Today, many businesses use digital platforms to sell a wide range of goods and services. This model is particularly popular among digital nomads and the businesses that cater to them.
- Who does it apply to?
- Data submission
- Reportable providers
- Required informations
- Access to data
- Additional reporting
- Platform operators
- Penalties and sanctions
However, the lack of clear regulations has resulted in some transactions being untaxed, leading to a loss of significant tax revenue for EU member state tax authorities.
To address this issue, the European Union introduced the DAC-7 Directive based on a German draft law. The directive, which came into force on January 1, 2023, outlines specific due diligence and reporting obligations for operators of digital platforms.
The legal amendments aim to improve cooperation between authorities and increase investigative efficiency in order to ensure the proper taxation of cross-border situations and to combat tax evasion, tax avoidance, and tax fraud. This is achieved through measures such as administrative assistance.
It establishes far-reaching reporting obligations for operators of digital platforms that are more extensive than the existing recording obligations for operators of electronic interfaces.
Which platforms users does it apply to?
In general, DAC-7 applies to a variety of platforms, including online marketplaces that facilitate the delivery of goods and platforms that allow suppliers to sell goods or provide rental accommodation or personal services.
Data submission
Operators of digital platforms are obliged to report certain information to the Federal Central Tax Office (BZSt) annually by January 31 of the respective following year.
The data must be reported electronically and are automatically sent to the BZSt.
This data can be used to identify active providers (users) on platforms and to evaluate their transactions for tax purposes.
Reportable providers
Reportable providers are individuals or businesses that are residents of, or tax-liable in, Germany, as well as those that are subject to taxation in other European Union member states.
Additionally, reportable providers include those who are registered on a platform and offer a relevant activity at any point during the reporting period.
Information about providers that must be reported by the platforms
- First and last name;
- Address;
- Tax identification numbers (if available);
- Financial account identifier;
- EU member state where the provider is based or where the property is located;
- Fees, commissions, or taxes withheld or charged by the platform operator for each quarter of the reporting period; and
- Various other data points
Additionally, platform operators will have increased due diligence obligations, such as verifying the provider's residence and the accuracy of reportable information.
EU tax authorities will have access to data
According to the Mutual Assistance Directive, all EU member states should have access to relevant information. Therefore, all data collected by the BZSt on domestic providers will be shared with the tax authorities of other countries.
Additional reporting
In the future, digital platform operators will be required to disclose information about the transactions of their registered merchants to European tax authorities. This will include details about the income earned by traders from commercial use of the platform, whether or not the service or goods were paid for through the platform. The number of transactions will also be reported.
Which platform operators does it apply to?
The tax authorities are focusing on digital platform operators that enable users or traders to communicate with each other through software and complete legally binding transactions.
The platforms must provide the following services, among others:
- The offering of relevant activities by providers to other users, or
- The collection and payment of compensation related to a relevant activity,
- The processing of payments in connection with a relevant activity,
- The promotion of a relevant activity or the listing of a relevant activity by users, or
- The redirecting or forwarding of users to a platform
As well as, among other things, that:
- The registered office or the management of the company is in Germany; or
- The company is registered under German law; or
- There is a permanent establishment in the home country
The DAC-7 Directive applies not only to pure online marketplaces but also to platforms through which suppliers can offer rental transactions or personal services:
Penalties and other sanctions for violations of obligations
If reporting is late or incomplete, an administrative offense may be reported and a fine of up to EUR 50,000 may be imposed.
Violations of the following may result in fines:
- Registration duties
- Reporting and correction reporting duties
- Seller information duties
- Obligations to cooperate with sellers
- Recordkeeping obligations
Both intentional and reckless violations are subject to the provisions on fines.
More information on the DAC-7 Directive can be found here.
(Source: eClear)
