DAC 7: Implications of new obligations for digital platform operators
As we have already informed you, starting next year, the upcoming legislation will impose a new reporting obligation on the operators of digital platforms; they will be required to disclose information to the tax authorities regarding the platform users (sellers) and their income, which the platforms have mediated or facilitated. The draft law, which implements the EU Directive on Administrative Cooperation in the Field of Taxation (DAC 7), aims, among other things, to obtain information on users (sellers) of digital platforms and their income for taxation purposes. In this article, we will get you acquainted with the impact of the new rules on users (sellers) of digital platforms and the risks for digital platforms arising from possible non-compliance with the new obligations.
What information will the tax administrator obtain?
Based on the draft law, the Financial Administration of the Czech Republic will automatically obtain information about users (sellers) of digital platforms that provide or lease real estate, means of transport, personal services or sell goods. The information thus obtained will be evaluated by the Specialised Tax Office and forwarded to specific tax administrators for a possible investigation. In addition, the tax administrations of EU Member States will automatically exchange the information obtained, so the tax administrator will eventually have information on users (sellers) of both domestic and foreign digital platforms. The scope of the information to be reported will cover not only the sellers, but also the real estate (or parts thereof) provided. In addition to the identification data of the seller or the real estate, the platform will report the details of the sellers’ bank accounts and the amount of income paid and other details.
What will the tax administrator do with the information?
The reporting obligation of digital platform operators and the automatic international exchange of information will enable the tax administrator to identify taxpayers who have not declared their income earned through digital platforms in their tax returns at all or those who have done so in an incorrect amount, already in the inquiry stage. It can be expected that the result of the tax administrator’s inquiry stage will be a request to file a tax return or an additional tax return, or, in some cases, a tax audit, a subsequent additional assessment of income tax, and possibly penalties.
Other obligations of the digital platform operator
The primary obligation of the digital platform operator – consisting in the annual electronic reporting on the users (sellers) of digital platforms – is accompanied by other obligations; the failure to comply with these may be fined by the tax administrator up to CZK 1.5 million. These obligations must therefore be reflected in the contractual terms and conditions concluded by platforms with their users (sellers).
The platform operator has an obligation to verify whether the activities reported are facilitated through the platform they operate. To this end, Annex 4 of the draft law sets out due diligence procedures for digital platform operators, which relate to, for example, verifying the information collected or ascertaining the tax residence of the seller. Furthermore, the platform operator is obliged to obtain, for the reporting period, information about the reported seller and the real estate provided, as specified in Annex 4 of the draft law.
The user (seller) is then required to provide the platform operator with the necessary cooperation in the investigation and verification phases. If the seller fails to provide the necessary cooperation at the request of the platform operator, even after a second reminder, the platform operator will close the seller’s account on the platform and prevent the seller from re-registering or will not pay the seller any consideration.
The platform operator is also required to inform the reported seller, who is an individual, that data about them will be collected and transmitted. Finally, for 10 years from the end of the reporting period, the platform operator is responsible for retaining the documents related to the verification and investigation, the information obligation and the termination of the notification obligation.
Digital platforms outside the EU
The new rules will also apply to non-EU digital platforms providing cross-border services within the EU, which will be required to register in at least one EU Member State. Platforms that fail to register will be placed on a public list of non-cooperating platforms. The draft law will allow the Specialised Tax Authority to issue a general measure prohibiting all operators of the platform on the list of uncooperative platforms from providing sellers with access to even the part of the platform that allows sellers to connect with users. In the second step, the Specialised Tax Authority may issue a general measure prohibiting all sellers from using the platform listed on the list of non-cooperative platforms, or part thereof, to connect with users. Violations of the general measure may be sanctioned with a fine of up to CZK 50 thousand in the case of an individual (seller), or a fine of up to CZK 500 thousand in the case of a sole trader and a legal entity (seller).