The objectives of DAC 7 are to facilitate identification of circumstances in which tax obligation arises for Sellers that utilise digital platforms to generate revenue and to reduce the administrative burden arising from different national reporting requirements on the said circumstances. To achieve the aforementioned objectives, DAC 7 intends to harmonise the reporting obligations amongst EU Member States.
“A Digital Platform”, within the meaning of the Bill, is “any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing Sellers to be connected to other users for the purpose of carrying out a relevant activity, directly or indirectly, to such users”.
“Sellers” are defined as platform users, either individuals or entities, who/which are registered at any moment during the reportable period on the platform and carry out, for consideration, a relevant activity.
A relevant activities include the followings:
- rental of immovable property
- provision of personal services
- sale of goods
- rental of any mode of transport
“A platform operator, within the meaning of the Bill, is an entity contracting with Sellers to make available to them all or part of a platform. A “Reporting Platform Operator’’ includes any operator who is:
- a tax resident of Luxembourg, or incorporated under its laws, or has its place of effective management, or a permanent establishment (“PE”) therein; or
- facilitates the exercise of a Relevant Activity by reportable Sellers or the rental of immovable property located in a Member State (“Reporting Platform Operator”).
The Bill also provides conditions under which certain digital platform operators will need to perform due diligence procedures and report to the Luxembourg tax authorities (“LTA”) information on reportable Sellers which use their platform for the purpose of selling goods and/or providing services.
Due diligence procedure
In line with the Bill, the Reporting Platform Operators have to collect the following information from the Sellers unless they are excluded (e.g. public entities, entities whose shares are regularly traded on a regulated stock market, and etc):
- name (corporate name for entities);
- primary address;
- tax identification number (‘’TIN’’) or, in absence of the TIN, the place of birth of the seller;
- VAT identification number, if applicable;
- date of birth (business registration number for entities); and
- information on the existence of a PE through which the Relevant Activity is carried out in the EU, for entities.
The information above has to be verified by the Reporting Platform Operators. In case the Reporting Platform Operator has reason to believe that some of the information gathered is inaccurate, it should request from the seller to correct the incorrect elements and to provide the related supporting documentation.
In cases where the Seller is engaged in rental of immovable property, the Reporting Platform Operator should collect information about the address of each property and the corresponding land registration number, if applicable. Where the Reporting Platform Operator has facilitated more than 2,000 rental activities, he should collect supporting documents certifying that the lot belongs to the same owner.
Due diligence procedure needs to be completed by the Reporting Platform Operators no later than 31 December of the reporting period. As the Bill should be effective as from 1 January 2023, the due diligence procedures concerning the first reporting period should be completed before 31 December 2023. However, in respect of Sellers already registered on the platform as of 1 January 2023, or as of the date on which an entity became a Reporting Platform Operator, the deadline is extended to 31 December 2024.
The Reporting Platform Operator may rely on the information collected during preceding reportable periods as long as it has been collected and verified, or confirmed, in the last 36 months, and they have no reason to suspect that the information is no longer reliable or correct. Finally, the Reporting Platform Operator may rely on a third party to fulfill the due diligence obligations, provided that they remain their own responsibility.
Reporting Platform Operators have the obligation to report to the LTA the below information:
- their name, and address of the registered office, TIN, individual identification number (if applicable), and business name of the platform(s) for which they are reporting;
- in respect of each Seller, the information collected within the due diligence procedure (as listed above);
- financial account identifier;
- name of the holder of the financial account, if different from the Seller;
- information on each Member State in which the Seller is resident;
- total consideration paid or credited during each quarter of the reportable period and the number of Relevant Activities in respect of which it was paid or credited;
- any fees, commissions or taxes withheld by the Reporting Platform Operators during each quarter of the reportable period.
The information will have to be reported by the Reporting Platform Operators no later than 31 January of the year following the calendar year in which the Seller is identified as a reportable Seller. For example, the deadline would be no later than 31 January 2024 if the Seller is identified as reportable in 2023.
Automatic exchange of information
The Bill sets out procedure obliging the LTA to exchange information obtained from the Reporting Platform Operators with the competent authorities of the EU Member State(s) concerned. For this purpose, the Bill states that the LTA is required to communicate the information within two months from the end of the reporting period, i.e., no later than 28 February of year N+1, for the reporting period of year N. In this context, the Bill specifies that the first exchange of information should take place no later than 29 February 2024 for the information relating to the reporting period from 1 January 2023 to 31 December 2023.
Finally, the Bill provides for the possibility for competent authorities of other EU Member States to request a joint audit to the LTA, and vice versa. This request could, however, be refused if justified grounds are provided.
The Bill provides for the ‘’foreseeable relevance’’ standard in order to ensure the effectiveness and provide legal certainty with regard to the exchange of information with the competent authorities of Member States. This standard is relevant in the situation where a competent authority of another Member State requests information, and determines the extent to which the LTA is required to comply with such request.
According to the Bill, the foreseeable relevance standard entails that the LTA should comply and provide the requested information in case where “at the time the request is made, the requesting authority considers that, in accordance with its national law, there is a reasonable possibility that the requested information will be relevant to the tax affairs of one or several taxpayers, whether identified by name or otherwise, and be justified for the purposes of the investigation’’. In case of groups of taxpayers that cannot be individually identified, the relevance of the requested information should be classified based on their common set of characteristics.
Penalties in case of non-compliance
The LTA may impose a fixed fine of EUR 5,000 on the Reporting Platform Operator in the following cases:
- did not register with the LTA;
- did not notify the LTA about its registration in another Member State, if applicable;
- provided incomplete or incorrect information;
- did not update the information in due time; or
- did not comply with the reporting obligation in due time.
A maximum fine of EUR 250,000 may be imposed, following an audit, on a Reporting Platform Operator who does not comply with their duties under the Bill, excluding cases listed above and cases relating to the protection of personal data.
As the due diligence procedures concerning the first reporting period should be completed by 31 December 2023, taxpayers are advised to make evaluations on the extent of the impact the new rules will have on their operations.
How Grant Thornton Luxembourg can assist:
- Perform an analysis on whether your activity would be covered by DAC 7;
- Undertake a detailed review on the information to be reported;
- Keep you updated on any further DAC 7 developments at Luxembourg level.