Since 2023, platform companies in the EU have been required to report their sellers' transactions to tax authorities under the DAC7 Directive. German businesses, too, are bound by this directive, so they should make sure they’re well-informed of the practical implications of the current legal landscape.

This article will tell you what the DAC7 Directive is, what you need to consider when classifying income from platform transactions for tax purposes, and what the reporting obligations are for cross-border transactions. We’ll also explain the invoicing and documentation requirements platforms have to satisfy, and how you can implement the DAC7 rules in practice.

What’s in this article?

• What is the DAC7 Directive?
  
• Tax classification of income from platform transactions
  
• Reporting requirements in cross-border platform transactions
  
• Invoicing and documentation requirements for platforms
  
• Accounting automation: Practical application of the DAC7 Directive
  

What is the DAC7 Directive?

DAC7 refers to the seventh amendment to an EU Directive on cooperation between tax authorities in the European Union (Directive on Administrative Cooperation). Directive (EU) 2021/514, as it is officially known, obligates operators of digital platforms to capture tax information pertaining to their sellers and to report it to the national authorities.

Background and objectives of the DAC7 Directive

The DAC7 Directive can be traced back to an initiative in the EU Commission’s tax package of July 15, 2020. The aim behind this set of measures is to make taxation within the European Union fairer, simpler, and more transparent. To that end, the EU adapted its existing Directive 2011/16/EU on administrative cooperation in the field of taxation, inserting specific rules for the digital economy.

The focus is on new transparency requirements for digital platforms as a way of closing tax loopholes. In the past, income generated via platforms was not always fully recorded, which opened up the possibility for violations of tax regulations. This is where the DAC7 Directive comes in. Built around comprehensive due diligence and reporting obligations, the Directive is intended to close existing information gaps and enable financial authorities to better monitor income from platform transactions.

The aims of the DAC7 Directive, therefore, are to increase tax transparency in digital commerce, to make tax fraud and evasion more difficult, and to establish uniform competitive conditions within the EU.

How the DAC7 Directive was implemented in Germany

The DAC7 Directive obligated EU member states to adopt the provisions of the act into national law by the end of 2022. In Germany, these provisions were enacted as the Platform Tax Transparency Act (PStTG). Here’s the timeline:

• November 2022: The act was passed by the Bundestag (German Federal Parliament).
  
• December 20, 2022: The Bundesrat (Federal Council) approved the act.
  
• January 1, 2023: The PStTG entered into force.
  
• February 2023: The Federal Ministry of Finance published an accompanying letter, with guidance on proper implementation.
  
• January 31, 2024: Platform operators were required to file returns for the 2023 calendar year.
  

Practical implications of the DAC7 Directive for platform operators and sellers

The core of the PStTG is the obligation for platform operators in Germany to report information annually to the Federal Central Tax Office (BZSt) about income that reportable sellers have earned via the platform. Reportable sellers are natural persons and companies that have conducted relevant activities during the reporting period or that have received remuneration for an activity already performed.

Obligations for platform operators

For platform operators, then, the PStTG largely means a lot of organizational and documentation responsibility. They’re required to capture all relevant data pertaining to the sellers active on their platform, and to report this information to the BZSt by the appropriate deadline. This includes collecting identity and tax information, plus details of the income each seller has earned—regardless of whether the seller is based within or outside the EU.

That said, DAC7 generally does not apply if only the platform's own goods or services are sold via the platform and no third-party sellers are involved. In this case, the website is not considered a platform within the meaning of the DAC7 Directive.

For sellers themselves, DAC7 and the PStTG mean greater transparency when dealing with the tax authorities. Income from platform transactions is easier to track, which helps sellers prepare their tax returns correctly, thereby reducing the risk of queries or audits. At the same time, DAC7 creates fair competitive conditions, since all platform operators are subject to the same reporting requirements.

Tax classification of income from platform transactions

The reports submitted under DAC7 and the PStTG have direct tax implications for the sellers reported. It’s important that income from platform transactions is correctly classified for tax purposes according to the type of activity in order to determine, among other things, which taxes it is subject to.

Private sellers

For private sellers who only sell products or offer services on an occasional basis, earnings typically can be treated as private sales transactions or income from other services. In this case, commercial activity is not automatically assumed. However, the reporting procedure under DAC7 provides a simplification for the sale of goods by private individuals. According to Section 4.5 of the PStTG, their activities do not have to be reported if they’ve made fewer than 30 sales in a calendar year and the income generated from those sales is less than €2,000. This rule applies only to the sale of goods, though. For other activities, such as rentals or personal services like transportation, such thresholds do not exist. These are subject to reporting requirements regardless of the amount of income.

