DAC7: What the new EU tax directive means for online marketplaces

The EU’s newest tax directive, DAC7, extends EU tax transparency rules to online marketplaces and requires reporting seller data to tax authorities. In this article, we share more about what DAC7 is and how marketplace founders can prepare for it.

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Colorful office supplies, some of which are made of paper. There is a row with two heart-shaped post-it notes, multiple yellow paper clips and thumbtacks, a yellow stapler on its side, three capped markers, and a calculator made out of paper. Below these, there is a computer keyboard, also made out of paper.

Marketplace platforms have become a staple of the internet age. They have considerable sway over the economy and affect both businesses and individuals. This means governments also seek to regulate them to guarantee transparency and fair taxation.

To this effect, the European Commission has introduced a new tax directive, DAC7, which extends the EU's tax transparency rules to digital platforms. It requires yearly seller data reports from marketplaces and takes effect in 2023.

In this article, we’ll discuss: 

  • What DAC7 is, exactly
  • What you need to know about DAC7 as a marketplace operator 
  • Which data you need to collect and from whom
  • How to prepare for the regulation change.

What is DAC7?

DAC7 is an EU tax directive that requires digital platform operators in the EU to report revenue, personal, and business information about their providers to tax authorities once a year. It is the sixth amendment to the EU’s Directive on Administrative Cooperation in the field of taxation. 

DAC7 defines a digital platform as any software (website or mobile application) that allows sellers to connect with other users to carry out a relevant commercial activity. This means online marketplaces from peer-to-peer product, service, and accommodation platforms to ride-hailing, car-pooling, and food delivery apps, among others.

The directive comes into effect on January 1st, 2023.

What does DAC7 mean for marketplace founders?

Before DAC7 comes into effect, every marketplace founder should review how it affects their reporting responsibilities. Failure to report can lead to penalties for the marketplace. The directive excludes some platforms and sellers, which you will learn more about below.

Who needs to report under DAC7?

The DAC7 directive affects marketplaces that operate in the EU. This includes both marketplaces that are based in the EU – in other words, are tax residents – and any marketplace that has sellers in the EU.

The directive impacts platforms with the following activities:

  • Rental of immovable property, both residential and commercial
  • Rental of any mode of transport
  • Providing personal services
  • Sale of goods
A table about the activities on marketplaces impacted by DAC7. The image is divided into four columns. The first column says: Renting immovable property – Examples: apartments, offices, coworking spaces, vacation homes, camping grounds, etc. These are followed by logos of example marketplaces: Airbnb, Vrbo, Nomady, Peerspace. The second column says: Renting transport – Examples: Cars, vans, trucks, bicycles, motorbikes, campers, boats, etc. Example marketplaces: Getaround, PaulCamper, Outdoorsy. The third column says: Providing personal services – Examples: Coaching, ride-hailing, paid livestreaming, food delivery, babysitting, etc. Example marketplaces: Wolt, Twitch, Uber. The last column says: Selling goods – Examples: Food, crafts,  collectibles, second-hand items, real estate property, etc. Example marketplaces: Amazon, Vinted, eBay, Etsy.

If your marketplace operates in any of these fields, you should pay careful attention to DAC7 and the changes it requires you to make in reporting on sellers and their revenue. 

What types of platforms are excluded from DAC7?

Marketplaces that deal with rentals of moveable assets (apart from transport) and peer-to-peer lending are excluded from the directive, at least for now. Examples of such marketplaces could be baby equipment and tool rental platforms.

However, these kinds of platforms will also need to provide some information to tax officials.

PWC writes that “even operators that are considered excluded from these obligations will need to annually file relevant documentation to prove their exemption.” So, marketplace owners still need to demonstrate to tax authorities that their platform does not have the activities listed in the section above.

It is also possible that reporting on peer-to-peer lending and rentals of movable assets is mandated by your local tax law. Some countries may have additional (and stronger) regulations on top of DAC7. We recommend looking up your local tax regulation for digital platforms or getting in touch with a local tax representative if you have any questions.

There are certain services that DAC7 does not consider to be digital platforms. These are payment processors like Klarna or Stripe, messaging platforms like Whatsapp, platforms where users just list or advertise without payment – think classified ads – and directories that only link visitors to other sites. DAC7 will not impact these services.

What do you need to report under DAC7?

Marketplace operators need to report the following information to tax authorities under DAC7:

  1. The seller’s identity information: full name, primary address, and date of birth.
  2. EU member state of residence.
  3. Financial account identifier: i.e. a bank account number or account identifier.
  4. Tax identification number.
  5. VAT or business registration numbers (if applicable: sellers who are private individuals will not have one).
  6. Consideration paid or credited per year. Consideration means the full amount of payments to a seller for the services or goods they’ve provided through the platform.
  7. Any fees, commissions, or taxes that the marketplace has withheld.
  8. The address of the immovable rental property (if applicable).
An infographic about reportable data under DAC7, visualizing the numbered list above.

