The DAC7 Directive, another update to the EU’s tax information exchange regulations, aims to tighten the European tax system and make it easier for national tax administrations to identify revenues generated through digital platforms. It introduces new reporting obligations for online platform operators and rules for automatically exchanging this data between EU member states. This gives EU tax authorities better tools to prevent tax avoidance and improve the efficiency of tax collection.
DAC7 - what is it?
DAC7 (Directive on Administrative Cooperation 7) is an EU regulation on administrative cooperation in taxation. It is the next installment of the DAC package of regulations (DAC1 to DAC6). Its key element is requiring digital platform operators to report on revenues generated by their users who engage in profit-making activities through these platforms.
Key objectives of the DAC Directive7:
- To tighten the tax system in the EU by increasing the transparency of revenues generated in the digital economy.
- Ensure the automatic exchange of information on platform users' revenues between national tax administrations.
- Reduce the risk of tax avoidance and improve the efficiency of tax collection.
The directive covers a wide range of activities, including the rental of real estate, the sale of goods, the provision of services, and the rental of transportation. Digital platform operators must report data on their users, such as revenue earned, type of activity, and identification data.
DAC7 effective as of when?
The Council of the European Union adopted the DAC7 directive in March 2021, and member states had until the end of 2022 to implement it into their national legislation. Reporting obligations for digital platform operators began on January 1, 2023.
Schedule of key dates:
- March 2021: Adoption of the directive by the EU Council.
- December 2022: Deadline for implementation of regulations into national legal systems.
- January 2023: Start of reporting obligations for platform operators.
The first DAC7 reports covered data for 2023 and had to be submitted to the relevant tax authorities by the end of January 2024.
DAC7 report - who does it apply to?
The DAC7 report applies to digital platform operators, both EU-based and non-EU-based, who enable users to generate revenue through their platforms. The directive applies to a wide range of activities, meaning that entities that will allow, among other things, must report:
- Rental of real estate (e.g., Airbnb).
- Selling goods (e.g., eBay).
- Providing services (e.g., freelance platforms like Upwork).
- Rental of transportation (e.g., car-sharing).
Who is affected by the DAC7 report?
- Digital platform operators must report their users' transaction data if users generate revenue on the platform.
- Platform users - their data, including revenues, are reported to tax administrations.
What data must be included in the DAC7 report?
- Name or company name of the user.
- Address of residence or registered office.
- Tax identification number (TIN).
- The amount of revenue earned on the platform.
- Information about the type of business.
What are the implications of DAC7?
With DAC7, tax administrations gain a tool to identify revenues generated in the digital economy, allowing them to enforce tax obligations more effectively. For platform operators, this means new administrative obligations; for users, it means greater transparency to tax authorities.
The DAC Directive 7 is the EU’s response to the growing role of the digital economy and the need to ensure fair taxation in this area. With the reporting obligation, digital platform operators become a key link in increasing tax transparency, and member states have a tool for more effective cooperation and information exchange. Implementing the DAC Directive 7 is a step towards a tight tax system and a level playing field for all market participants.
