Green Circle Talks Cross-Border] A New Era of Tax Transparency - DAC7 and Its Impact on International Tax Compliance

Directive on Administrative Cooperation (DAC7) and its impact analysis

Background and Origins

The Directive on Administrative Cooperation (DAC) series aims to enhance the exchange of tax information between EU member states, ensure tax transparency and combat tax fraud.DAC7, the latest edition of this series, focuses on economic activities on digital platforms. The aim is to ensure that income generated through digital platforms is properly reported and taxed.

Core content of DAC7

1. Scope of Application: DAC7 covers a wide range of digital platforms including real estate rentals, personal services, merchandising and transportation rentals.
2. Exchange of Information Requirements: Platform operators are required to report details about the seller, including identity, revenue and nature of transactions.
3. Compliance Obligations: Platform operators must comply with stringent due diligence and reporting requirements to ensure the accuracy and timeliness of information.

Major requirements

• Platform Definition: Users of any software (including websites and applications) are able to perform the relevant activities.
• Reporting Platform Operators: Includes carriers that have a physical presence or are tax residents in a member state.
• Reportable Sellers: Individuals or entities registered on the Platform and engaged in relevant activities.
• Reportable Information: Includes the seller's name, tax identification number, tax residency, and financial account information.
• Reporting Deadline: Initial declaration to be filed by January 31, 2024

Challenges and Opportunities

1. Compliance Burden: Platform operators need to build strong data collection and processing systems.
2. Legal and Operational Adjustments: Operators will need to adjust their legal and operational frameworks to meet the new requirements.
3. Cross-jurisdictional coordination: There is a need to enhance coordination with tax authorities in different jurisdictions.
4. Data Privacy Concerns: Ensure compliance with data protection regulations.

History

1. DAC 1: Laying the groundwork for the exchange of tax information.
2. DAC 2: Extended to automatic exchange of financial account information.
3. DAC 3: Introducing automatic exchange of tax ruling information.
4. DAC 4: Country-by-country reporting for large multinationals.
5. DAC 5: Expand access to beneficial ownership information.
6. DAC 6: Report on Cross-Border Tax Planning Arrangements.
7. DAC 7: Focus on economic activities on digital platforms.

Conclusion

DAC7 represents a key evolution in international tax law, reflecting efforts to adapt to the digitalization of the global economy. Its implementation tests the effectiveness of international tax cooperation in the digital age, emphasizing the importance of fairness, transparency and compliance.