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The creator economy is booming and has become a $100 billion industry. This unprecedented growth triggered the EU council to impose DAC7 to foster tax transparency along with other industries sharing similar features. The new directive has taken effect on 2023, and applies to digital platforms operated in the EU as well as Non-Union jurisdictions.
DAC7 at a Glance
DAC7 is a directive on cooperation between different EU member states on gathering and reporting data about natural and legal entities and their earnings through digital platforms and marketplaces.
The directive forces platforms to start reporting commissions earned by users selling goods, services, and rental of transportation and accommodation. Including influencer platforms, task-based-work platforms, used-goods marketplaces, etc. In other words, platforms such as Upwork, Fiverr, eBay, and Uber.
However, certain platforms are exempted from DAC7 requirements, e.g. if they don't actively handle payment flows and only list goods or services online.
For a full explainer on DAC7 and what it covers, see our guide: What Is DAC7 And Why You Should Care
Why Is DAC7 Important?
The astonishing growth of digital platforms has provided an avenue for the EU to revive the economy after the pandemic. However, income earned through platforms has remained intransparent for tax authorities. Thus, the proposed DAC7 is to improve traceability for tax authorities when the money is sent across borders. The directive states that proactive collection of information on the platform level during, e.g. registration is better rather than tax authorities trying to investigate it in hindsight.That is good news for businesses and honest entrepreneurs since it prevents tax fraud, tax evasion, and tax avoidance thus improving their competitiveness.
What Do You Need To Know About DAC7 As A Platform Operator?
As a digital platform in the creator economy that facilitates personal services, your platform must comply with the DAC7 directive to avoid sanctions.
DAC7 has a few important steps for digital platforms to stay compliant:
Collect data
The platforms must collect slightly different data depending on whether their users are individuals or companies. Below are the lists of data points needed to collect.
Individual
- Full name: Yes
- Primary Address: Yes
- TIN (Tax identification number): Yes
- Member state of issued: Yes
- VAT number: Yes
- Business registration number: No
- Date of Birth: Yes
- Member state of each permanent establishment of relevant activity: No
Company
- Full name: Yes
- Primary Address: Yes
- TIN (Tax identification number)*: Yes
- Member state of issued: Yes
- VAT number: Yes
- Business registration number: Yes
- Date of Birth: No
- Member state of each permanent establishment of relevant activity: Yes
* All TINs that the Seller may have, unless it's not issued or required by the Member State of residence
** If no such number is issued, the place of birth of the Seller should be collected.
Verify data
The platform verifies customer data they have collected, which is possible to do so through digital means offered by a member state or the EU. The main data points that should be verified, if possible, are the users' TIN or VAT numbers.
If the platform deems the customer data unreliable, they should take additional measures to verify it, e.g. requesting official documents.
Update and renew data
The platform shall periodically request that its users provide new information. At the very least, they must do such periodic reviews at 36-month intervals. If the platform has reasons to believe that the data is out-of-date, they shall request the user to update their data sooner.
Reporting
The platform shall report the customer data collected above, as well as data related to the commission that their users have earned throughout the year. The reporting shall be done annually, by the latest by March year after the commission has been earned.
What Happens If The Platform Is Not Compliant?
Fines for platforms that don't comply with DAC7 range from SEK 2,500 to SEK 12,500 per user, even more, depending on the member state involved. Details of the sanctions are still somewhat unknown in each member state. So it's left for each state to decide on an appropriate measure, as long as they are "effective, proportionate and dissuasive."
For instance, a year ago, Belgium introduced DAC7' light' reporting obligations for digital platforms within the gig economy, which will be removed to give room for the new DAC7 legislation. The Belgium tax authorities issued a comprehensive FAQ to clarify the DAC7 'light' information and reporting obligations.
The FAQ confirms that since no specific penalty is provided for noncompliance with the DAC 7 obligations, the general penalty provisions of the BITC (Belgian Income Tax Code) apply. Fines for noncompliance range from EUR 50 to EUR 1,250 per seller.