There are two types of providers that do not need to be reported on. These are: 

  • Casual sellers. This means sellers who have, within a reportable period, fewer than 30 sales for which the total consideration does not exceed 2,000 euros. The reportable period is the 12 months of a reportable calendar year.
  • Providers who are involved in high-frequency real estate renting, such as hotel chains or tour operators. This is to reduce unnecessary compliance costs for these businesses. For example, a hotel with multiple rooms and over 2,000 paid bookings through a marketplace in a year is not a reportable seller. But a single Airbnb apartment rented out by an individual is within DAC7’s impact.

However, local tax regulation applies here as well. It is possible your EU member state mandates reporting on these sellers, too, even though DAC7 does not require it.

DAC7 and GDPR

Each marketplace operator is required to verify the information they collect from providers with consideration of GDPR, the EU’s data protection regulation. 

You must inform your providers about the information you collect and why and treat the collected data as sensitive, private information. As a marketplace operator, you also need to store the data for 5 to 10 years, depending on country-specific regulation. It’s important to make sure your privacy policy takes DAC7 into account and is up to date by the beginning of 2023.

What’s the timeline for DAC7?

The directive comes into effect on January 1st, 2023. EU member states need to transpose the directive into law by December 31st, 2022. Your first report under DAC7 needs to happen by January 31st, 2024, concerning data from 2023.

Each EU member state provides a method for reporting the information. All marketplaces affected need to report to one member state only. The states will share information with other countries in the EU when necessary.

A DAC7 timeline: The important dates and deadlines to know about DAC7. 1. March 22nd, 2021: The European Council introduces DAC7. 2. December 31st, 2022  Deadline for EU Member States to transpose DAC7 into national law. 3. January 1st, 2023  DAC7 goes into effect. January 31st, 2024 Deadline for the reporting of 2023.

Penalties for marketplace operators for not reporting under DAC7

Marketplace operators can be fined if the information DAC7 requires is not reported. You need to collect the required information from your providers and report it by the due date, January 31st, following the reportable year.

If your marketplace providers don’t provide you with the information on time, you are obligated to send them two reminders. If 60 days have passed and you still have not received the information, you need to close the provider’s account.

What’s next for marketplace operators regarding DAC7

DAC7 necessitates some additional data collection and reporting for marketplace operators from 2023 onwards. The first time you need to report your sellers’ data and revenue information will be January 31st, 2024, at the latest.

If your marketplace is affected, review the information you’re collecting from your sellers. It’s entirely possible that you or your marketplace's payment service provider are already collecting some or even all of the required information. If not, make changes to your data collection accordingly, and request the data from older providers when needed. Remember to take GDPR into account in your privacy policy and the way to manage and store the data.

You also need to have a way to export the information from your system. Sharetribe customers have a lot of built-in functionality to collect the necessary information under DAC7. Both Sharetribe Go and Sharetribe Flex users can modify their sign-up and listing creation forms to fit their needs and can easily export their user, listing, and transaction data in CSV format. 

If you’re using a third-party payment service provider, we recommend looking into what information is asked in their KYC process and finding out if that data is available for you for DAC7 reporting purposes. 

For further information and answers to specific questions about the directive, you can always reach out to your local tax representatives. They can give you expert advice in both DAC7 and country-specific tax legislation.

DAC7 checklist for marketplace operators: What marketplace operators need to do before DAC7 takes effect. 1. Find out if your marketplace activity is included in DAC7. 2. Find out what data your marketplace and payment service provider is already collecting. 3. Adjust your provider data collection if necessary to collect DAC7-required information. 4. Update your privacy policy and ensure your data collection process is GDPR compliant. 5. Contact your existing providers to obtain the missing information you will need to report. 6. Implement reminder emails for providers who haven't provided the required information. 7. Check your country's DAC7 reporting process and ensure you can provide your data in the required format.

Conclusion

Digital platforms are still relatively new forms of business, and legislation is catching up to protect fair taxation and transparency. These platforms already command large sections of markets like travel, transportation, and personal services.

In 2019, the EU started mandating Strong Customer Authentication (SCA) in online payments, which impacted marketplaces. Similarly, DAC7 extends tax reporting responsibilities to all marketplaces that have sellers in the EU. Marketplace operators need to report seller data to one EU member state. 

DAC7 means some additional administrative work for most marketplace platforms each year. Before the regulation takes effect on January 1st, 2023, it’s advisable to find out if your marketplace is affected, and if it is, that you are collecting all the necessary data and have the means to export it. The first report under the directive is due on January 31st, 2024.

It is still possible that countries have their own stricter tax legislation on top of DAC7, so getting in touch with local tax authorities to make sure you’re all set for reporting the required data is recommended.

Correction, 29 Sep 2022: Earlier, we defined excluded, casual sellers as sellers who have fewer than 30 sales within a quarter. This is incorrect. According to the directive (p. 48), sellers are excluded if they have fewer than 30 sales within a reportable period, i.e. the 12 months that correspond to a reportable calendar year. The total consideration for these sales cannot exceed 2,000 euros. Thank you kind folks at blocket.se for notifying us!


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