Tax authorities already know quite a lot about citizens, and a large part of that information is stored in a “data warehouse”. In the past decade, the EU has also significantly contributed to an ever-increasing cross-border exchange of tax information between Member States. Directive 2011/16/EU (“DAC”) aims to improve administrative cooperation between Member States in the field of taxation, by facilitating the exchange of information between Member States for the needs of their domestic tax regimes and by providing a framework for cooperation in administrative enquiries or audits.
Since its introduction, the DAC has already been amended five times to include, inter alia, the exchange of information on financial accounts, tax rulings, advance pricing agreements, country-by-country reports, beneficial ownership, and cross-border arrangements. However, the digitalisation of our lives still seems to offer too many opportunities to earn income under the radar of the tax authorities (online letting of holiday homes, all kinds of online services and trading, investments in cryptocurrencies, etc.). Two recent EU initiatives aim to increase tax transparency in this area as well.
On 22 March 2021, the European Council adopted the sixth amendment to the DAC: Directive 2021/514 (“DAC 7”). DAC 7 further strengthens tax transparency, the exchange of information, and administrative cooperation between the Member States. First, DAC 7 adds royalties to the categories of income subject to automatic exchange of information. In addition, the tax administrations of several Member States can now carry out a joint audit in the territory of one of those Member States, and it is possible to make requests for exchange of information regarding a group of taxpayers who cannot be identified individually.
DAC 7 also imposes new reporting obligations on digital platform operators (located both within and, in principle, outside the EU) who facilitate the offering of internal and cross-border activities. As of 1 January 2023, these operators are required to collect and share data on the sellers using their platforms, i.e. active sellers who are resident in a Member State or who have rented out a property located in a Member State (some sellers, such as public authorities, are excluded). The targeted activities are rental of immovable property or means of transportation, personal services and the sale of goods. The platform operators will have to report, inter alia, the contact details of the seller, the income derived from the activities and the amounts withheld by the platform from that income.
Finally, on 10 March 2021, the European Commission launched a public consultation on the future DAC 8, imposing reporting obligations and allowing the exchange of information regarding new alternative means of payment and investment such as crypto-assets or e-money. According to the Commission, these new technologies threaten to undermine the progress made on tax transparency and pose substantial risks of tax evasion. The public consultation ends on 2 June 2021.