Automatic exchange of information for digital platform operators (DAC 7) - Luxembourg draft bill released by the Council of Ministers

On 22 March 2021, the Council of the European Union adopted DAC 7 to increase tax transparency in the digital economy. More specifically, DAC 7 introduces obligations on so-called reporting platform operators (located both inside and outside the EU) to collect and verify information on their users and notably on seller’s nature so that said platforms can report the necessary information to one single Member State on a regular basis. The activities in scope (the so-called relevant activities) of DAC 7 are the rental of immovable property, the personal services, the sale of goods and the rental of any mode of transport, carried out through platforms. It also introduces new (standardised) automatic exchange of information between the EU tax authorities, regarding the taxable events and income generated through these platforms.

The Luxembourg government released the draft bill of law N°8029 (the “Draft bill”) to transpose DAC 7 into domestic law by 31 December 2022. The text still has to go through the legislative process (incl. government bill to be submitted to the opinion of the Council of State and to be tabled in the Chamber of Deputies) to be formally voted and to enter into force. 

The Draft bill defines a reporting platform operator as any platform operator that is tax resident in Luxembourg and where such platform operator does not have a residence for tax purposes in Luxembourg to the extent it fulfils any of the following conditions: (i) it is incorporated under Luxembourg corporate law; (ii) it has its place of management (including effective management) in Luxembourg; (iii) it has a permanent establishment in Luxembourg. It also concerns the platform operator which does not have such link with Luxembourg or another Member State but facilitates the carrying out of a relevant activity by reportable sellers or a relevant activity involving the rental of immovable property located in a Member State and which is not a so-called qualified non-union platform operator.

Reporting platform operators have several obligations foreseen by the Draft bill:

• They must register with the Luxembourg Tax Authorities (LTA). When a reporting platform operator decides to report to another Member State (as it fulfils one of the above-mentioned conditions in more than one Member State), it must notify the LTA of its election. The registration and the notification should be performed before 31 December 2023 for platform operators already operating on the date the law comes into force and at the time they start to operate for platform operators starting to operate after 31 December 2023. Reporting platform operators must also notify the LTA of any changes of information provided at registration within one month.
• They have to perform specific due diligence procedures by: 
  • determining whether a seller qualifies as an excluded seller¹ based on publicly available information, confirmation from the seller or based on their available records, depending on the case at hand.
  • collecting seller information. For an individual being a non-excluded seller, the reporting platform operator will generally have to collect the first name and last name, primary address, tax identification number (TIN) or place of birth in the absence of TIN, VAT identification number, if any, and date of birth. For an entity being a non-excluded seller, the reporting platform operator will generally have to collect the legal name, primary address, TIN, VAT number if any, business registration number and the existence of a permanent establishment (PE) through which the relevant activities are carried out in the EU, if any, indicating each Member State where such PE is located. Where a seller carries out a relevant activity consisting of the rental of immovable property, the reporting platform operator will also have to collect the address of each property listing and, where issued, respective land registration number.
  • verifying seller information, using all information and documentation available to them in their records as well any electronic interface made available by a Member State or the EU free of charge to ascertain the validity of the TIN and/or VAT number e.g. the VAT Information Exchange System (VIES). For sellers already registered on a platform as of 1 January 2023 or as of the date on which an entity becomes a reporting platform operator, the seller information verification can be performed through the platform electronically searchable records. 
  • determining the Member State(s) of residence of the sellers. Reporting platform operators will have to consider a seller to be resident in the Member State of the seller’s primary address and the Member State of issuance of TIN or VAT identification number if different.

The due diligence procedures shall be completed by 31 December of the reportable period (i.e. 31 December 2023 for the first time). However, for sellers that were already registered on the platform as of 1 January 2023 or as of the date which an entity becomes a reportable platform operator, the due diligence procedures will have to be completed by 31 December of the second reportable period. 

A reporting platform operator may rely on a third-party service provider to fulfil the due diligence obligations, the latter remaining the responsibility of the reporting platform operator. 

If a reportable seller does not provide the required information after two reminders and the expiration of 60 days to the reporting platform operator, the latter will have to close the account of the seller.

• They are required to file a report with the LTA annually and no later than 31 January of the year following the calendar year in which the seller is identified as a reportable seller. The name, the registered office address, the TIN, the individual identification number and the business name of the platform(s) in respect of which reporting platform operators are reporting must be disclosed. Moreover and in addition to the information collected as per the due diligence procedures (as described previously), reporting platform operators  must report, with respect to each reportable seller, the financial account identifier, the name of the holder of the financial account, each Member State in which the reportable seller is resident, the total consideration paid or credited during each quarter of the reportable period, the number of relevant activities in respect of which it was paid or credited, any fees, commissions or taxes withheld by the reporting platform operators during each quarter of the reportable period and finally, in case of relevant activities involving immovable property rental, and where available, the number of days each property listing was rented and the type of each property listing. A reporting platform operator with a presence in Luxembourg and in another or more Member State(s) may choose the Member State where it reports the information. 

• They must comply with the General Data Protection Regulation (GDPR), in particular by (i) informing each individual concerned that the information will be collected and reported to the competent authorities and (ii) providing to each individual concerned all information the data controllers are required to provide under GDPR before the information is reported.

• Finally, they must keep records of the steps undertaken and any information relied upon for the performance of the due diligence procedures and reporting requirements. Such records shall remain available for ten years following the end of the reportable period to which they relate, which correspond to the duration of the LTA’s power of investigation.

On its side, the excluded platform operator must register with the LTA, notify them of any changes of information provided at registration within one month and has the specific obligation to demonstrate upfront and on an annual basis to the satisfaction of the LTA that the platform’s entire business model is such that it does not have reportable sellers.

It has to be noted that the LTA will have access, upon request, to the record of actions taken and evidence used, as well as to policies, controls, procedures and IT system put in place by the reporting platform operators. 

Finally, in terms of financial sanctions, platform operators may suffer a fixed fine of EUR 5,000 in case they would:

• not have registered or notified their choice within the legal deadline,

• have provided incomplete or incorrect information, 

• not have updated the information in due time, 

• not comply with their reporting obligations within the legal deadline. 

In addition, a platform operator may be subject to a penalty up to EUR 250,000 if an inspection reveals a breach of any of its obligations under DAC 7 except the obligations linked to registration, notification and reporting as well as data protection. 

_{¹ Section I, A.3. of this Annex V of the Directive: "Excluded Seller" means any Seller (a) that is a Governmental Entity; (b) that is an Entity the stock of which is regularly traded on an established securities market or a related Entity of an Entity the stock of which is regularly traded on an established securities market; (c) that is an Entity for which the Platform Operator 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; or (d) for which the Platform Operator facilitated less than 30 Relevant Activities by means of the sale of Goods and for which the total amount of Consideration paid or credited did not exceed EUR 2 000 during the Reporting Period.}