DAC7: How Your Platform Can Become Compliant

DAC7 (Directive on Administrative Cooperation, 7th iteration) is an EU directive requiring digital platform operators to collect, verify, and annually report seller data to their national tax authority by 31 January each year. If your platform facilitates personal services, goods sales, property rental, or transport rental involving EU-based sellers, this directive applies to you - regardless of where your platform is headquartered.

Due to the physical restriction imposed during the Covid-19 pandemic, online platforms exploded, with the likes of Fiverr reporting a 77% jump in 2020 revenue to $190 million. This unprecedented growth led the EU council to adopt the DAC7 Directive to enhance tax transparency. 

This new directive will force certain digital platform operators to adhere to further reporting obligations. That's ensuring that seller's data are collected, verified, updated, and that is reported before 31st January each year. 

If you stick to the end of this article, you'll find out what resources you need to get ready for DAC7 and how Gigapay can help you stay compliant.

First and foremost, DAC7 defines a platform as any digital interface that links sellers of specific goods and services with potential buyers. However, when you take a closer look, you discover the scope is quite broad and extends to a vast set of online platforms.

Which platforms does DAC7 apply to?

Unless you're a payment processing platform like PayPal, Stripe, or Wise, this new Directive will cause an overhaul in your business. As a digital platform in the gig or creator economy that facilitates personal services, your platform must comply with the DAC7 Directive to avoid sanctions. Before the end of 31st January of every year, you must report your platform's sellers’ data. For example:

• Full name
• Primary address
• TIN
• Date of birth
• Business registration number
• The country where the seller is established

In addition to the above, you need to collect and store data related to the actual payments and compensation that sellers earn through the platform, including e.g. any fees or taxes that the platform may withhold. Unless, already keep track of all this you will need to build new systems or processes to help you collect, verify, update, and report your sellers' data to the relevant tax authorities.

The platform has to assess the reliability of the data that is collected from the seller. For instance, certain data like the TIN and the VAT number must be verified against external data registers offered for free by any of the member states, or the EU.

Platforms in this context refer to any software, a website, or perhaps part of an application accessed by users to carry out any of the activities, such as platforms into the rentals of immovable property, either  residential or commercial property, as well as any other immovable property and parking spaces, like Airbnb.

Or platforms into Personal Services, the sale of Goods, or perhaps, the rental of any means of transport, such as fiverr and eBay.

It doesn’t matter if the platform is from the EU or not, as long as their target sellers reside in any of the EU states. You will be responsible for collecting, verifying, updating, and reporting data about your sellers, including their earnings. However, it must be reported once per year and before 31st January each year.

Failure to adhere to the DAC7 Directive attracts sanctions, affecting your operation in the EU market.

Sanctions for not adhering to the DAC7 Directive

In the case of non-compliance, the sanctions imposed are similar to that of DAC6. To ensure your platform stays compliant, you must adhere to the rules of DAC7 by reporting relevant data to the proper authorities.

While sanctions may vary on each EU member state, they must be carried out 'effectively, proportionate, and dissuasive.' In this respect, fines are likely to be the main sanctions. The thing is, sanctions will differ amongst the EU Member States, but penalties should be dissuasive and effective irrespective of the state.

For instance, in the Netherlands, reportable platform operators can be fined a maximum penalty of €900,000 ($950,000) or, perhaps, criminal prosecution for failing to comply with the new Directive.

The DAC7 Directive also provides measures against sellers who might refuse to share appropriate information with your platform. In that case, the platform can terminate their account after two reminders.

How to prepare your platform for DAC7 compliance

While the DAC7 Directive could benefit your platforms somehow, it's not without a drawback. Typically, your business is faced with extra administrative work, which derails your platform from its core purpose, forcing you into mundane tasks.

After all, digital platforms serve as the bridge between sellers and buyers. Anything other than that is merely a distraction to that goal. But you can get ready by:

Understand your obligations

1. Learning more about what obligations you have related following the implementation of the DAC7 directive
2. Map out what data you collect today and what data you are missing

Build your data collection and verification process

1. Make sure that you know what data you can verify and where you can do it
2. Set up processes for determining the reliability of the seller's data and updating it when needed

Prepare your reporting workflow

1. Ensure that you report everything on time to the Tax Authorities

Gigapay helps digital platforms automate the full DAC7 process, from seller data collection and TIN verification through to annual reporting. Book a demo to see how it works for platforms like yours.

FAQ

Q: What seller data do I need to collect under DAC7?

A: Platforms must collect the following data for each seller: full name, primary address, Tax Identification Number (TIN), date of birth, business registration number, and the country where the seller is established. You must also collect financial data - the total fees, commissions, or taxes withheld and the total payments made to each seller throughout the year.

Q: Does DAC7 apply to platforms based outside the EU?

A: Yes. DAC7 applies to any digital platform - regardless of where it is based - if its sellers reside in an EU member state. A platform headquartered in the US or UK, for example, must still collect and report DAC7 data if its users include sellers based in Germany, France, Sweden, or any other EU country.

Q: How do I verify seller TIN and VAT numbers under DAC7?

A: Platforms must verify seller TIN and VAT numbers against external data registers. Most EU member states and the EU itself offer free online verification tools for this purpose. If your platform cannot verify a TIN through these means, you should request additional documentation from the seller - such as a government-issued ID or official tax document.

Q: What can a platform do if a seller refuses to provide their data?

A: Under the DAC7 directive, if a seller refuses to share required information, the platform must send two formal reminders. If the seller still does not comply after both reminders, the platform is entitled - and expected - to terminate the seller's account and prevent future registrations for a period of time.

Q: What types of platforms are exempt from DAC7?

A: Payment processing platforms - such as PayPal, Stripe, and Wise - are generally exempt from DAC7 because they do not facilitate the underlying transactions between sellers and buyers. Platforms that only list goods or services online without actively handling payment flows may also qualify for an exemption. If you are unsure whether your platform is exempt, consult your legal team or relevant tax authority.

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