Germany published the Platform Tax Transparency Act to implement the DAC7 directive, which requires digital platform operators to file annual reports to the tax authorities about the income generated by sellers who use their platforms. This is intended to promote administrative cooperation for taxation of the platforms’ income among EU member states.
Under DAC7, platform operators must report to the local tax authority in a single member state, that then would exchange the information with its counterparts in the appropriate EU member states. To address questions on how the German adoption of DAC7 by the act might differ from the national implementation in other EU member states, the German Federal Ministry of Finance on Feb. 2 published a new circular providing a comprehensive catalog of relevant application issues.
Main Aspects of the Act
The act is intended to address the challenges of ensuring tax fairness and compliance in the digital environment. Increasing mobility and advancing digitalization bring the opportunity to offer goods and services on digital platforms anywhere in the world. Information on the resulting income is extremely difficult for national tax authorities to track. DAC7 therefore aims at improving cooperation between tax authorities within the EU to ensure tax transparency and appropriate allocation of tax revenue between member states.
By implementing DAC7, the act establishes annual reporting obligations for digital platform operators to the German Federal Central Tax Office on suppliers of so-called reportable goods and services that are active on the digital platform.
To ensure that platform operators report sufficient information to foreign tax authorities (and vice versa) on suppliers who are liable to pay taxes in Germany, an automatic exchange of information between member states has been introduced based on the EU Mutual Assistance Directive.
Key Aspects of German Implementation of DAC7
As the act generally conforms with DAC7, on which an overview has been published on Nov. 3, 2021, the following focuses on aspects beyond DAC7 and on issues additionally addressed in the circular.
Affiliated companies and employees: The circular clarifies that all types of platforms are covered by the act, i.e., also (purely) intercompany platforms. Hence, platform operators are also obliged to report if affiliated companies act as suppliers on their platforms. To qualify as an affiliate, Section 6, paragraph 2 of the act requires control in the sense of equity interest of more than 50% in accordance with DAC7.
The circular further clarifies that activities of employees—both of the platform operator and of any affiliated company of the platform operator—don’t lead to specific reporting obligations of the platform operator.
Bundle of goods and services: If suppliers offer a bundle of different goods and services, including both reportable and non-reportable goods/services (for example, package tours that include other services in addition to hotel room), the reporting obligation regarding the relevant services (in this case, room rental) remains unaffected. The remuneration paid for the bundle of services shall be allocated based on the economic value of the individual components.
If the economic value of non-reportable components can’t be determined, the total price must be reported instead. Deciding whether the total price or only the parts attributable to reportable goods/services are to be reported increases the platform operator’s burden and liability risk. The fact that the determination of shares in the total economic value and the allocation of suppliers’ activities to reportable goods/services must be carried out by the platform operator uniformly for all suppliers, rather than on a case-by-case basis, should provide only minor relief.
Remuneration: The platform operator’s reporting obligation remains unaffected by the payment method—the obligation exists both in case of a direct payment between customer and supplier and in case of debt collection by the platform operator.
With regard to changes in remuneration, the MOF clarifies that the platform operator must take these into account if it can reasonably be expected to be aware of them. Such changes might result not only from cancellation or withdrawal, but also from subsequent changes to the contract between supplier and customer. However, there is no obligation for the platform operator to implement a particular process for obtaining information on data of any post-closure changes in remuneration.
Private ruling by the German tax office: A platform operator may apply for a binding private ruling to the German Federal Central Tax Office on whether it qualifies as a platform within the meaning of Section 3, paragraphs 1 and 2 of the act, or whether a supplier performs a relevant activity pursuant to Section 5, paragraph 1 of the act. The ruling must be granted within six months, and the fees are capped at 5,000 euros ($5,300).
Non-EU platform operators: Non-EU platform operators are free to choose the member state in which they register their platform. Information required to register must be determined on a per country basis.
Non-EU platform operators registering in Germany must provide both company-related information such as their address, tax ID, and internet domain, as well as a list of the member states where suppliers using their platforms are tax residents and/or from where they perform relevant activities.
Reporting obligations of group companies: The principle that several operators of the same platform are obliged to report in parallel also applies if the platform operators are group companies. Consequently, group companies are also exempt from the reporting obligation if they can provide evidence that another group company has already filed a report.
Fines: According to DAC7, fines for non-compliance with the reporting obligations must be determined on a national level. In Germany, fines of up to 50,000 euros will be levied if platform operators intentionally or recklessly fail to comply with their obligations under the act.
The burden for platform operators and suppliers under the act should not be underestimated. Not only may there be difficulties in interpreting the wide-ranging terminology used, but despite the comprehensive set of regulations, it is also questionable to what extent the correctness and completeness of the information provided can be ensured in practice.
In addition, there may be legal issues, for example, regarding special data protection issues and the inherent risk of all member states being automatically informed on all relevant activities on online platforms.
Regarding the reporting procedure, additional information on the required set of data and the interface to be used will be passed in the course of 2023.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Lars H. Haverkamp is a partner and Simone Kristin Schmalhofer is a senior associate at Eversheds Sutherland (Germany) Rechtsanwälte Steuerberater Solicitors Partnerschaft mbB.
We’d love to hear your smart, original take: Write for us.