Either way, platform operators are required to inform sellers of which data they transmit to the BZSt. Taxpayers should use this information as a basis for their own tax return.

Regardless of whether platform operators report such activity, not every private activity automatically leads to tax liability. What matters is how the earnings generated from this activity are classified according to the general rules on income tax. Private sales, in particular, might be exempt from tax under certain circumstances, such as sales of personal assets. Occasional earnings from other services might also be exempt, provided they are earned only on a sporadic basis, no permanent activity is being undertaken, and the applicable tax exemption limits have not been exceeded.

Commercial sellers

Revenue earned by commercial sellers who offer products or services via platforms on a regular basis qualifies as business income. This income is subject to income tax and might also be subject to trade tax. These sellers are also liable for value-added tax (VAT), unless the exemption for small-scale entrepreneurs under Section 19 of the UStG (German VAT Act) applies. This regulation, however, requires that the business’s revenue in the previous calendar year did not exceed €25,000 and is not expected to exceed €100,000 in the current calendar year.

An activity qualifies as a commercial activity, in particular, if the seller undertakes this activity on a sustained basis, if they intend to make a profit, and if they participate in general economic activities. Commercial sellers are obligated to state their income in full on their tax return, and to keep corresponding records. The tax authorities can use the data reported under DAC7 to verify the declared income. However, these reports do not replace the taxpayer's own tax cooperation and declaration obligations.

Reporting requirements in cross-border platform transactions

Digital platforms often operate across borders. Platform operators, sellers, and end customers might reside in different countries, which can make application of the DAC7 Directive trickier. DAC7 was specifically designed to be international, as a way of ensuring that taxable income can be captured regardless of the location of the platform operator or seller.

According to the PStTG, German platforms must submit information on sellers who are located in or liable for tax in Germany, and also sellers who reside in another EU member state or who hold taxable real estate there. Under certain conditions, sellers from third countries (i.e., countries outside the EU) are also reportable, if they generate revenue within the EU via the platform.

Platforms located in other EU states are subject to their national regulations. Platform operators from third countries are also subject to reporting requirements if they support sellers who engage in economic activities in the EU via their platform. In this case, they must satisfy the same standards in regard to capturing and reporting data as EU platforms do, in order to ensure tax transparency.

Invoicing and documentation requirements for platforms

German platform operators must ensure that all transactions are documented in a traceable manner and that they fulfill tax requirements. Invoicing is central to this, as invoices form the basis for VAT, billing, and reporting.

What has to be documented?

Firstly, platform operators have to make sure that each individual transaction can be attributed to a specific seller. It also needs to be clear what service is being billed and whether the revenue from it is taxable or tax-free. This distinction is important with respect to both VAT and correct DAC7 reports.

In addition to billing for the services rendered by the seller, platform operators must also itemize and transparently document the fees charged. This is particularly challenging for platform models with variable, usage-based, or transaction-based fee structures. Here, operators must create clear documentation, showing how fees are calculated, broken down, and invoiced.

German platform operators are subject to the documentation and record-keeping obligations of the German Fiscal Code (AO) and the principles for the proper management and storage of books, records, and documents in electronic form (GoBD). The records they keep must be complete, accurate, timely, and audit-proof, so that they can be used for VAT returns and DAC7 reports. Inadequate or non-audit-proof accounting processes can not only increase tax risks but also result in formal objections from the tax authorities.

Accounting automation: Practical application of the DAC7 Directive

Increases in transaction volumes make it almost impossible to manually manage the practical requirements arising from DAC7, tax law, and bookkeeping. The operational challenges involved for affected platforms—especially software-as-a-service (SaaS), booking, or API-based companies—are enormous. Every usage unit, every invoice, and every payment must be correctly recorded, itemized, and documented.

The job for platform operators, then, is to establish processes for systematically capturing and reporting the relevant information and transaction data from their sellers. They also have to calculate their own fees, allocate them to the right tax category, and document them. All data must be usable for ongoing accounting, VAT returns, and DAC7 reporting.

Technical solutions that automate payment, billing, and accounting processes can make these processes much easier. For example, Stripe Connect enables platforms to take payments on behalf of sellers, manage their payouts, and capture transaction data for every connected account. This detailed sales and payment data can provide a reliable basis for fulfilling DAC7 reporting obligations and tax documentation requirements. Platforms that use Stripe Connect can thus make their internal admin processes more efficient.