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Another step towards tax transparency for Digital Businesses

Another step towards tax transparency for Digital Busin

The EC has introduced a proposal (DAC 7) which focuses on taxing Digital Businesses.

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Kirsty Rockall

Partner, Corporate Tax

KPMG in the UK

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On 15 July 2020, the European Commission (EC) announced a new tax package. One of the proposals of the tax package is to review the current Directive on administration co-operation. Therefore, an extension to the Directive was introduced – ‘DAC 7’. DAC 7 is aimed at digital platforms and proposes that EU member states automatically exchange information on the revenues generated by the sellers on such platforms.  

Why was DAC 7 proposed?

DAC 7 is one of the three proposals within the tax package. The tax package’s overarching objective is to provide support to the EU’s economic recovery and growth from the recent global pandemic. This is to be achieved by promoting tax fairness, increasing tax transparency and simplifying legislation for organisations to grow within the EU Single Market.

To date, tax authorities have largely overlooked digital and shared services platforms (platform operators). Platform operators have global users, and as a result digital businesses have been growing significantly within our economy. Tax authorities are finding it challenging to be able to confirm whether digital businesses are keeping account of all forms of income occurring through their platforms.

In the past, tax authorities have requested information from the platform operators, which increases the burden on digital businesses, from a compliance viewpoint. Furthermore, member states may have a different methodology in requesting information which will vary for each country. Hence, a standardised reporting obligation will benefit digital businesses, as well.

DAC 7’s Characteristics

DAC 7 identifies digital businesses that generate income through their platform and ensure these types of businesses and sellers are accurately being taxed. This enforces the collaboration between the member states to tackle tax evasion by using the automatic exchange of information on the revenues generated by the sellers from businesses. DAC 7 intends to capture a wider scope of taxes generated from digital businesses.

Similar, to DAC 6, under DAC 7 digital businesses will have a reporting requirement which is subject to the mandatory exchange of information. The requirements are as follows:

  • Collect and verify the information from their online platform;
  • Report the information, on their reportable seller, which uses the platform to operate and sell their goods, services, invest or lend (in the form of crowdfunding); and
  • Communicate the reported information to the relevant tax authority.

All EU member states will need to adapt and publish their legislation by 31 December 2021, at the latest. The Directive will need to be enforced by 1 January 2022 throughout all EU member states.

Will UK businesses need to be worried about DAC 7?

The Brexit transition period is now in place until 31 December 2020. The transition period states how all EU rules and legislation will continue to apply to the UK until after the transition period has been completed. KPMG will be providing further updates on this matter, in due course.

Next Steps

The EU Parliament and Council must unanimously agree on the proposal before it becomes EU law. KPMG will be providing updates on this matter, in future Tax Matters Digest articles.

For further information please contact:

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