DAC 7 and Wayfair: VAT and Sales Tax Compliance in Europe and the U.S.
DAC 7 is the latest iteration of the EU's "Directive on Administrative Cooperation." The directive must be applied from 1 January 2023 by EU Member States. But due to global trade patterns and the size of the European market, DAC7 has a wide impact on the rest of the world!
Operators of digital platforms (within the EU and – more importantly – outside the EU) will be required to register in one EU Member State and report sellers who use their platform. This Member State will share this information with other Member States for use by the tax administrations for purposes of value added tax and income tax compliance checks.
Whether large or small, platform operators face a daunting task implementing extensive due diligence software that tracks sellers, sales, and value added taxes due. Failure to register and report can lead to penalties and can lead to being cut-off from the EU market.
Platform-based sellers in the US will obviously be affected by this, as they were when the Wayfair case was decided by the US Supreme Court. In the US the concept of “digital presence” has been adopted widely by states for sales tax purposes. Moreover, several states have begun to assert that digital presence is an appropriate nexus for franchise tax purposes, in apparent contradiction to Federal law providing that certain minimum physical contacts with a state must exist before franchise tax can be imposed on income derived from the sale of products shipped into that state.
Niklas Schmidt, a Partner of Wolf Theiss in Vienna, [email protected]
Paul Kraan, a Partner of Van Campen Liem in Amsterdam, [email protected]
Stefi N. George, a Partner of Akerman L.L.P., New York, [email protected]
Nick Magone, C.P.A., the Managing Member of Magone & & Company, P.C., Roseland, [email protected]
- September 23, 2021
- Online On-Demand