Platform operators take caution of the DAC7 “small seller” exception and GDPR
Published: September 20, 2022
DAC7, or the OECD Model Rules for platform operators for non-EU countries, is a tax transparency framework similar in concept to FATCA and CRS which allows for the international exchange of information for tax compliance purposes. DAC7 is the EU implementation of the OECD Model Rules. All EU Member States are required to implement DAC7 either in pure form (no modifications) or in a local adaptation or amendment. Local adaptations can never reduce the scope of DAC7 but they can broaden it (e.g. bring reporting of domestic sellers in scope).
The OECD Model Rules for platform operators contain an optional module where an Excluded Seller is also a seller whose exclusive relationship with the platform is selling goods, has less than 30 Relevant Activities, and is paid or credited less than €2,000 of consideration during the reporting period. The DAC7 text adopts this module, rendering it non-optional for each EU Member State to adopt.
When to document sellers?
Documentation of sellers is not in the traditional form that we expect like a Self-Certification under the Common Reporting Standard. But documentation still requires the collection of sensitive information including (amongst others):
Name
Address
Tax identification number
Date of birth (for natural persons)
Business registration number (for businesses)
VAT number (for businesses)
Existence of permanent establishment (for businesses)
The timing of collecting documentation is by 31 December of the Reporting Period. This means it does not need to be at the time of onboarding the seller or even at the time of payment. Platforms must plan around the liklihood of collecting personal tax information after the fact in considering a practical implementation of their tax documentation processes.
All that being said, Excluded Sellers are never documented as is seen in the text for Due Diligence Procedures quoted here:
B. Collection of Seller information
1. The Reporting Platform Operator shall collect all of the following information for each Seller who is an individual and not an Excluded Seller…
Can you document sellers below the small seller thresholds?
Platform operators may desire to take a practical approach and request tax information prior to any disbursements to sellers, even if those sellers are below the thresholds of 30 Relevant Activities and €2,000 of consideration. This could be the case where the seller is newly onboarded and the platform operator expects that they will exceed the thresholds in the course of the Reporting Period.
We have an indication from the Dutch Ministry of Finance that this may not be allowed.
On September 15, 2022 the Dutch Ministry of Finance submitted the draft DAC7 implementation to the House of Representatives (Tweede Kamer) with amendments. While the law is still in draft form, there are some interesting notes in the cover letter (beslisnota) to the Tweede Kamer which I have highlighted here:
The DAC7 states that platforms should only collect relevant documentation about sellers that are not Excluded Sellers. This is directly implemented into domestic law of Member States.
GDPR requires that a platform must have a legal basis/requirement in order to process this data. But the DAC7 only creates a legal basis for collecting relevant documentation of sellers of goods that have exceeded the indicated thresholds. This means that there is no legal basis to collect the relevant documentation from sellers of goods that have not yet reached the thresholds.
Platform operators will be required to monitor these Excluded Sellers in case they reach or exceed the thresholds and only then do they have a legal basis to collect the relevant documentation. This can be difficult for platform operators to operationalize.
This is the case unless the Member State (e.g. Netherlands in this case) adopts a domestic legal basis for collecting the information in advance of reaching the thresholds. The cover letter mentions that the Ministry of Finance surveyed 3 other EU Member States and 1 has adopted a domestic legal basis and 2 have not, and instead “adopt the directive purely” in this regard.
The Dutch Ministry of Finance then advises the Tweede Kamer that they should stick to a pure implementation at this time while the MoF monitors the feasibility.
The outcome is that unless a domestic legal basis has been adopted by an EU Member State, then platforms will likely be barred from asking for the relevant documentation from sellers of goods before they have reached the thresholds.
What now?
Platform operators will need to monitor the legislation in the countries they operate in and evaluate if under GDPR or other data privacy laws if they are granted a legal basis to collect relevant documentation from sellers of goods before they have reached the thresholds to be a Reportable Seller. In the case that a platform operator is guided by implementation in a country without a legal basis for collecting the information sooner, they should:
be able to monitor whether sellers are only selling goods or if they have other relevant activities on their platform.
monitor Excluded Sellers that are small sellers and trigger the collection of relevant documentation when the seller reaches the thresholds.
How can Dune Consultants help?
Contact us today to discuss at info@duneconsultants.com. Or you can jump in the calendar for an introduction call.
