On March 22, 2021, the European Council adopted the EU Directive 2021/514 (also known as “DAC 7”), extending the scope of the existing provisions on exchanges of information and administrative cooperation between the European Union (“EU”) member states to digital platforms. The new directive requires (i) reporting platform operators to collect and report prescribed information on reportable sellers using their platforms for certain commercial activities, and (ii) EU member states to automatically exchange this information. 

To whom does DAC 7 apply? 

DAC 7 defines a digital platform as software, including websites and mobile applications, allowing sellers to connect to other users to carry out “relevant commercial activity.” What constitutes a “relevant commercial activity” is defined below. However, the definition of a digital platform under DAC 7 excludes platforms that only allow for the processing of payments, users to list or advertise, or redirect or transfer users to a platform.  

Relevant commercial activity includes:  

• the rental of immovable property; 
• the provision of personal services; 
• the sale of goods; 
• the rental of any mode of transport; and 
• investment and lending in the context of crowdfunding. 

Generally, DAC 7 reporting requirements apply only to digital platform operators who are tax residents in the EU, or meet any of the following criteria: 

• Are incorporated under the laws of an EU member state; 
• Have their place of management in an EU member state; or 
• Have a permanent establishment in an EU member state and are not resident in a jurisdiction engaged in a cooperation agreement with the EU for the exchange of information equivalent to the DAC 7. 

Non-EU resident digital platform operators, however, must also comply with the DAC 7 reporting requirements if they facilitate relevant activities of sellers who are residents in the EU, or the rental of immovable property located in the EU. 

Publicly traded entities and government entities are excluded from DAC 7 reporting. 

In addition, the reporting requirements allow for the exclusion of information for sellers of goods for which the platform has facilitated fewer than 30 sales and for which the total combined consideration paid during the reporting period does not exceed 2,000 euros. An exclusion also exists for sellers engaged in high-frequency renting of immovable property, such as hotel chains and tour operators, requiring more than 2,000 relevant transactions during a reporting period to qualify. 

Non-EU-based digital platforms are generally permitted to choose an EU member state in which to submit the DAC 7 filing. Based upon BPM’s initial analysis, Ireland may be a preferred jurisdiction for filing based upon the more accommodating Irish regulations. EU-based entities operating digital platforms (including permanent establishments) need to file in the country where they are located. Even if the digital platform determines that no reportable transactions occurred during the reporting period, a filing stating the reason for not filing a complete report will be required. For example, if the transactions are under a threshold of 2,000 euros or the sellers are publicly traded companies, disclosure of the basis for the exclusion is required. Significant penalties may apply for digital platforms failing to comply with the reporting requirements. 

When are filings due? 

The EU regulations for DAC 7 are effective as of January 1, 2023, with the first reporting filing deadlines scheduled for January 31, 2024. Therefore, digital platform operators subject to the reporting requirements will need to submit information regarding sellers on their platform for the period from January 1, 2023, through December 31, 2023, no later than January 31, 2024.  

The UK is adopting similar regulations to the DAC 7 reporting requirements starting in 2024, with the first reporting requirement due in 2025 for digital platforms facilitating UK resident seller transactions. This will likely lead to a separate reporting requirement from the EU DAC 7 reporting requirements.  

What needs to be disclosed? 

Digital platform operators must collect the following information from reportable sellers (including both individuals and legal entities) using their platforms: 

• Legal name (or individual’s name). 
• Primary address. 
• The date of birth (for individuals). 
• The business registration number (for legal entities). 
• Any Tax Identification Numbers (“TIN”) issued to the seller, including each EU country of issuance (for individuals: in the absence of a TIN, the birthplace of the seller). 
• The Value Added Tax (“VAT”) identification number of the seller, where available. 
• The existence of any permanent establishment through which relevant activities under DAC 7 are carried out in the EU, where applicable, indicating each respective member state where such permanent establishment is located (for legal entities only). 
• Additional information is required for situations involving immoveable property rentals. 
• Amounts of fees withheld by the marketplace. 
• Quantity of commissions generated by the platform. 
• Bank account information to which the platform made payments. 

The platform operator must also determine whether the information collected is reliable and accurate using its own records, electronically searchable records and/or other means. If the operator determines that any information is inaccurate, it must ask the seller to correct that information. The operator may use a third party to fulfill these due-diligence obligations, but those obligations remain the operator’s responsibility. 

BPM will host a webinar on Tuesday, January 16, 2024, from 8 a.m. to 9 a.m. Pacific Time with Azets Ireland, our Irish affiliate firm, to review the regulations and filing requirements.  Register now