure Rules“, with a view to strengthening fiscal transparency, considered the main tool for avoiding international elusive practices and aggressive tax planning.
What does DAC 7 consist of and who is it aimed at?
The topic is more actual than ever considering the evolution of the use of the web as a place in which to conduct business. In fact, we have seen that greater use of technology to study, work, shop and stay in touch with the world has given rise to new digital habits. In fact, online has become the first purchasing channel for many consumers and in Italy, in 2020, new online consumers purchases tripled compared to the previous year.
The DAC 7 is therefore part of this context, obliging the companies operating on digital platforms to communicate the income received by sellers active on their platforms. Thus, the web giants will become “tax collaborators”. It may happen, in fact, that web multinationals do not subject to taxation the income received through digital platforms, particularly when these operate in different countries, with consequent evasion of taxes due there. This has two effects: 1) Member States loose tax revenue and 2) companies active on digital platforms can benefit of an unfair advantage over traditional businesses.
The new rules will therefore enable national tax authorities to achieve the following objectives:
- identifying the income received by sellers through digital platforms, determining their related tax obligations;
- improving the exchange of information and cooperation between the tax authorities of member states.
In fact, with the implementation of the DAC 7, Member States will impose on platform operators the obligation to collect data on the economic activities carried out by their sellers, which are located on the platform itself, and communicate them to the tax authorities. According to the Directive, the activities to be reported will concern:
- the rental of immovable properties, both residential and commercial;
- the provision of personal services;
- the sale of goods;
- the rental of any means of transport.
As already arranged when adopting DAC 6, which instead was introduced with the aim of exchanging information on international transactions linked to the presence of the undue tax advantage, also in this case communication by the company in only one member state is envisaged. Moreover, platforms located outside the European Union are also subject to the obligation, as they will still have to register in a member state and send the information to the latter, which in turn will share it with the other member states.
The new rules also provide a framework that will allow competent authorities from two or more member states to conduct joint audits starting in 2024, according to the Directive. In essence, it will become easier for states to obtain information on groups of taxpayers through a more effective and immediate mechanism for collaboration than is in place today.
What are the timelines and penalties for the DAC 7?
In the Directive, it is envisaged that Member States will implement, by December 31st, 2022, the laws, regulations, and administrative provisions necessary to comply with DAC 7, while their application should be in force starting from 1 January 2023.
Regarding penalties in the event of non-compliance and/or repeated non-compliance with disclosure obligations by digital platforms, these should be gradual, in the event of non-compliance, up to the maximum penalty which could consist of the suspension of the business activity.
Moreover, the platform operator itself can, in turn, act against an uncooperative client. In fact, if a seller fails to provide the specified information after two reminders following the platform operator’s initial request, after 60 days have passed, the platform operator may close the seller’s account and prevent him from re-registering on the platform. Otherwise, the operator may withhold the fee due to the seller until he provides the requested information.
As mentioned, an implementation of the Directive into national law is expected within the next year, to apply it as of January 1, 2023, if the deadlines are met. We will therefore follow the evolution of these new provisions and the impact they will have on the players and business involved.