As of 1 January 2023, EU-based online platforms shall provide information on their sellers under Council Directive (EU) 2021/514, or DAC7. As a result of these new rules, EU tax authorities will get a much better insight into the sales made via marketplaces.
Both goods and services are becoming widely traded through marketplaces, but the majority of the current VAT regulations were introduced when marketplaces had a lower share of the market. Consequently, the current standards fail to account for the newest business models.
From 1st January 2023, marketplaces will be required to exchange information with the tax authorities concerning third-party vendors. Thus, an automatic flow of information between EU tax authorities is going to take place, allowing them to properly monitor online sales for the purpose of enforcing VAT and Income Tax regulations.
The new rules will concern not only all EU residents, but also non-EU enterprises without a EU permanent establishment. For instance, merchants using EU facilities for the below purposes:
• The sale of goods;
• Any personal services;
• The rental of real estate; and
• The hiring of any means of transport.
When the term ‘personal services’ is used, it means not only those services provided
online/virtually, but also services physically provided offline after being mediated though a platform. It embraces all services involving time-based or activity-based work carried out by a person or people, either operating autonomously or on an entity’s behalf, and conducted at the demand of a client.
Yearly reports will have to be filed by the first month after the year to which they refer. So, the first DAC7 report of the year 2023 is expected by 31 January 2024. Several EU Member States have already successfully implemented the regulations into their domestic law, and the ones which have not yet done so are required to do this no later than on 1 January 2023.
Although DAC7’s primary aim is to collect data for Income Tax purposes, the obtained information is also likely to render the platform’s activities and those of its sellers more VAT-transparent.
Under the new Directive, each EU state is required to take appropriate measures so that platform can fulfil reporting obligations to carry out tax due diligence and reporting procedures.
In accordance with the tax due diligence procedures and reporting obligations, the competent authority of the member state in which the communication takes place will automatically inform the concerned EU countries, namely the country where the seller is established or resides or in the case of rental services for real estate, the country in which the property is located.
The competent authority of a member state will also be entitled to request the competent authority of another EU state to conduct a joint audit.
In conclusion, we can say that online sales will become much more transparent after 1 January 2023, when marketplaces will be expected to provide information on sellers pursuant to the DAC7. Significant due diligence and reporting requirements will arise for those operators of digital platforms that fall within the scope.
In other words, anyone operating a marketplace or selling goods or services via a marketplace must be conscious that from 2023 onwards their business will be much more transparent to the tax authorities. Therefore, they should be aware of their VAT obligations.