Legal Notice 8 of 2023 which was published on 20 January 2023 introduced rules which transposed the provisions of the seventh update to Council Directive 2011/16/EU on administrative cooperation in the field of taxation into Maltese law (“DAC 7”).
DAC 7 extends the EU tax transparency rules to digital “platforms” and introduces an obligation on “reporting platform operators” to collect, verify and report specific information with respect to “reportable sellers” that have undertaken “relevant activities” through their platforms.
DAC 7 also introduces new automatic exchange of information between the EU tax authorities regarding the taxable events and income generated through these platforms.
Furthermore, DAC 7 includes a legal framework to enable joint audits. In a joint audit, two or more countries join to form a single audit team to conduct a taxpayer examination. Joint audits should result in quicker issue resolution, more streamlined fact finding and more effective compliance.
- What is a platform?
- What is a “reporting platform operator”?
- Who is a “reportable seller”?
- What is a “relevant activity”?
- Reportable information
What is a platform?
A platform is any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity (as defined), directly or indirectly, to such users. It also includes any arrangement for the collection and payment of a consideration in respect of any relevant activity.
The term "platform" however does not include software that in carrying out a relevant activity exclusively allows any of the following:
(a) processing of payments in relation to a relevant activity;
(b) users to list or advertise a relevant activity;
(c) redirecting or transferring of users to a platform.
What is a “reporting platform operator”?
A platform operator may be considered a “reporting platform operator” (and hence would fall within the scope of the reporting obligations) if it is resident for tax purposes in a Member State or if it is incorporated or has its place of management (including effective management) or has a permanent establishment in a Member State.
Furthermore, if a platform operator does not meet one of the said criteria, it may still be considered a reporting platform operator if it facilitates the carrying out of a relevant activity by a seller that is resident in a Member State or if the relevant activity involves the rental of immovable property which is located in a Member State.
Who is a “reportable seller”?
A reportable seller includes a seller (i.e. a platform user, either an individual or an entity, that is registered on the platform and carries out a relevant activity) that is resident in a Member State or that rents out immovable property which is located in a Member State.
Certain sellers are excluded, including a seller:
That is a government entity;
That is an entity the stock of which is regularly traded on an established securities market or is a related entity of an entity the stock of which is regularly traded on an established securities market;
That is an entity for which the platform operator has facilitated more than 2,000 relevant activities by means of the rental of immovable property in respect of a property listing during the reporting period;
In respect of which the platform facilitated less than 30 transactions and for which the total amount of the consideration does not exceed Euro 2,000 during the reporting period.
What is a “relevant activity”?
Platform operators should only have a reporting obligation if their platform is used by sellers for the purpose of carrying on a “relevant activity”. A “relevant activity” includes the following:
rental of immovable property;
personal services;
sale of goods;
rental of any mode of transport.
Activities that are carried out by a seller who is acting as an employee of the platform operator or a related entity of the platform operator are excluded.
Reportable information
The information to be collected by platform operators is extensive and ranges from the name of the seller, tax identification number (TIN and VAT), tax residence to financial accounts used. The data would be obtained either directly from the seller (as financial institutions are doing under CRS) or from publicly available data sources.
In addition, DAC 7 requires that such information is verified and subjected to periodic renewal. For instance, TIN and VAT numbers obtained from the sellers should be cross-checked with EU public databases. In case of doubt, additional supporting documentation should be obtained.
Entry into force of DAC 7 and reporting deadlines
Reporting platform operators are required to report to the local tax authorities specific information with respect to the operator itself and also with respect to the reportable sellers by 31 January of the year following the calendar year in which the seller is identified as a reportable seller.
The first declaration is therefore required to be filed by the reporting platform operator by 31 January 2024 (covering calendar year 2023) and the tax administrations will exchange the information between Member States by the end of February 2024.
In the event of non-compliance, Member States are expected to impose penalties which are effective, proportionate and dissuasive.
Penalties
The penalties that may be levied by the Maltese tax authorities include the following:
Euro 500 for failure to register with the Maltese Commissioner for Revenue as prescribed and in a timely manner;
Euro 2,500 for failure to retain documentation and information in the prescribed manner;
Euro 5,000 for failure to apply the prescribed due diligence procedures;
Euro 2,500 one-time penalty for late reporting of the information and a daily penalty of Euro 100, up to a maximum of Euro 20,000;
Euro 200 one-time penalty and Euro 50 daily penalty, up to a maximum of Euro 5,000 for failure to report in a complete and accurate manner, and a maximum penalty of Euro 50,000 for significant non-compliance; and
Euro 10,000 up to a maximum of Euro 30,000 for every senior managing official of the reporting Malta platform operator where misleading or false information is found to have been submitted unless it is proven that such individual was unaware of such act and omission and that he did everything within his power to prevent that act or omission.
How can we help?
Based on our broad experience on earlier DAC iterations, our team can assist you with dealing with this new reporting obligation, in particular by:
Assessing whether your digital solutions are in scope, if your current systems collect the right information to be compliant and if you have processes in place to ensure that such information is reasonable;
Assist by providing training to the relevant stakeholders;
- Verifying user tax information in a digital platform and ensuring that proper audit trails are maintained in case of controls of the relevant tax authorities; and
Preparing and filing DAC 7 reports to the relevant tax authorities as a managed service.
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