The inaugural deadline for online platforms to disclose information about their sellers under the new DAC7 regulations concluded on January 31st. European tax authorities had mandated these platforms to submit quarterly reports detailing sales per seller. At RSM, our team has assisted various entities in navigating this digital reporting mandate, gaining valuable insights. Here we share some of these learnings to better prepare for the more extensive reporting requirements set for online platforms by January 31, 2025.


This article is written bij Juan Dosal ([email protected]) & Abdel Amrani (aamrani@rmsnl). Both Juan & Abdel are both part of RSM Netherlands Business Consulting Services with a specific focus on Technology

Background

DAC7, an amendment to the Directive on Administrative Cooperation (DAC), is a regulatory framework introduced by the European Union aimed at enhancing transparency and combating tax evasion. It specifically targets digital platforms, requiring them to report income earned by sellers offering goods and services through their platforms. The directive mandates that platforms collect, and report detailed information about the activities of sellers who meet certain criteria, thereby becoming "reportable sellers." A key aspect of DAC7 is the introduction of a threshold for reporting: only sellers whose transactions exceed a specified limit within a calendar year are required to be reported. This threshold is designed to focus on those sellers whose earnings are significant enough to warrant oversight by tax authorities, aiming to ensure a fair tax collection while minimizing administrative burdens for smaller sellers.

Lessons Learned

Below, we have briefly listed the issues we encountered throughout the process from a data perspective. This consideration has not included legal and organizational findings.

  • Data Completeness:
    it's imperative that digital platforms meticulously pair bank account details with the account holder's name. This pairing is crucial for making financial transactions traceable to the correct individuals, thereby enhancing the integrity of transactional data. Similarly, when collecting personal information, it's essential to include not just the birth date but also the place of birth, adding an extra layer of specificity to personal identification data. Furthermore, when it comes to business entities, the collection of business identification numbers must be accompanied by their respective types, such as entity identification numbers or business registration numbers. This practice ensures that different legal entities are accurately distinguished, maintaining the clarity and usefulness of the data collected.
     
  • Data Accuracy:
    We've learned the importance of thorough verification processes, such as Tax Identification Number (TIN) and VAT number checks. These measures are vital in confirming the authenticity and accuracy of seller identification information, helping to prevent the rejection of reportable sellers by tax authorities. Furthermore, we've recognized the critical need for precision in financial figures, such as sales and revenue, to eliminate discrepancies in tax reporting. These lessons have underscored the significance of meticulous attention to detail in financial and seller verification practices.
     
  • Data Consistency:
    In our filings, we've discovered the necessity of collecting information for each seller uniformly to maintain consistency across our database. This approach helps in averting problems like data redundancy and confusion that can arise from inconsistent data collection methods. Additionally, the implementation of systems capable of detecting and removing duplicate seller information has proven essential. Such duplicates often result from multiple registrations or errors in data entry, and addressing them promptly ensures the integrity and reliability of our seller database.
     
  • Data Integrity:
    It has become clear for us that the process of collecting seller identity and transaction information must be both manageable and auditable to ensure the data's reliability and fidelity to its source. Establishing a system where data can be easily reviewed and verified plays a crucial role in maintaining its accuracy over time. Furthermore, the importance of implementing robust security measures cannot be overstated. These measures are essential in safeguarding data integrity by preventing unauthorized access or alterations, thereby ensuring that the information remains secure and uncorrupted.
     
  • Data Conformity:
    Our experiences have underscored the value of establishing data standards or validation rules for data entry, to guarantee that all information adheres to specific, predefined formats. For example, ensuring that VAT numbers include the country code and that addresses are consistently formatted with separated fields has proven essential for data consistency. This approach to data conformity significantly contributes to maintaining uniformity across the database, which in turn facilitates more streamlined and error-free data processing and reporting. 
     
  • Timeliness:
    The critical importance of ensuring that data, particularly concerning seller identity and transaction information, is updated promptly. Recognizing revenue and transactions as they occur is vital to maintaining an accurate and current database. This practice of timely data updating is not only crucial for compliance with tax reporting deadlines but also plays a significant role in enabling informed business decisions. The lessons learned highlight the significance of timeliness in data reporting, underscoring its impact on both regulatory compliance and strategic business planning.

Latest Decree from the Dutch Tax Authorities

The Dutch Tax Authorities have confirmed that hefty penalties will be imposed to not compliant taxpayers. However, they have confirmed that they will be lenient in imposing fines for non-compliance or incorrect reporting under DAC7, especially in instances of delayed, incomplete, or incorrect submissions. A shift towards stricter enforcement is anticipated in the upcoming reporting year. 

The focus for this year's reporting was primarily on users who registered from January 2023 onwards, but the scope is set to broaden in the next reporting cycle to include all users of the platform, even those who registered before January 2023. This imminent expansion of reporting requirements, not only in the EU but as well in other countries, underscores the urgency for all concerned parties to proactively address these issues. 

With the year-end closing on December 31st and a mere one-month window for reporting, it is crucial to have a comprehensive data governance framework in place and ensure the highest standards of data quality. In light of this, the accuracy of data from the very moment a new seller is onboarded becomes paramount. 

Ensuring that every piece of information is meticulously logged into the digital platform's system from the beginning is essential. Such diligence in data management not only aids in adhering to the broadened reporting mandates but also substantially mitigates the risk of data inconsistencies, which could lead to punitive fines and necessitate labor-intensive data rectifications. This situation highlights the critical importance for digital platforms to establish and maintain robust data governance protocols that emphasize the precision and integrity of data from the initial seller engagement, thereby safeguarding against compliance risks and facilitating smoother operational processes.

Forward Thinking

As we approach the next wave of DAC7 reporting requirements, the lessons learned from the inaugural deadline are valuable. The Dutch Tax Authority's lenient approach to non-compliance under DAC7 could be a relief for many, but it's clear that a shift towards stricter enforcement is on the horizon. This change underscores the need for diligence and precision in data management and reporting.

At RSM Technology Consulting, we have been at the forefront of assisting multiple platform operators to navigate these complex DAC7 regulations. Our involvement has ranged from implementing DAC7 frameworks to conducting DAC7 health checks, providing global DAC7 support, and offering specialized DAC7 filing services. Our experiences have equipped us with a deep understanding of the nuances involved in complying with these regulations.

Our team, including Juan Dosal and Abdel Amrani, has been instrumental in guiding our clients through the intricate maze of DAC7 compliance. We have helped them understand the importance of data completeness, accuracy, consistency, integrity, and conformity. Our approach has not only been about meeting the regulatory requirements but also about instilling best practices that enhance data governance frameworks.

The expanded reporting requirements set for January 31, 2025, will be more demanding. Digital platforms will need to report on all users, including those registered before January 2023. Our insights suggest that the time to prepare for these changes is now. Ensuring that data is accurately collected and reported from the moment a new seller is onboarded is essential. This practice not only aids in meeting compliance mandates but also mitigates risks associated with data inconsistencies.

RSM Technology Consulting is committed to empowering digital platforms to meet these challenges head-on. Our comprehensive suite of services is designed to ensure that your platform is not just compliant with DAC7 regulations but is also positioned for sustainable growth and success in an increasingly digital world. We encourage platform operators to engage with us early to prepare for the upcoming reporting cycle and to establish robust data governance protocols. With RSM by your side, navigating the complexities of DAC7 can be a smooth and strategic process, aligning with your business objectives and contributing to a stronger, more compliant digital economy.