Tax & Privacy Alert: European Commission proposal would create additional reporting obligations for digital platforms (DAC 7)



On July 15,  2020, the European Commission (“EC”) published a proposal for a Council directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC 7”). The proposal changes the existing rules on the exchange of information and administrative cooperation between member states with respect to information reported by digital platform operators. DAC 7 is largely based on the OECD model rules of reporting for platform operators with respect to sellers in the sharing and gig economy (the “OECD Model Reporting Rules”), which was the focus of our Tax & Privacy Alert of March 2020. Like the OECD Model Reporting Rules, DAC 7 focuses on those who offer their goods or services in the sharing and gig economy via digital platforms, referred to as “Sellers”. DAC 7 aims to provide a uniform set of rules for both Sellers and those who operate the digital platforms used by those Sellers, the “Platform Operators”. When adopted and implemented by the EU member states, DAC 7 will create an additional administrative burden for Platform Operators.

In this Dentons Tax & Privacy Alert we provide you with (i) a brief background, (ii) what’s new and (iii) key takeaways.


Tax authorities have various methods of gathering and exchanging information at their disposal. DAC 7 is one of those bases for information exchange. The digital aspects of the economy have grown rapidly over the last decade. According to the EC, the cross-border dimension of the services offered through the use of digital platform operators (e.g. house rental) has created a complex environment where it can be challenging to enforce tax rules and ensure tax compliance. As a result, the underreported income generated in the digital economy is significant. At the same time, EU member states lack the information to combat this shortfall. The ultimate goal of the EC with its DAC 7 proposal is therefore to create a level playing field between those who offer their goods or services through a digital platform and those who do not.

What’s new?

DAC 7 carries a broad definition of Platform Operators: any entity that allows Sellers access to the platform. A platform is defined as any software that allows Sellers to be connected to other users. Some software is excluded from the ‘platform’ definition, such as software used to process payments and software used for advertisement. Contrary to the OECD Model Reporting rules, software used to redirect users is also excluded under DAC 7.

DAC 7 is largely based on the OECD Model Reporting Rules. Like those rules, targeted services are rental of immovable property (such as residential property and parking spaces) and personal services (such as providing transport or delivery). DAC 7 adds some categories to the list of commercial activities Platform Operators will be obliged to report on: sale of goods, rental of any mode of transport and investing and lending in the context of crowdfunding are also included in DAC 7. Contrary to the OECD Model Reporting Rules, income from royalties is also included in DAC 7. Any Platform Operator, either a tax resident of, incorporated under the laws of, or having its place of management or a permanent establishment in an EU member state, will have a reporting obligation. Even when none of the aforementioned criteria is met, any Platform Operator that facilitates the rental of immovable property in an EU member state has a reporting obligation.

In order to properly identify each Seller, Platform Operators must perform due diligence on the Seller. In addition to collecting information on Sellers, Platform Operators must determine the reliability of the information. All information and documentation in the Platform Operator’s database, as well as records EU member states allow access to for free, must be used when collecting Seller’s information and determining its reliability. Information gathered in due diligence processes from previous years can be reused, but the information must have been collected or verified in the last 36 months. Platform Operators may outsource their due diligence obligation to third parties. However, the due diligence always remains the responsibility of the Platform Operator.

DAC 7 also carries penalties for Platform Operators and Sellers. No concrete penalties are detailed for Platform Operators, other than that the penalties must be “effective, proportionate and dissuasive”. It will therefore be up to the individual member states to determine penalties that meet these criteria. Sellers are subject to penalties when they prove unwilling to provide information necessary for a Platform Operator to perform due diligence on Sellers. In that case, two reminders will be issued, after which the Seller’s account will be closed for six months.

The reported information must be filed within one month of the end of a reportable period, meaning January 31 of the year following the reporting period. The Platform Operator has to file the report with the competent authority of the EU member state. Reportable information includes income derived via the platforms by Sellers. Information about the amounts paid by other users will also have to be reported. The competent authorities of each EU member state will exchange the reported information within two months after the end of a reporting period. DAC 7 further urges EU member states to adopt a legal framework to allow tax authorities to perform ‘joint audits’ of Sellers with cross-border activities. Competent authorities of two or more EU member states should be allowed to conduct a joint investigation when the interests of more than one EU member state are involved.

All these criteria need to be met while staying in line with the EU’s General Data Protection Regulation (“GDPR”). To remain GDPR complaint, Platform Operators must inform each individual Seller and other user that their information will be collected and reported to the competent authorities. This will most likely be the internal revenue service.

Key takeaways

  • We emphasize that DAC 7 is a legislative proposal from the EC. Therefore, it is at this stage no hard law that applies in the EU member states.
  • Platform Operators will be tasked with a due diligence process that may take up considerable time and resources. Additionally, the many new reporting obligations carry tight deadlines. All these obligations must be met within the confines of the GDPR. The administrative burden might require an intense restructuring of IT systems. On the other hand, anticipating this legislation early can yield a great benefit in the future.
  • If the current proposal is adopted in this form, the first report is due on January 31, 2023.

We will keep you updated on all developments regarding DAC 7. Dentons has extensive experience with directives such as DAC 7 and we are able to develop international strategies to help you meet your obligations on all fronts while containing commercial and privacy risks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.