DAC 7 – The Exchange of Tax Information for Businesses with Digital Platforms in the European Union


Authors: Amedeo Rizzo, Martina Acciaro

Journal: Stanford – Vienna Transatlantic Technology Law Forum, Transatlantic Antitrust and IPR Developments, Issue No. 2/2022

Abstract:

The role of the digitalization of the economy has increased over the years and has been recently accelerated by the COVID-19 pandemic. This phenomenon originates critical issues for tax authorities, as digital activities are often outside the legal boundaries of tax regulations, including those concerning the exchange of tax information, which are mainly suited for traditional business models.

In response to this, the EU approved the Directive 2021/514/EU, also known as DAC 7, aiming at increasing tax transparency in businesses with a strong digital presence. Specifically, from January 1st, 2023, platform operators will be required to report information about the income on their platforms. The information that will be collected and presented to tax authorities allows the identification of the operator (i.e., name and address) and the income earned, with a description of the business.

Automatic exchange of information was already introduced by the US through the “Foreign Account Tax Compliance Act” (FATCA) and at the OECD level through the Common Reporting Standard (CRS). What is really new in the EU Directive is the broad range of businesses that will be hit by the legislation. Examples of industries that are in the scope of the Directive include live-streaming apps, tech companies providing food delivery platforms, virtual marketplaces, and online travel agents. The broad scope of the legislation can be appreciated in the definition of platform, provided by DAC 7 as: “any software, including a website […], accessible by users and allowing Sellers to be connected to other users for the purpose of carrying out a Relevant Activity, directly or indirectly, to such users”.

The Directive 2021/514 will impact, in different ways, both EU digital platforms and non-EU digital platforms. The extension of the scope of DAC 7 to all countries, and not only to Member States, aims at protecting the competitiveness of the EU operators. Consequently, in order to be effective, penalties have to be provided by Member States to non-complying non-EU countries. The reporting obligation should facilitate a multilateral automatic exchange of information among EU Member States and should help the EU fight tax evasion

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