On Friday 23 September 2022, the Council of Ministers approved preliminary draft legislation introducing new provisions and technical amendments for administrative cooperation between European member states in the field of taxation.
The aim of the proposal is to implement EU Directive 2021/514 on administrative cooperation in the field of taxation, better known as “DAC 7”, which introduces, among others, reporting obligations for digital platform operators.
Proposal vs Directive?
Overall, the legislative proposal closely follows the wording of the DAC 7 directive and largely consists of focus areas.
The first focus area addresses the automatic exchange of information for digital platforms. New documentation and reporting obligations are imposed on digital platforms e.g.
- a reporting obligation for digital platform operators regarding the sellers active on their platform and the counter services received by the latter; and
- reporting obligation to communicate this information towards the Belgian competent authority.
The platform operators in scope of this measure (note that the DAC 7 rules have a very wide scope of application) will have to put in place a due diligence procedure to collect, verify and exchange information regarding the transactions of their users. This information will be also subject to exchange of information between the tax authorities of the different EU Member States. The Directive must be implemented into domestic law by 31 December 2022, entering into force on 1 January 2023. Note that some countries, including Belgium, have currently already reporting obligations in force.
The second focus area addresses administrative cooperation, allowing tax authorities to conduct coordinated cross-border tax audits. Up until this point, officials of other Member States could not actively participate in foreign audits. The proposal breaks from this deficiency in that it allows officials from other Member States, with permission from the competent Belgian authority, to enter Belgian territory and actively participate in the investigative measures carried out in Belgium. The foreign officials are then assimilated as national officials in the sense that they can directly ask questions of the taxpayers concerned, consult the documents, etc. The possibility of joint audits announces a new catalysator in the growing number of multilateral audits and must be followed attentively. The provisions regarding joint audits must be implemented by 31 December 2023 (application from 1 January 2024).
What does this mean for you?
With respect to the first pillar, the digital platforms covered by DAC7 are required to install new internal compliance procedures. These procedures will need to be put in place in a timely manner in order to avoid penalties for non-compliance. The scope of the rules goes beyond the traditional digital platforms we know, and every website, app or other digital solution allowing two unrelated parties to connect (B2B, B2C, …) potentially falls within the scope of DAC 7.
Regarding the second pillar, which applies to all businesses and not only digital platforms, businesses should be prepared for increased tax transparency, but also for cross-border tax audits, which may result from this transparency, and new procedures available to the authorities for cross-border cooperation.
After being approved last week, the preliminary draft law has now been submitted to the Council of State for advice. More to follow soon.
Author: Pieter Deré, Partner PwC Belgium