Internationally active companies and intermediaries such as tax consultants, banks and lawyers are still in the process of preparing for the reporting requirements under “DAC6” (in Austria this was implemented by the EU Reporting Requirements Act [EU-Meldepflichtgesetz]). In the meantime, the European Commission presented a new proposed directive “DAC7” to improve administrative cooperation and transparency in tax matters within the scope of a tax policy strategy drive on 15 July 2020. We would now like to provide you with some early insights into the measures planned here from 2022.
Who does DAC7 concern?
Digital platforms are the central focus of DAC7 – namely platforms such as ebay, AirBnB & Co: The proposed directive is the European Commission’s way to address the challenges faced by tax authorities when dealing with digital business models, in particular digital platforms. The digital platform economy makes it difficult for tax authorities to trace and detect taxable events, especially if transactions are carried out by digital platform operators domiciled in another territory.
In order to improve transparency here, the European Commission is proposing several measures and extensions to the possibility of cooperation between tax authorities of different Member States.
What are the planned measures?
Three measures in particular are the focus here:
New reporting requirements for operators of digital platforms
Digital platform operators will in future be obliged to report the revenues generated by users (sellers) via the platform. Even operators based outside the EU must also register under the same scheme when operating in the EU, the aim being to provide tax authorities with access to information that will subsequently be used to determine value-added tax and income taxes.
The following business activities are subject to the reporting requirements:
- Personal services
- Sale of items
- Letting of real estate
- Letting of all types of means of transport
- Investments and loans related to crowdfunding
Annex 5 of the proposed directive sets out extensive reporting and due diligence obligations for platform operators, e.g.:
- Collecting personal data including where the sellers are resident, the tax account ID and the total amount received per quarter.
- In the case of letting services, additional information must include details about each advertised property and the corresponding entry in the land registry, along with the number of days each advertised property was let.
The collected and reviewed information must be submitted to the authorities within one month of the end of the reporting period (no later than 31 January of the following year), in which the seller was identified as being subject to the reporting requirements.
The report only has to be submitted in one Member State in line with the one-stop-shop approach. That Member State will then share the information with the other EU tax authorities within two months.
Automatic exchange of information
The extent to which and the ease with which information can be exchanged will be improved (such as by removing the requirement of “materiality”), which will probably be relevant for all taxpayers. License fees will be added to the types of income covered by the automatic exchange of information. A new framework for details for group requests will also be introduced.
What this all ultimately means is that tax authorities will have more ways of obtaining information.
Cooperation between tax authorities and joint audits
The proposed directive also contains a new detailed legal framework for conducting joint audits between two or more EU Member States. Audits will be carried out in accordance with the procedural arrangements in force in the EU Member State where the audit takes place. Evidence shall be recognised by the competent authorities of the participating EU Member States. The language for communication shall be agreed by the respective EU Member States.
The conclusions of a joint audit shall be presented in an audit report carrying the same legal force as national instruments. The result and the audit report must be received by the audited persons within 30 days of the audit report being issued.
The directive also introduces rules on the presence of officials from one EU Member State during an investigation in another EU Member State or during simultaneous audits.
When should work to transpose the directive begin?
The proposed directive indicates that the EU Member States must transpose the provisions into national law by 31 December 2021 at the latest and apply them from 1 January 2022.