DAC7: reporting information on sellers and due diligence procedures

This article will answer the following questions:

• What are due diligence procedures and who do they apply to?
• By what deadline must platform operators comply with the due diligence obligations imposed by the EU DAC7 directive?
• Will compliance with due diligence obligations be subject to verification by tax authorities?

The Polish legislator, by implementing the EU DAC7 directive into the Polish legal system, introduced the obligation to report to tax authorities information on sellers performing relevant activities using platforms, as well as the so-called "due diligence procedures". Which entities (and how) should ensure compliance with these procedures?

What do the due diligence procedures introduced with the DAC7 directive concern?

Due diligence procedures involve collecting seller data, verifying this information, determining seller residence, and maintaining records. 

Verification activities are primarily intended to determine whether a seller is a reportable one or not. Publicly available information or confirmation from the seller (in the case of government and publicly traded entities) or available documentation (in the case of sellers whose status is determined based on the number and value of transactions) may be used to determine the status of an excluded seller.

As a rule, the act implementing the DAC7 directive into the Polish legal system does not oblige platform operators to use a specific source of information when collecting data identifying a reportable seller. A reporting platform operator may use any interface software provided free of charge by a member state or the European Union. This may include, among others, the register of entrepreneurs appropriate for the seller (in Poland, e.g. KRS or CEIDG), the VIES system or the so-called White List of VAT taxpayers.

As regards the rules for determining the residence of a seller operating on a digital platform, it is considered to be resident:

• in the member state in which the seller's residence has been confirmed by means of an electronic identification service provided by the member state or the EU to confirm the identity and residence of the seller,
• in the member state in which its primary address is located, as well as, 
• in the member state in which the seller received the TIN (other than the member state in which the seller has its primary address), and
• in the member state in which there is a foreign permanent establishment (if the seller has provided information on the existence of a foreign permanent establishment). 

It should also be remembered that the reporting platform operator is obliged to retain documentation collected for the purposes of carrying out due diligence procedures for a period of 5 years (counting from the end of the year in which the deadline for providing information about sellers expired).

How should a platform operator comply with its obligation to implement a due diligence procedure?

In accordance with the provisions implementing the DAC7 directive, the reporting platform operator is required to implement due diligence procedures in relation to so-called active sellers, i.e. those who: 

• are entitled to consideration in connection with the use of the platform, or 
• have performed a relevant activity using the platform (the provisions understand performing a relevant activity as, among others, the sale of goods, the rental of immovable property and means of transport or the provision of services for consideration). 

For this purpose, the platform operator collects the necessary documentation and verifies the information contained therein. 

Platform operators are, in principle, exempt from the obligation to collect information about sellers who are individuals or entities, regarding:

• address, 
• electronic address, 
• TIN, 
• the VAT identification number, 
• the date of birth (in the case of individuals), 
• the business registration number of the reportable seller that is an entity,
• foreign establishment (in the case of entities), 

if the identity and residence of the seller is confirmed by means of an electronic identification service provided by a member state or the EU.

This does not mean, however, that the reporting platform operator is not obliged to include this information in the information about sellers submitted to the tax authorities.

When completing due diligence procedures, the regulations allow the use of an external entity. However, it should be borne in mind that this does not release the platform operator from liability in the event of improper performance of obligations. 

The situation is similar where another platform operator completes due diligence procedures on behalf of the reporting platform operator in relation to the same platform. The other platform operator is then obliged to complete the due diligence procedures, but this does not exclude the liability of the reporting platform operator for the improper performance of these obligations by the other platform operator.

How can non-EU platform operators comply with the due diligence obligations imposed by DAC7?

Those platform operators from outside the European Union who meet the conditions to be recognised as reporting operators simultaneously in Poland and in another member state may independently decide in which EU country they will fulfil their information and due diligence obligations. 

In order to indicate the country in which the information obligations are to be fulfilled, these operators must complete a one-time registration (when choosing Poland as the country in which the entity will be the reporting operator) or notify the Head of the National Tax Administration of their intention (when choosing a member state other than Poland). 

Deadlines for completing due diligence procedures

The platform operator is obliged to complete due diligence procedures by December 31 of each reporting period. 

For the first time, platform operators will therefore have to complete this task by 31 December 2024. However, if sellers were registered on the platform on the date the entity became a reporting platform operator, the deadline for completing due diligence procedures is 31 December of the second reporting period. 

In some cases, the platform operator does not have to collect information about sellers, as it can rely on due diligence procedures carried out in relation to previous reporting periods. The conditions for using this possibility are that:

• the information used was collected and verified or confirmed no earlier than in the last 36 months, and    
• the platform operator had no reason to believe that the information is (or has become) unreliable or incorrect.

It is worth preparing for the inspections of due diligence obligations carried out by the Polish tax authorities 

In order to verify the correctness of the procedure followed by the reporting platform operator, the Polish legislator provides (both in terms of the application of due diligence procedures by platform operators and reporting obligations) for the possibility of an inspection by the Head of the National Tax Administration.

However, in cases where it is not necessary to conduct an inspection, the platform operator will be obliged to submit the necessary explanations regarding the deficiencies or irregularities to the Head of the National Tax Administration.

As a rule, the provisions of the Tax Ordinance regarding tax proceedings and tax audits will apply in this respect.