DAC 7 in a nutshell
In March 2021 the Council of the European Union adopted new transparency rules in the field of taxation under the Directive on administrative cooperation (DAC). In broad terms these new rules - known as DAC 7 - introduce:
- Reporting obligations for digital platform operators vis à vis tax authorities and sellers active on the platform
- A legal framework to enable joint audits between two or more EU member states
- Automatic exchange of information on royalties within the EU, creating a game changer for tax transparency in Europe.
In some countries, such as Belgium, the impact will be immediate, as some governments have already imposed reporting obligations on digital platform operators.
DAC 7 impacts all businesses active in Europe:
- Businesses that apply digital solutions and have developed digital platforms can be within scope of the specific digital platform rules
- All businesses active in Europe will be impacted by this next step in tax transparency, which includes the automatic disclosure of certain tax information and the introduction of joint tax audits.
DAC 7 is the latest amendment to the Directive on Administrative Cooperation, preceded by DAC 6 which imposed mandatory reporting obligations of cross-border arrangements.
Are you a digital platform?
With these new rules having only recently been announced and the definition of a digital platform being very broad, companies may not be aware of the new reporting requirements, or may not realise that they fall within their scope. DAC 7 introduces reporting obligations for digital platforms located both inside and outside the EU on revenues generated by sellers on these platforms. European Member States must implement these rules by 31 December 2022 at the latest, but in some countries (such as Belgium) the impact is immediate due to reporting obligations on digital platform operators already in force.
Which activities are in scope?
- Rental of immovable property, including residential and commercial property as well as parking spaces
- Personal services e.g. online teaching
- Sale of goods
- Rental of any mode of transport
What does this mean for digital platform operators?
The scope and impact of the new reporting obligations for digital platforms is far reaching, signifying an additional administrative and compliance burden. It requires a review of a company’s internal systems and procedures to ensure the information shared is correct and complete. Platforms will also need to inform users in an appropriate way on the reported information.
- Collect information from sellers
- Verify this information is correct
- Send information to tax authorities on an annual basis
- Send the reported information to the sellers concerned
Joint audits in the EU and exchange of information on royalties. What does this mean for you?
DAC 7 provides the legal basis for active investigation powers by foreign tax officials and joint audits, meaning the Spanish tax authorities, for example, can audit a client in Belgium. Organisations need to be ready for these new audit procedures.
In addition, royalties have now been added to the automatic exchange of information.
How can PwC help?
PwC is a front runner in understanding the implications of these new reporting requirements. Our DAC 7 expert group brings together interdisciplinary expert teams from across the PwC network, and can assist you with these new reporting obligations and compliance, including
- Impact assessment specifically tailored to digital platforms to assess whether your digital solutions are in scope and whether your current systems collect the right information to be compliant
- Assistance in the collection, verification and exchange of the required information and provision of this information to platform users
- An integrated approach, linking up with other reporting obligations such as VAT, to avoid double work and guarantee consistent reporting.
With respect to the new joint audit rules in the EU and the future exchange of information on royalties we offer a unique stress testing approach:
- Impact assessment of the new audit procedures
- Assessment of your readiness and capability to manage these new procedures
- Identification of tax pressure points in operational models and the corresponding legal set-up.
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