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Provinces

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About

General

About

General

DAC7 is a new EU tax reporting requirement for online platforms that came into force on January 1, 2023. In the UK, the rules implementing these requirements were adopted on July 18, 2023 and will begin on January 1, 2024, with the first reports expected in 2025. Online marketplaces are required to report sellers' income to the tax authorities annually when they make sales to EU consumers. Broadly, a reporting platform operator must:

establish and maintain procedures to collect and verify information about sellers (including property listings, where applicable);
apply the due diligence procedures set out in the model rules;
keep a record of all compliance steps taken, and information collected, for a period of five years from the end of the reportable period to which they relate;
notify HMRC that it is a reporting platform operator by no later than 31 January following the end of the first reportable period; and
report to HMRC (via an electronic report system) the information required on or before 31 January following the end of the reportable period and provide a copy of the same to the sellers.

A platform operator is not required to make a report to HMRC where it reasonably believes that another platform operator will report the required information to HMRC or another tax authority. An 'excluded platform operator' exemption also applies for operators whose entire business model is such that they do not allow sellers to profit from payments received or do not have any reportable sellers. In either case HMRC must be notified of this fact. Likewise, platform operators must give notice to HMRC if they elect to apply the due diligence procedures to 'active' sellers only.

Penalties for non-compliance

Unless HMRC is satisfied that there is a 'reasonable excuse' for a particular failure (which would not include an insufficiency of funds or relying on another person to do something), the following penalties apply:

failing to make a report to, or comply with a request from, HMRC within the relevant deadlines - up to £5,000 plus a daily penalty of £600 if the failure continues
failing to comply with record-keeping requirements - up to £5,000 for each reportable period
failing to notify HMRC of being a reporting platform operator or an excluded platform operator - up to £1,000
failing to apply due diligence procedures - up to £100 for each seller in respect of which the reporting platform operator fails to apply the procedures, and
making an inaccurate or incomplete return to HMRC - up to £100 in respect of each reportable seller.

Penalties assessed under the regulations are due and payable within 30 days of the notice of assessment being issued by HMRC. The regulations also contain a right to appeal against penalty assessments and the appeals procedure. The majority of respondents agreed with the goal of minimizing the burden on smaller, low-risk platforms. They suggested a threshold where platforms facilitating transactions below a certain amount, such as €1 million, would be exempt from reporting requirements. However, concerns were raised about potential exploitation of such exclusions, creating unfair competition, and undermining the overall goal of tax avoidance prevention. After careful consideration, the government decided against implementing a threshold for excluding smaller platforms. The potential benefits of such an exemption were deemed outweighed by the increased complexity and uncertainty it would introduce.

December 9, 2024 259