The European DAC7 directive

The European DAC7 directive, approved by the European Parliament and the Council of the European Union on 22 March 2021, aims to make tax administration in the digital economy more effective. The directive introduces new obligations for operators of digital platforms, designed to increase the transparency of the income of sellers of goods and services who use their services.

The DAC7 directive was implemented into Slovak legislation by an amendment to Act No. 442/2012 Coll. on International Assistance and Cooperation in Tax Administration, as amended, which the National Council of the Slovak Republic approved on 15 June 2022. The amendment took effect on 1 January 2023.

NEW OBLIGATIONS FOR OPERATORS OF DIGITAL PLATFORMS

The DAC7 directive introduces the following new obligations for operators of digital platforms:

• Reporting obligation: Operators of digital platforms are required to report to the competent tax authorities of the member states information about sellers of goods and services who earn income in the member states through their platforms. The reported information includes in particular the sellers’ identification details, details of their activities, details of their income and expenses and details of their tax residence.
• Obligation to cooperate: Operators of digital platforms are required to cooperate with the tax administrations of the member states in obtaining and verifying the reported information.
• Obligation to take anti-fraud measures: Operators of digital platforms are required to take appropriate measures to prevent and detect tax fraud.

The DAC7 directive applies to all digital platforms that allow sellers of goods or services to offer their products or services via the internet.

Examples of digital platforms covered by the DAC7 directive include:

• Amazon
• eBay
• AliExpress
• Airbnb
• Uber
• Fiverr
• Upwork
• Shopify
• WooCommerce

The DAC7 directive applies to all of these platforms, regardless of whether or not they are resident in the EU. These platforms are required to report to the tax administrations of the member states information about sellers who earn income in the member states through their platforms.

IMPLEMENTATION OF THE DAC7 DIRECTIVE INTO SLOVAK LEGISLATION

The amendment to Act No. 442/2012 Coll. implements the DAC7 directive into Slovak legislation as follows:

• It defines the term “digital platform”: A digital platform is any platform that allows sellers of goods or services to offer their products or services via the internet.
• It defines the term “reportable seller”: A reportable seller is a seller of goods or services who earns income in the member states through a digital platform.
• It sets the scope and frequency of reporting: The reported information includes in particular the sellers’ identification details, details of their activities, details of their income and expenses and details of their tax residence. Reporting takes place annually, by 31 March of the following calendar year.
• It sets penalties for breaching the reporting obligation: For a breach of the reporting obligation, the tax administration may impose a fine of up to EUR 10,000 on the operator of the digital platform.

In practice, this means that operators of digital platforms are required to report to the competent tax authorities of the member states information about sellers of goods and services who earn income in the member states through their platforms. The reported information includes in particular:

• the sellers’ identification details,
• details of their activities,
• details of their income and expenses,
• details of their tax residence.

Reporting takes place annually, by 31 March of the following calendar year.

Example:

A seller of goods and services from the Czech Republic uses a digital platform based in Slovakia to sell its products and services. The operator of the digital platform is required to report information about the seller to the tax administration of the Slovak Republic, including its identification details, details of its activities, details of its income and expenses and details of its tax residence.

The tax administration of the Slovak Republic can use this information for the purposes of tax administration, for example to check that the seller’s tax return is correct.

IMPACT OF THE DAC7 DIRECTIVE

The DAC7 directive has the potential to increase the transparency of the income of sellers of goods and services who use digital platforms. This should make tax administration in the digital economy more effective and reduce tax evasion.

The implementation of the DAC7 directive into Slovak legislation represents a significant change for operators of digital platforms. Operators are required to take new measures to meet their tax administration obligations.