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In brief

On 21 November 2020 the European Member States reached consensus on a proposal for the seventh Directive on Administrative Cooperation (“DAC7”). The updated Directive is a part of a package which was published by the European Commission earlier this year to promote fair and simple taxation.1 It is expected that DAC7 will be officially adopted on short notice.

DAC7 introduces an obligation for certain digital platforms to collect and report information to their local tax authority on income generated by certain sellers on those digital platforms. This reporting obligation imposes an additional compliance burden for the digital platform companies in scope, as such companies will be confronted with an additional due diligence and reporting obligation.

This tax alert will provide the most relevant considerations of DAC7. We note that preparations are already in motion for an eighth Directive (“DAC8”) which will cover crypto assets.


Observations on the reporting obligation for digital platforms

Aim of DAC7 

DAC7 aims to strengthen the existing framework for exchange of information and administrative cooperation, by providing a better flow of information with respect to taxpayers that generate income through digital platforms. DAC7 therefore introduces a reporting obligation on the digital platform operators. They will have to report details on certain users of the platform (the “Sellers”) such as income earned through the platform.2

For purposes of simplification and mitigation of costs, the Reporting Platform Operators only have to report in one single Member State. The disclosed information will be automatically exchanged with other relevant Member States.

Reporting obligation

Once DAC7 has been adopted, Reporting Platform Operators will be obligated to report information of their Reportable Sellers.

Reporting Platform Operator

A Reporting Platform Operator is a Platform Operator that:3

  1. has a direct connection with a Member State (e.g. the Platform is tax resident in a Member State, is incorporated under the laws of a Member State, has its place of management in a Member State or has a permanent establishment in a Member State);
  2. facilitates Relevant Activities by Reportable Sellers (that are resident of a Member State); or
  3. facilitates the rental of immovable property located in a Member State.

Non-EU Platform Operators may be relieved from reporting obligations if they already report similar information in a non-EU jurisdiction and that information is exchanged by the non-EU jurisdiction with all Member States.

Reportable Sellers

Only information of Sellers that carry out Relevant Activities and that have a direct connection to the EU (the “Reportable Seller”) needs to be reported.

The Relevant Activities that fall in the scope of DAC7 are:

  • the rental of immovable property;
  • the provision of personal services;
  • the sale of goods; and
  • the rental of any mode of transport.

One of the indications of a direct connection to the EU are a primary address in the EU, a VAT identification number in a Member State or the rental of immovable property located in a Member State.

Reporting process 

The Reporting Platform Operators are obligated to perform due diligence activities and to report certain information.

Due diligence obligation

The Reporting Platform Operator will have to collect and verify the required information on the Reportable Sellers using all information and documents available to the Reporting Platform Operator, including any electronic interface made available by a Member State or the Union free of charge to ascertain the validity of the tax identification number and/or VAT identification number.

This due diligence has to be completed by 31 December of each year.4 For Sellers that are already registered on the platform when DAC7 enters into effect, the Reporting Platform Operators will have an additional year to collect and verify the required information.

Reporting Platform Operators may also make use of third party service providers for the due diligence, but it will remain the responsibility of the Reporting Platform Operator itself.

Reporting obligation

The Reporting Platform Operator will have to report the collected and verified information with a Member State no later than 31 January of the year following the Reportable Period (e.g. the Reportable Period ends on 31 December of year X, the information has to be reported to the Member State on 31 January of year X+1).

The information on the Reportable Sellers to be reported concerns, amongst others, name, address, VAT identification number, consideration, fees, commissions, taxes, etc.. Where immovable property rental services are provided, also the address of the property listings have to be provided.

Furthermore, the Reporting Platform Operator will have to inform each individual concerned that information is collected and reported.5

Obligatory sanctions on Reportable Sellers 

Reportable Sellers will face penalties when they do not provide the relevant information after receiving a reminder twice. Reporting Platform Operators have to close the account for the Reportable Seller after 60 days have expired since the last reminder. The Reporting Platform Operator also prevents the Seller from re-registration for as long as the Reportable Seller does not provide the requested information.


Penalties will apply to the Reporting Platform Operators that do not fulfill their reporting obligations.

Observations on other amendments

A few other amendments will be highlighted below.

Foreseeable relevance requirement

For purposes of exchange of information on request, Member States are only obligated to exchange the information if it is foreseeably relevant for the levying of taxes in scope of the Directive. This requirement was introduced to prevent baseless requests or fishing expeditions by Member States. DAC7 introduces a definition of ‘foreseeable relevance’ meaning that there only needs to be a reasonable possibility that the requested information is relevant. Effectively this lowers the (already limited) protection of taxpayers by eroding the threshold for exchanging information.

DAC7 also clarifies that the standard of foreseeable relevance does not apply to requests for additional information following an exchange of information of an advance cross-border ruling or an advance pricing arrangement.

Furthermore, DAC7 introduces a specific section on group requests. A Member State requesting information relating to a group of taxpayers who cannot be identified individually needs to provide certain information such as a detailed description of the group and how the requested information would be helpful for the requesting Member State. DAC7 will make it easier for Member States to request information on groups with limited legal obstacles remaining. This adds to the trend of governments limiting options for taxpayers to prevent information from being exchanged.


VAT and other indirect taxes are not in scope of the Directive. However, DAC7 explicitly allows Member States to use information that is exchanged (on request, automatically or spontaneously) for VAT assessments or the enforcement of VAT.

Joint audits

DAC7 also amends the legal framework of joint audits and to strengthen the current provisions regarding administrative enquiry conducted by two or more tax authorities.

Mandatory automatic exchange of royalty income

Currently Member States are obligated to automatically exchange information on: (a)income from employment; (b) director’s fees; (c) life insurance products not covered by other Union legal instruments on exchange of information and other similar measures; (d) pensions; (e) ownership of and income from immovable property. As a result of DAC7, also information on royalty income has to be exchanged automatically.

Next steps

We will closely monitor this development and will keep you informed. Once DAC7 is adopted, Member States will be obligated to apply the provisions of DAC7 from 1 January 2023,6. We expect that DAC7 will be officially adopted on short notice.


If you have any questions regarding DAC7 and its potential impact on your business, please do not hesitate to reach out to us.

1 DAC7 is one of three initiatives of the tax package. The tax package also contains an Action Plan for fair and simple taxation supporting the recovery and Tax Good Governance in the EU and beyond. 

2 Please note that not all Sellers are regarded as Reportable Sellers under this Directive. 

3 We note that a Platform does not include software exclusively allowing for the (i) processing of payments, (ii) users to list or advertise a Relevant Activity, or (iii) redirecting or transferring of users to a Platform.

4 There are certain rules in place for Sellers that are registered year after year, under certain circumstances the Reporting Platform Operator may rely on due diligence performed conducted in previous years.

5 The purpose of the third obligation is compliance with GDPR.

6 The clauses relating to joint audits will have to be applied as from 1 January 2024.


Harald van Dobbenburgh has a university background in tax law and economics of taxation. He practices mainly in the areas of Dutch and international tax law and is actively involved in the knowledge-sharing groups within the Firm’s pan-European network. Harald is also an active member in Baker McKenzie’s EMEA-Japan Initiative and has worked for quite some time in the offices of Baker McKenzie in Tokyo and Hong Kong.


Megan Ruigrok is an associate in Baker McKenzie’s Amsterdam office. She is experienced in corporate tax law, international tax law, tax planning and tax dispute resolution.