Are digital platforms becoming Big Brother?

The economy is going digital and economic activities are moving to digital platforms (online marketplaces). Places where entrepreneurs offer their goods and services to other entities. Providers of such platforms are creating virtual marketplaces that are governed by their rules. However, there is another interest, namely that of the state.

Traders who operate on such digital platforms earn income from sales on the platform. However, they do not always report this income properly to the tax authorities. This creates the risk of distortions of competition and reduced revenue for public budgets.

This is why new rules are coming with DAC 7 directive ↗. This Directive is to be implemented in the Czech Act on International Cooperation in Tax Administration ↗ by 31 December 2022 at the latest. The proposal is in the Upper House of the Parliament of the Czech Republic and will most likely be adopted in time.

Who will be affected by the new rules?

Do you use apps, websites, mobile apps to sell goods, offer services? For example, through Airbnb, Auction, Booking, etc.? Whether you are renting out properties, offering personal services, selling goods or taking a taxi via an app, it is you, the sellers, who will be most affected by the new rules.

Or are you a provider that allows others to sell goods or offer services through such a platform? You'll need to be tougher on sellers. And you'll have to report.

Be ready for the change. If the directive passes in the Senate, data collection will begin as early as January 1, 2023.

Digital platforms will become Big Brother

In the novel by G. Orwell it is a symbol of surveillance. In the real world, platforms become such a surveillance organ.

Each digital platform operator shall be assigned to one of the following groups in accordance with DAC 7:

  • Reporting platform operator - the one who will have to report
  • Excluded platform operator - one that has no EU sellers or only excluded sellers (government entities, sellers who have made less than 30 trades for less than €2,000)

Importantly, even an excluded platform operator has an obligation to communicate with the competent authorities and must report and demonstrate that it only has excluded sellers on its platform.

What does the platform operator need to find out about sellers?

Each reporting platform operator must collect identification data, address, ID number, VAT number (if any), date of birth (FO), information on establishments, etc.

However, the most important obligation is the obligation to ascertain and report information on sales made to the tax office.

The operator of the platform will thus always have to provide information on how many trades have been made by individual sellers and in what amount by 31 January at the latest. This information will be communicated by the platform operator not only to the tax authority but also to the sellers themselves.

The platform operator will also have to keep all records and information for 10 years according to the current draft of the amendment.

What does that mean in practice?

  • Revise your processes
  • Check your terms and conditions
  • Check your privacy policy
  • Consult the reporting method

In practice this amendment has a really big impact on the area of e-commerce. For platform operators it means that by 1.1.2023 they should have processes in place for how they will collect and report information. They should also have an assessment whether the sales affected by DAC 7 directive are occuring through their platform.

For the sellers themselves, the news means that they should evaluate on which platforms they operate and whether they will be subject to such notification. Most importantly, they should keep a good eye on what sales they are reporting for tax purposes and whether those sales match what the platform will report.

What are the possible sanctions?

For individual offences under the amended Act, it will be possible to impose a fine of up to CZK 1,500,000. Platforms that fail to comply with their reporting obligations may be subject to such a high penalty.

But even the sellers using the platforms might get into trouble. If they do not cooperate with the platform, the platform will be obliged to suspend their user account or withhold payments made through the platform.

The article has simplified many areas greatly for the purpose of understanding the underlying issues. If you are a platform operator or sell through a platform, the article does not serve as a how-to guide. Always consult an expert beforehand.

Or drop us a line