Navigating data greediness and complexity. Next stop DAC7

 I. Foreword

The scenario of VAT compliance and data reporting obligations at international level has been in turmoil for some years now. If referring to Europe, keeping pace with the EU regulatory initiatives, such as those resulting from the VAT action Plan and, more recently, the VAT in the Digital Age Plan, represents a challenge both for external tax specialists and internal departments in the areas involved (i.e. IT, financial, tax, logistics) alike.

Complexity in the drafting of new EU regulations and the inconsistencies that may result in their transposition by the different Member States, make identifying which aspects of the company business flows will be affected and evaluating the sufficiency of internal data to meet new reporting requirements tasks not always easy to comply.

This complexity does not only affect multinationals, since adaptation to the changes has become a global transversal issue, from the moment that on-line business models and the globalization resulting therefrom are common features in modern economy, so making making adaptation a matter of concern for every type of a)companies, regardless of their size or sector of activity.

II. Spanish transposition of the DAC7

A practical example of our former comments, is the disruptive manner in which the Council Directive (EU)  2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (hereinafter, the Directive or the, so called, DAC7), has been implemented in Spain and the complexity of the concepts to be managed by companies when adapting to the new obligations contemplated therein.

Such implementation is made by Law 13/2023, of 24 May, that introduces a new Additional Provision twenty-fifth in the General Tax Law 58/20023, of 17 December (hereinafter, the Additional Provision), where the due diligence and reporting obligations of the DAC7 is regulated, basically by referring to article 8ac of the Directive and its Annex V (hereinafter the Annex).

However, the Ordinance and Ministerial Order that are to develop the Additional Provision and complete the implementation process have not been published before the 31 December 2014, dead-line for the implementation of the Directive, which, as a result, constitute the main source of information for companies having to adapt to the obligations introduced by the DAC7.

      1. Temporal scope

As foreseen in the DAC7:

a) The obligations introduced in this Additional Provision as regards diligence procedures on the collection of data related to the sellers operating at the Platform are applicable since 1^st January 2023 and, with exceptions, must have been completed by the 31^st December of this year.

This timing is not affected by the fact that the developing Ordinance is still pending publication at the date of this article which, ultimately, basically transpose the the provisions of Annex V of the Directive (hereinafter, the Annex), to which the Additional Provision refers and constitute the main source of information.

b) The reporting obligations will start with effect since the 1^st January 2024 in the terms regulated at the Ministerial Order regulating the forms to be filed, and corresponding dead-lines; which is also pending publication (although it is to be expected that the registration at the Census of Platforms obliged by the DAC7 and first data report referred to the year 2013 will have to be completed during the first quarter of 2024).

    2. Concept of “Platform”

For the purposes of the DAC7, a “Platform” is any type of software, including websites of mobile applications, accessible by users which allow “Sellers” to connect to other users for the purpose of carrying out, directly or indirectly, any of the qualifying activities listed in the Directive (referred as “Relevant Activity”).

However, from this concept is excluded any software which, without any further intervention, exclusively allows any of the following functions:

a) Processing of payments.

b) List or advertise their activity by users.

c) Redirect or transfer the users to a Platform.

    3. Data to be reported

For the purposes of the DAC7, the data to be reported relates to the, so called, “Relevant Activity” carried out at the “Platform” by the “Seller” for “Consideration”.

As “Consideration” it is mean a compensation of any kind, net of any fees, commissions or taxes withheld or charged by the “Platform Operator”.

    3.1 Data objective scope: “Relevant Activity”

 A “Relevant Activity” is any of the following, except when carried out by a “Seller” that acts as an employee of the “Platform Operator” or a related Entity:

a) Rental of immovable property (either residential or commercial, including parking spaces).

b) Personal Services.

c) Sale of goods.

d) Rental of any mode of transport.

    3.2 Data subjective scope. “Seller” and “Reportable Seller”

A “Seller” is either an individual or an “Entity” (in the terminology of Annex, a company or any type of legal entity, such as a corporation, partnership or foundation) who use the “Platform” for carrying out a “Relevant Activity.

So to determine which “Sellers” are eligible for data reporting purposes, the Directive differentiates:

a) “Active Sellers”: Those who within the “Reporting Period” have incurred in a “Relevant Activity” within the “Platform” or have been Credited with any “Consideration” related thereto.

b) “Excluded Seller”: “Sellers” who, regardless of being active or not, are excluded from the scope of the reporting obligation. These are:

    i. Governmental Entities.

    ii. Market stock “Entities” or related to a market stock “Entity”.

    iii. “Sellers” excluded based in the number of “Relevant Activities” they are facilitated by the “Platform” during the “Reporting Period”:

• Activity consisting of rental of immovable property: More than 2,000 transactions.

• Activity consisting of sale of Goods: Less than 30 transactions when the Consideration paid or credited did not exceed EUR 2,000.

c) “Reportable Seller”:

“Sellers” operating at the “Platform” who, considering the above comments, are eligible for reporting purposes, so any “Active Seller” who is not an “Excluded Seller” who, also,are resident in a Member State or rents immovable property that is located in a Member State.

    4. Subjective scope of the DAC7: The “Reporting Platform Operator”

According to the Annex, a “Platform Operator” is an “Entity” which contracts with “Sellers” the access to the Platform.

Not every “Platform Operator” must comply with the DAC7, that only obliges to those qualifying as “Reporting platform operator”, which leave apart the so, called “Excluded Platform Operator”, namely:

a) Any “Platform Operator” which can demonstrate in a yearly basis before the tax authorities of the competent Member State that the entire business model of the “Platform” is such that it does not have “Reportable Sellers”.

