The digital platform economy is seeing rapid levels of growth. According to data from the European Council, revenue from this sector increased almost fivefold between 2016 and 2020, from approximately €3 billion to €14 billion. Estimates indicate that the highest revenues come from the delivery and taxi services sectors. The DAC7 (Directive on Administrative Cooperation) European regulation fits into this context. It aims to combat tax evasion in a sector where many sources of income are not declared. It therefore extends obligations to declare and communicate tax information to digital platforms that facilitate the sale of goods and services. In this article, you will find out what the DAC7 directive is, who it targets and what it means for online businesses.
What's in this article?
- What is DAC7?
- Targets of the DAC7 directive
- How DAC7 works in Italy and what it means for online businesses
- DAC7 penalties
What is DAC7?
DAC7 is the new European regulation that aims to combat tax evasion among e-commerce businesses, leading to improved administrative collaboration in the field of taxation. Directive (EU) 2021/514 (the so-called "DAC7") of the European Council entered into force on 1 July 2021. In Italy, it also includes a series of additions published in the Official Journal on 26 March 2023, with Italian Legislative Decree 32/2023.
DAC7 was introduced in response to the increasing number of individuals and businesses using digital platforms to sell goods and services online. Often, businesses do not declare the income that they receive through online platforms or pay the related taxes, in particular with regard to platforms operating in different countries. This leads to a loss of tax revenue and an unjustified advantage on the part of e-commerce operators compared with traditional businesses. According to estimates by the European Commission, the mechanism implemented by DAC7 will generate additional tax revenue of around €30 billion across the European Union.
Targets of the DAC7 directive
The DAC7 directive targets digital platforms. The term "platform" refers to any software that is accessible to customers – including websites and mobile apps – and acts as an intermediary for the purpose of carrying out business activities for some type of compensation. These business activities include:
- Property leasing, including residential and commercial properties, as well as any other property and parking spaces
- Personal services
- Sale of goods
- Rental of any means of transport
The Directive obliges digital platform managers residing in Italy – or in some cases, in other countries – to communicate certain tax data to the Italian Revenue Agency via a form related to the DAC7 directive. This data allows the tax administration to identify taxpayers who have not declared income received through digital platforms.
Note that not all the business activities mentioned are considered relevant for this purpose. Platform managers are exempt from the obligation to communicate seller account data if such accounts:
- Have concluded fewer than 30 transactions per year
- Have received payments of less than €2,000 per year
How DAC7 works in Italy and what it means for online businesses
What data needs to be communicated?
Within the scope of the DAC7 regulation in Italy, and as of 1 January 2023, digital platform managers with reporting obligations must compile and verify certain data related to sellers using their platform. This must be done according to the type of seller: natural persons and legal entities. Managers must acquire the following data for natural persons:
- First and last name
- Primary address
- Tax code provided to the seller (if available), specifying the EU member country of issuance and, in the absence of a tax code, the seller's place of birth
- Seller's value-added tax (VAT) number, if available
- Date of birth
Managers must communicate the following information using the DAC7 form for legal entities:
- Business name
- Legal headquarters
- Tax code provided to the seller (if available), specifying the EU member country of issuance
- Seller's VAT number, if available
- Business registration number
- The existence of a permanent establishment from which the business carries out relevant activities in the European Union (if available), specifying the EU member country in which it is located
In Italy, in addition to the above data, the DAC7 directive also requires companies to compile further information and report it to the tax authorities. This information includes the identification of the financial account and any other information of a financial nature, if known by the platform manager, as well as the total amount paid or credited during each quarter of the reporting period, and the number of relevant activities with regard to the amount paid or credited. It also includes any fees, commissions or taxes withheld or charged by the platform, with a reporting obligation for each quarter of the reporting period. For property rentals, managers must collect the cadastral data and the total number of rental days for each property during the reporting period, if available.
The Italian Revenue Agency has prepared a list of FAQ to help platform managers clarify any doubts and ensure compliance with the DAC7 directive.
How to collect data
On a practical level, applying the DAC7 directive falls under the responsibility of the platform manager, who must include a unilateral clause within the contractual terms which the seller must accept when registering on the platform in question. To comply with the DAC7 directive, the seller must fill in the Know Your Customer (KYC) form, so that the platform operator can verify the customer's identity.
If the seller registered a profile on one of the digital platforms before 1 January 2023, they will receive an email from the platform manager with the DAC7 form to fill in. However, if the seller opens a new account on the digital platform, the contract will already include the DAC7 clause, with the request to fill in the KYC form when registering on the platform in question. In this case, once again, the data only needs to be communicated to the Italian Revenue Agency if the activity exceeds the limits already established for tax monitoring.
Tax collaboration between countries
Among its main objectives, the DAC7 directive also provides for the exchange of information between EU member countries. With regard to platforms operating in different countries, if the digital platform manager is registered with an EU member country, they must send the information to the tax authority of the country in question. Depending on the place of residence of each seller, the tax administration of that country will communicate the data to the tax authorities of the other EU member countries automatically. For example, if an Italian seller sells at least 30 items through eBay and invoices at least €2,000, the e-commerce platform will communicate the income earned by the business to the German tax authority (where eBay's registered office is located). Subsequently, the German tax authority will send the data to the Italian Revenue Agency. At this point, the Italian tax administration will cross-reference the information received from Germany with the business's tax returns. A data mismatch will lead to the launch of an investigation.
DAC7 penalties
If platform managers with the obligation to communicate the required data to the Italian Revenue Agency fail to do so by 31 December of each year (for 2024, the deadline was extended to 15 February), they will be subject to a fine of between €3,000 and €31,500, or between €1,000 and €10,500 for incomplete or inaccurate information.
If sellers fail to provide the information required under the DAC7 directive following two reminders from the initial request, the platform manager may close the seller's account after 60 days, preventing them from registering again. Alternatively, the platform manager may withhold the amount due to the seller until they have provided the requested information.
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