DAC7: A New Era for Digital Platforms and Tax Reporting Compliance 

As the digital economy continues to grow at an unprecedented rate, regulatory bodies are stepping up efforts to ensure tax compliance across borders. One of the most significant regulatory developments in this space is the introduction of DAC7 by the European Union. This directive is designed to improve transparency in tax reporting and requires digital platforms to report detailed information about their users, particularly those who generate income through goods, services, or rentals of immoveable property or transport facilitated by these platforms. DAC7 represents a major shift for digital platforms, imposing significant new obligations that demand close attention and careful implementation. 

Overview of DAC7 

DAC7, which stands for the Directive on Administrative Cooperation (7th amendment), extends the scope of previous EU directives and places new tax reporting obligations on digital platforms operating within the EU or serving EU customers. The core aim of DAC7 is to combat tax evasion and ensure that individuals and businesses utilising digital platforms are paying the appropriate taxes on their earnings. The directive requires platforms to collect, verify, and report detailed data on users who generate income through their activities on the platform. 

Under DAC7, platforms are required to report information about sellers to the relevant tax authorities, who then share this data across EU member states. This includes platforms enabling transactions involving the sale of goods, provision of personal services, rental of real estate, or transport rentals. Crucially, DAC7 applies not only to EU-based platforms but also to those outside the EU that facilitate transactions involving EU users, significantly widening the scope of the directive. 

Reporting Requirements for Platforms 

Digital platforms affected by DAC7 must adhere to stringent reporting requirements. Platforms are obligated to report detailed data on their users, including: 

• Seller’s full name, address, and tax identification number (TIN) 

• Date of birth and VAT number, where applicable 

• The gross revenue generated by the seller from platform activities during the reporting period 

• Fees and commissions charged by the platform 

• Bank account details, including the jurisdiction of the account 

• Specific identification of the property, in cases of rental transactions. 

The information must be gathered on an annual basis and submitted to the platform’s home tax authority, which will share it with the appropriate tax authorities across the EU. The goal is to ensure that tax authorities have a comprehensive view of cross-border activities carried out through digital platforms, enabling them to ensure proper tax payments by users. 

Key Compliance Challenges 

For digital platforms, DAC7 presents a significant compliance burden. Platforms are now required to implement new systems and processes for the collection, verification, and reporting of user data. This is not just a technical challenge but also a legal one, as platforms must ensure they comply with both DAC7 and the specific tax rules of each country in which their users are based. 

Compliance requires a thorough review of current data collection and reporting processes to ensure they align with DAC7’s requirements. Many platforms may need to invest in updated technology systems capable of handling the increased complexity of cross-border reporting, as well as enhanced verification measures to ensure the accuracy of the data collected. Failure to comply with DAC7 can result in substantial penalties, making it critical for platforms to ensure they are fully prepared to meet these new obligations. 

The Expanding Reach of DAC7 

One of the key elements of DAC7 is its broad reach. The directive applies to digital platforms located outside the EU, provided they facilitate transactions involving EU-based users. This means that even non-EU platforms are required to comply with DAC7 if they have users in the EU. This extraterritorial application of DAC7 places a significant burden on non-EU platforms, many of which may not be familiar with EU tax reporting requirements. 

For example, a platform based in the United States that allows EU-based users to rent out properties or provide services must now comply with DAC7, even though the platform itself is not based in the EU. This adds another layer of complexity to compliance, as non-EU platforms must ensure they understand and adhere to the reporting requirements of each EU member state in which their users operate. 

The UK’s Digital Reporting Requirements (DRR) 

While DAC7 governs tax reporting for platforms operating within the EU, the United Kingdom has introduced its own set of rules following Brexit. Known as the Digital Reporting Requirements (DRR), these rules closely mirror DAC7 but apply specifically to platforms operating within the UK or serving UK users. The DRR is designed to ensure that digital platforms are reporting accurate information about users who generate income through the platform, thereby ensuring tax compliance. 

Platforms operating in both the EU and the UK must now navigate the complexities of complying with both DAC7 and DRR. While the two sets of rules are similar in scope, there are differences in the reporting requirements and processes that platforms must be aware of. For instance, the timing of reporting and the specific data points required may vary between the two jurisdictions, requiring platforms to adopt flexible compliance strategies that can accommodate the differing requirements. 

Practical Considerations for Platforms 

Given the complexity and scope of DAC7 and DRR, digital platforms must take proactive steps to ensure compliance. Here are some practical considerations for platforms facing these new reporting obligations: 

1. Understand the full scope of the rules: Platforms must familiarise themselves with both DAC7 and DRR, particularly if they operate across multiple jurisdictions. This includes understanding the specific reporting obligations and the consequences of non-compliance. Smaller platforms may benefit from a minimum threshold, with DAC7 exempting sellers with fewer than 30 sales or total sales under €2,000 during the reporting period. However, since this threshold isn’t high, it’s best to check if reporting is still required. 

1. Implement robust data collection systems: Platforms will now need to invest in new or upgraded systems to collect, verify, and store the required user data. This includes ensuring that the platform is capable of collecting tax identification numbers, bank details, and revenue data from all users who generate income through the platform. 

1. Verify user information: Platforms must implement verification processes to ensure the accuracy of the data being reported. This may include requiring users to provide additional documentation or verifying the information against third-party data sources. 

1. Regular compliance reviews: Compliance with DAC7 and DRR will require ongoing reviews of internal processes to ensure that the platform remains up-to-date with any changes to the rules or reporting requirements. 

1. Seek expert advice: Given the complexity of DAC7 and DRR, platforms should seek professional advice to ensure they are fully compliant with both sets of rules. Tax advisors with expertise in cross-border digital transactions can provide valuable guidance on navigating these regulations. 

The Role of gunnercooke in Supporting Compliance 

At gunnercooke, we understand the challenges that digital platforms face in meeting these new reporting requirements. Our team of tax experts is well-versed in both DAC7 and DRR, and we offer tailored advice to help platforms navigate these complex obligations. From reviewing and updating your internal systems to providing ongoing compliance support, we ensure that your platform remains compliant and avoids the risks associated with non-compliance. 

Whether you are an EU-based platform, a non-EU platform serving EU users, or a UK-based platform subject to DRR, our team can guide you through every step of the compliance process. We understand the nuances of cross-border tax regulations and are here to help you implement efficient, effective systems that meet all of your reporting obligations. 

For more information or to discuss how we can assist you, feel free to contact me, Angelo Chirulli, at angelo.chirulli@gunnercooke.com. 

Angelo Chirulli, BSc (Hons), ADIT, ACA, BFP, Operating International Tax Partner at gunnercooke LLP, 

 Angelo is a highly experienced international tax advisor specialising in corporate, inheritance, and restructuring tax. With over 26 years of expertise across the UK, US, Costa Rica, and Italy, Angelo has an extensive track record in guiding high-net-worth clients and multinational firms on complex tax planning and cross-border structuring. His recent work includes advising on Inheritance Tax (IHT) strategies for property assets, helping clients establish efficient structures, such as trusts, to preserve wealth and avoid common tax pitfalls in estate planning. He is an writer and lecturer on international tax.