In Ireland, the Finance Act 2021 provides that a fine of €19,045 may be imposed for noncompliance and late reporting. And if there's a failure to deliver a return, a further penalty of €2,535 shall apply for each day the failure continues.
The Cost To Implement DAC7
According to EU estimates:
- EUR 400,000 to implement per platform
- EUR 50,000 per platform per year to maintain
- One-off cost per seller and platform: €25-58
- Recurring costs for the seller that are being reported per platform: €3-6
Swedish estimates:
One FTE takes (30 minutes per registration and +10 minutes per seller to update data annually) and with a salary of SEK 36,500. That is SEK 575,000 per year in salary cost (i.e. including employer fees).
Estimates Of Affected Platforms/Sellers
According to our Swedish estimates, 400,000 sellers and 350 platforms will be affected, of which 2/3 are Swedish platforms, and 1/3 are international with Swedish sellers. In contrast, our EU estimates show that about 10 – 35 million sellers and 500 - 2,300 platforms will be affected. Note, that there are concerns expressed by both Swedish authorities as well as the EU about the accuracy of the estimates.
How Can You Prepare For DAC7?
Your business faces extra administrative work when dealing with DAC7, which often could derail your platform from its core purpose, which is serving as the bridge between sellers and buyers. Notwithstanding, there are things you can do to prepare, such as:
- Learning more about what obligations you have related following the implementation of the DAC7 Directive
- Map out what data you collect today and what data you are missing
- Make sure that you know what data you can verify and where you can do it
- Automate your process to avoid a bad user experience
- Set up processes for determining the reliability of the seller's data and updating it when needed
- Ensure that you report everything on time to the Tax Authorities
This new directive means that digital platforms will need robust and flexible compliance solutions to handle the additional administrative demands. A solution like that can either be built in-house or bought from a third-party provider like Gigapay. No matter which option your platform prefers, it is important to be ready for when it is time to report by the end of January of every year.
Gigapay automates the DAC7 compliance workflow for digital platforms - from seller data collection and TIN verification through to annual reporting to tax authorities across EU member states. Book a demo to see it in practice.
FAQ
Q: What is the difference in DAC7 data requirements for individual sellers vs. company sellers?
A: For individual sellers, platforms must collect: full name, primary address, TIN, issuing member state, VAT number, and date of birth. For company sellers, the requirements are the same except date of birth is replaced by business registration number and the member state of each permanent establishment. Companies do not require a date of birth; individuals do not require a business registration number.
Q: How often must platforms update seller data under DAC7?
A: Platforms must conduct periodic data refresh reviews at a minimum every 36 months (3 years). However, if the platform has reason to believe that any seller's data is out of date - for example if an address changes - it must request an update sooner, regardless of the 36-month cycle.
Q: How much does it cost to implement DAC7 compliance?
A: According to EU estimates, implementing DAC7 costs approximately 400,000 euros per platform as a one-off implementation cost, plus around 50,000 euros per year to maintain. One-off per-seller onboarding costs are estimated at 25 to 58 euros, with recurring annual costs of 3 to 6 euros per reported seller. Costs vary significantly based on whether you build in-house or use a third-party provider.
Q: How many platforms and sellers are affected by DAC7 in the EU?
A: EU estimates suggest that 500 to 2,300 platforms and 10 to 35 million sellers are affected across the EU. Swedish estimates project around 350 platforms and 400,000 sellers affected in Sweden alone, of which roughly two-thirds are Swedish platforms and one-third are international platforms with Swedish sellers.
Q: Can DAC7 compliance be outsourced to a third-party provider?
A: Yes. Platforms can either build their DAC7 compliance system in-house or procure a third-party solution. Providers like Gigapay offer automated seller data collection, TIN and VAT verification, and annual reporting to tax authorities. Outsourcing is often more cost-effective than in-house development, particularly for platforms without existing compliance infrastructure.
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