DAC7: the first reporting deadline was just the beginning – 5 practical tips for online platforms to navigate and comply with DAC7 in the EU and DRR in the UK

Remind me, what is DAC7 again and what is UK DRR?

DAC7 is a new EU tax reporting requirement for online platforms that went live on 1 January 2023. Online platforms are required to register with, and collect, verify and report seller revenues and seller information to EU tax authorities under certain conditions.

The first DAC7 deadline across the EU was 31 January 2024, with deadline extensions in some EU Member States. The UK’s own version of these reporting rules (UK DRR) went live on 1 January 2024, with first UK reports to be provided to HMRC by 31 January 2025. For more details, we refer to our previous insights for the EU here and for the UK here.

Here are 5 practical tips from the Bird & Bird Tax Team for internationally operating online platforms looking to navigate and comply with these requirements:

Tip 1: Impact assessment

We have been assisting clients with impact assessments as a first step. The goal is to understand whether and to which extent an online platform falls into scope or out of scope. These reporting rules are wide and capture any software, website or app that connects sellers with buyers, either directly or indirectly. This may for example include online marketplaces, online auctions, social media platforms, and livestreaming platforms.

Next to EU platforms, the impact assessment is important for non-EU platforms, for example based in the US, the UK or ASPAC. Under DAC7, any platform based anywhere can be required to report in respect of EU-resident sellers or EU property rentals. On the other hand, the UK’s rules target UK-resident platforms that will need to report on sellers based in a relevant partner jurisdiction or those who rent out property in partner jurisdictions. HMRC has yet to publish a list of partner jurisdictions. Particular care will need to be taken where the platform is available to sellers in multiple jurisdictions, to ensure that both lists of partner jurisdictions, and lists of reportable sellers are consistent for onward reporting purposes.

As the EU’s and UK’s rules are based on the OECD’s Model Reporting Rules for Digital Platforms, globally operating online platforms will of course need to manage these requirements on top of other global tax developments, like the OECD’s Pillar One and Pillar Two.

Tip 2: Tax blueprint

If the platform could fall within the scope of these reporting rules, a best practice next step is to prepare a tax blueprint. The purpose of the blueprint is to identify the data points that you should collect, providing a basis for a default XML file, as well as establishing with which tax authorities reports should be filed and which tax authorities may need to be notified of non-filing or exemptions.

Tip 3: Business requirements

Businesses will need to make sure they can be ready to manage compliance with these new reporting requirements considering their differences and penalties – ranging from £5,000 in the UK to over EUR 1,000,000 in other EU Member States for non-compliance.

We expect DAC7 and UK DRR compliance will drive changes in many business requirements beyond tax. We have for example already liaised with clients about 1) updating seller onboarding processes to capture required data points and to meet verification procedures, 2) updating terms and conditions to reflect obligations with the requirements, and 3) updating ERP systems to collect and store data in line with data protection requirements, as well as being able to automate XML files for reporting purposes. The impact of these reporting rules within the wider business should not be taken lightly.

Tip 4: Seller statements and seller guidance

Alongside reporting to tax authorities, reporting platforms will need to provide a copy of the reported information to sellers, at least once a year and no later than 31 January of the year following the relevant reporting year. This is intended to help sellers to meet their tax obligations by providing them with the same information that is provided to the tax authorities, helping them to fill out their tax returns correctly, showing e.g. totals over the reportable period. A receipt for each sale/task will not suffice. Each report should include the seller’s identification details, consideration received, broken down on a quarterly basis, details of the of relevant activities performed and any fees, taxes or commissions withheld.

The method of providing this information will be up to each platform and whatever method is chosen will need to be incorporated into the platform’s functionality so that the information is reasonably accessible for each seller. Online platforms may wish to provide guidance to sellers on what DAC7/UK DRR means for them, for example, through dedicated content on the website of the online platform.

Tip 5: Tax control framework

Online platforms should also incorporate DAC7/UK DRR into their overall tax control frameworks to monitor and manage the DAC7/UK DRR obligations over time, such as keeping records, updating policies and procedures, and conducting audits and reviews to improve where necessary.

Please contact Barbara den Exter, Willem Bongaerts, Andy van Esdonk, Caroline Brown or your regular Bird & Bird contact to further discuss DAC7 and UK DRR for your business.