A clear example of this situation would be the case where the “Platform” does not intermediate any “Relevant Activity” of third party “Sellers” but it only channels the sales of the “Entity” operating the “Platform” or a related “Entity” (those, directly or indirectly, owned with more than 50% of the voting rights and value).

b) Any “Platform Operator” that, as subsequently commented, does not meet any connection point that triggers the obligation to comply with the DAC7.

    5. Territorial scope of the DAC7: Connection points

As mentioned, some “Platform Operators” are excluded from having to comply with the DAC7 obligations because of being out of the territorial scope of the Directive, This will be the case when they do not meet any of the connection points contemplated in letters a) and b) of subparagraph A (4) of Section I of the Annex, namely:

a) Personal circumstances related to the tax/mercantile status: Be a tax resident in a Member State or, should it not be the case, any of the following conditions are met:

    i. Be incorporated under the Laws of a Member State.

    ii. Have the place of management, including the effective management, in a Member State.

    iii. Have a permanent establishment in a Member State, except for the case that the “Platform Operator” is a tax resident or, if not, is incorporated or has its place of management in a third country with and automatic exchange information agreement similar to the DAC7 (the, so called, “Qualified Non-Union Jurisdiction”).

b) Objective circumstances related to the operative: The “Platform Operator” is not a tax resident in a Member State, nor is incorporated or has its place of management therein but facilitates the carrying out of a “Relevant Activity” by “Reportable Sellers”, or a “Relevant Activity” involving the rental of immovable property, located in a Member State. As an exception, this provision will not affect "Qualified Non-Union Operators", namelly, those who are tax residents or, if not, are incorporated or have its place of management in a third country having and automatic exchange information agreement similar to the DAC7 with all Member States (a, so called, “Qualified Non-Union Jurisdiction”).

    6. DAC7 obligations for “Reporting Platform Operators”

The Annex detail in its Sections II and II of, the obligations for the “Reporting Platform Operators” that result from the application of the Directive, which are of two kinds:

a) Timely compliance with the “Due Diligence Procedures” mentioned in Section II of the Annex, which purpose is to be able to identify the “Reportable Sellers”, relating to:

    i. Evidence required for determining if a “Seller” qualifies as an “Excluded Seller”.

    ii. Collection of “Seller” information (personal or company data, including tax or VAT identification number, when existing, date and place of birth, primary address, as well as, when a company, detail of permanent establishments in other Member States).

    iii. Verification of “Seller” information, including the Member States where the “Seller” is considered to be resident for DAC7 purposes according to letter D, Section II of the Annex,

In principle, these procedures must be complied with for all “Active Sellers” by the 31 December of the corresponding “Reportable Period” (the calendar year, according to Section I of the Annex). The "Platform Operator" can elect to comply with this obligation only for "Active Selers".

Compliance can be outsourced with a third party service provider, but the responsibility will always remain in the “Reporting Platform Operator”.

b) Compliance with the “Reporting requirements” mentioned in Section III of the Annex, which are:

    i. Registration with the competent authority of the Member State. As results from the rules established in Letter A, numbers 2 and 3 of Section III of the Annex, the competence will correspond:

• To the Member State of election, which can only be one, when the connection point that triggers the obligation to comply with DAC7 refers to the tax/mercantile status of the UE “Platform Operator” (Letter A, number4, a) of Section III of the Annex).

• To the Member State of single registration, when the connection point that triggers obligation to comply with DAC7 consists in the objective circumstances related to the operative carried out by the non-UE “Platform Operator”.

ii. Reporting to the competent authority of the Member State of the information mentioned in number 2 of Section III of the Annex (personal data, primary address, Member/s State/s of residency or where there is a PE, financial account identifier, property listing, total “Consideration” and expenses applied by “platform”, number of transactions), for all “Reportable Sellers” (except when the “Platform Operator” decides to only report data for the “Active Sellers”).

    7. Reporting forms

The Ministerial Order approves the forms required for complying with the registering obligation (census model 040) and the periodical reporting (yearly model 238) resulting from the DAC7. Both models are to be filed electronically at the website of the Spanish Tax Agency.

According to the existing draft of the Ministerial Order:

a) “Reporting Platform Operators” meeting a connection point allowing them to choose Spain as the elected country for reporting purposes or which are obliged to register herein because of their operative, must file census form 040 when they start their activity as “Platform Operator” as may be defined by the Ordinance.

b) The deadline for filing the first model 238 corresponding to the period 2023, was expected to be the 31^st January 2,024, deadline which should obviously be postponed in the published version of the Order.

It is to me mentioned that, although not obliged to include the “Sellers” reporting data, “Excluded Platform Operators” and “Platform Operators” which meet the connection points in more than one Member States and have not chosen Spain to file the report DAC7 reports, must also file said model 238 in a yearly basis, so to inform the tax authorities of such a circumstance.

Lastly, the Ministerial Order is to include technical instructions for the design of the required data registers to be electronically submitted to the authorities.

8. Penalties

The Additional Provision introduces specific penalties not only for the case of that “Reporting Platform Operators” fail to comply with the due diligence procedures or reporting obligations of the DAC7, specially the lack of registration before a Member State which results in the Spanish authorities not receiving in time the information they should have received, which is considered a very grave offense.

“Sellers” who do not provide the “Reporting Platform Operators” with the information that it is required for their reporting purposes. Are also eligible for penalties and face losing their account at the “Platform”.

29 January 2024