DAC7 and its purpose
DAC7, formally known as Directive (EU) 2021/514, is a uniform reporting obligation for digital platforms operating within the member states of the European Union. Platforms are required to verify sellers and report their income accurately and in full to the tax authorities. This applies both to platforms established within the EU and to platforms outside the EU that are used by EU-based sellers. Outside the EU, similar reporting rules exist, such as Digital Platform Reporting (DPR) in the United Kingdom, Australia, New Zealand and Canada, and the 1099-K requirement in the United States. The data must be submitted annually, no later than 31 January, via local tax authority portals.
DAC7 was introduced to increase tax transparency for online platforms. By verifying sellers and reporting their income, a level playing field is created between traditional businesses and digital platforms. At the same time, the directive makes it easier for tax authorities to securely exchange data, conduct joint audits, and combat fraud and tax evasion. Although DAC7 does not introduce a new tax, it ensures that income is shared and assessed in a uniform manner.
Companies subject to the reporting obligation and consequences of non-compliance
The regulation applies to any platform that facilitates the sale or rental of goods or services by third parties, whether individuals or businesses. This includes online marketplaces such as Marktplaats and Vinted, rental platforms such as Airbnb, and gig economy platforms such as Uber and Helpling. No distinction is made based on company size or stage of development, and start-ups are not exempt.
“Entrepreneurs can ask themselves whether they 1) facilitate income for others, 2) connect buyers and sellers via the platform, and 3) handle payments or charge commissions or fees. If the answer to these questions is ‘yes’, then they are subject to the DAC7 reporting obligation,” says Rozario. “In the Netherlands alone, this already affects thousands of companies.”
Failure to comply with DAC7 can lead to substantial fines ranging from €5,000 to €1 million. In addition, tax authorities can impose restrictions on business operations, such as blocking payments or suspending new user registrations, and non-compliance can also result in ongoing audits and increased supervision.
“Naturally, when such matters are highlighted in the press, this also has consequences for a company’s reputation, as was the case with Uber, which mishandled personal data and was fined €290 million. Beyond reputational damage, there is of course also a strong case for more verification and therefore greater safety for platform users,” Rozario adds.
Fragmented data and manual work as the biggest challenge
First and foremost, it is crucial that awareness of the regulation increases among the platforms to which it applies, Rozario states: “The majority of entrepreneurs without a dedicated compliance department or external support do not know that they have to report, let alone how to do it.”
In addition, a lack of digitisation forms a major barrier to compliance. DAC7 requires platforms to collect and report 22 data points on sellers if they exceed 30 transactions or receive total compensation of more than €2,000. For the rental of real estate or the provision of personal services within the gig economy, no threshold applies, and all income must be reported.
These various data points are often stored in a fragmented way across different systems. Bringing them together is still frequently done manually, which is time-consuming, complex and prone to error. As a result, the end-to-end turnaround time – from screening to validation and reporting – currently averages 50 days. With approximately 34% of submitted TINs and 28% of VAT numbers containing incorrect information, and 38% of rental platform listings lacking a registered address, around 120 hours are spent on corrections alone.
Automation removes this challenge for companies, and the numbers speak for themselves. It results in up to 90% fewer errors, processing time reduced to just one fifth, and up to 70% labour savings. In addition, the right software automatically applies the correct one of the 17 different DAC7 reporting formats. “Automation makes it significantly easier to comply with the DAC7 reporting obligation, while at the same time reducing the risk of fines by nearly 90%,” says Rozario. “The next deadline is already in less than eight weeks. Those who work manually are therefore already too late.”
