The sole reason for this regulation is because marketplace services have grown ubiquitous in the Internet age. They have a substantial impact on the economy and both businesses and individuals.
What Is DAC 7 Exactly?
DAC 7 is an EU tax law that mandates digital platform operators in the EU to submit yearly to tax authorities financial, personal, and commercial information about their suppliers. This is the sixth modification to the EU Directive on Administrative Cooperation in Tax Matters.
A digital platform is defined by DAC 7 as any program (website or mobile application) that enables vendors to interact with other users in order to conduct a relevant economic activity. This includes, among others, peer-to-peer product, service, and accommodation platforms as well as ride-hailing, carpooling, and food delivery applications.
How Will DAC 7 Impact The Marketplace And Who Will Be Impacted?
Before DAC 7 goes into effect, every marketplace creator should evaluate how it will impact their reporting obligations. The failure to disclose might result in market fines. The mandate excludes some platforms and dealers, which are detailed below.
EU-based markets are affected by the DAC 7directive. This covers marketplaces that are headquartered in the EU, i.e. are tax residents, as well as any marketplace that features EU-based merchants.
Some of the platforms that will be impacted by this tax directive are:
- Platforms that offer rentals of immovable property
- Platforms that offer rentals of transport
- Platforms that offer personal services
- Platforms that sell goods
If your marketplace works in any of these industries, you should pay close attention to DAC 7 and the adjustments it needs in seller and revenue reporting
At least for the time being, the regulation does not apply to marketplaces that offer rents of movable assets (other than transport) or peer-to-peer financing. Examples of such marketplaces include rental platforms for baby equipment and tools.
However, even those considered exempt from these requirements will be required to submit necessary evidence annually to confirm their exemption. Therefore, marketplace owners must continue to show to tax authorities that their platform does not engage in the aforementioned activities.
The DAC 7 does not consider some services to be digital platforms. These are payment processors, chat applications, and platforms that do not charge users to list or promote.
What Do You Need To Report Once DAC 7 Is In Effect?
DAC 7 requires marketplace operators to provide the following information to tax authorities:
- Identity information (Full name, Address, Date of birth
- EU member state of residence
- Financial account identifier (bank account number)
- Tax ID number
- VAT
- Full amount of payments for the services or goods that were made through the platform
- Commissions, taxes or fees that the platform charged
- The address of the rental property if it’s a rental platform
What If You Fail To Comply With DAC 7?
If marketplace operators fail to submit the information required by DAC 7, they may be penalized. You must gather the necessary information from your suppliers and submit it by the due date, January 31 of the year after the reportable year.
You are required to give them two reminders if your marketplace suppliers do not supply the information on time. If after sixty days you have not received the requested information, you must cancel the provider's account.
Conclusion
Digital platforms are still relatively new economic models, and regulation is catching up to safeguard equitable taxes and openness. These platforms currently dominate substantial portions of the travel, transportation, and personal services industry.
DAC 7 requires yearly administrative effort from the majority of marketplace platforms. Before the legislation goes into effect on January 1, 2023, it is prudent to determine if your market is affected, and if it is, to ensure that you are collecting all the required data and have the means to export it. The order requires the first report to be submitted by January 31, 2024.
In the meantime, we have announced Embley, the marketplace automation platform. Embley provides a solution for complying with DAC 7 with Ledger. Ledger helps marketplace merchants to log ecommerce transactional and tax data in an immutable and transparent way complying to the OECD digital platform seller rules. Check out for more details on the Embley website.
February 2023 Update
Read the progress of the implementation of the legislation in European member states and non-member states.
