The meaning of Platform under DAC7
The meaning of Platform under DAC7
DAC7 introduced new reporting obligations for Platform Operators. Although these reporting obligations entered into force on 1 January 2023 already, the concept of Platform is not always clear. Thus, determining whether software is a Platform and whether its Operator has reporting obligations under DAC7 can be difficult at times.
The definition of Platform is thus interlinked to several other terms: Seller, Relevant Activity and Consideration. In the following, these terms will be discussed.
Although the definition of Seller does not refer to related entities, the definition of Relevant Activity excludes activities “… carried out by a Seller acting as an employee of the Platform Operator or a related Entity of the Platform Operator”. This wording has been interpreted by some as excluding all the activities of related entities from the definition of Relevant Activity and thus from the scope of the reporting obligations set out in DAC7. A review of the definition of Relevant Activity in languages different from English, such as Dutch, German, and Spanish, shows however that the wording of DAC7 only excludes from the definition of Relevant Activity (i) an activity carried out by a Seller acting as an employee of the Platform Operator, or (ii) an activity carried out by a Seller acting as an employee of a related entity of the Platform Operator.
Hence, as recognized by the OECD and the Dutch State Secretary of Finance, related entities can be Sellers under DAC7. Nonetheless, the analysis does not end there. The definition of Platform Operator is that of “an Entity that contracts with Sellers to make available all or part of a Platform to such Sellers”. Additionally, the definition of Seller requires registration on the Platform to complete Relevant Activities.
If a business carries out activities in its own name directly via its own software, it does not seem possible to regard it as a Seller because it does not need to register on the website or application for the purpose of being connected to users. Note that the term business in this context is to be broadly understood including all related entities within a group. Consequently, if group entities carry out Relevant Activities via a Platform of another group entity without registration, they do not meet the conditions for being considered Sellers under DAC7. Nor should the related party operating software be considered a Platform Operator, since it does not contract with Sellers. It follows that if software is exclusively used by the business (i.e., by related entities), this software should not qualify as a Platform under DAC7 because it is not used to connect Sellers to other users to carry out Relevant Activities.
According to the Dutch Secretary of Finance, to assess whether a Personal Service exists, it is relevant that a user has the opportunity to exert influence. This is not the case, for example, with pre-recorded digital content (e.g., online courses, videos or music) or public-accessible transportation services operated in accordance with a predetermined timetable (e.g., train and airplane services).
But, what is the meaning of adaptation or modification in this context? Take the example of a business that sells goods in its own name directly via its own website or application and in addition connects users with independent insurance brokers. Can the insurance services qualify as Personal Services?
Insurance contracts tend to be standardized. However, the insured person can take certain decisions, e.g., concerning the scope of the insurance and sometimes also the value of the good to be insured. Is this enough to consider that the insured person has exerted influence in the provision of the services? The answer to this question is very important to determine whether the website or application in the described case is a Platform under DAC7. Since the goods are sold by the business in its own name, in principle, its software would not qualify as a Platform under DAC7. However, if the insurance services do qualify as Personal Services, this software would qualify as a Platform and its Operator would have reporting obligations in respect of the insurance brokers therein registered.
According to the OECD, circumstances where amounts paid or credited to a Seller in connection with Relevant Activities are reasonably knowable by a Platform Operator include those (i) where the Platform Operator withholds or receives a fee, commission, or tax set in reference to the amounts paid by users in respect of Relevant Activities; (ii) where the Platform Operator assumes contractual obligations in respect of the provision of the Relevant Activity giving rise to the Consideration vis-à-vis a particular user (e.g., where the Platform Operator commits to providing a refund or other forms of buyer protection); and, (iii) where the Platform provides a functionality which declares or communicates to the user and Seller the terms of the agreement in respect of the Relevant Activities, including the amount of the underlying Consideration. In each case, the test to be applied is whether the business model of the Platform is such that it provides visibility over the Consideration to the Platform Operator. At the same time, there is no expectation that the Platform Operator puts in place additional procedures to gain access to information on the Consideration where it is not otherwise known.
Consider the case of software that facilitates the digital (re)order of goods sold by well-established wholesalers to retailers. Its operator has knowledge of the number of items ordered and their regular prices. However, she does not have knowledge about the fulfilment of the orders, the issuing of invoices and the relevant payments. As such, she does not know, e.g., whether the number of items ordered were effectively sold or whether discounts to the regular prices were applied. Can it be considered in this case that the operator has visibility over the Consideration paid to the Sellers and as such that she is in the position to know or reasonably know the Consideration? If the answer to the above question was affirmative this software would qualify as a Platform.
Platform
DAC7 defines Platform as “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 [for Consideration], directly or indirectly, to such users. It also includes any arrangement for the collection and payment of a Consideration in respect of Relevant Activity.” Three conditions must be met for software to qualify as a Platform. Firstly, it must be accessible by users and must allow Sellers to be connected to those users. Secondly, it must facilitate (directly or indirectly) the provision of Relevant Activities to the users. And, thirdly, the Relevant Activities must be carried out for Consideration, the amount of which must be known or reasonably knowable by the Platform Operator.The definition of Platform is thus interlinked to several other terms: Seller, Relevant Activity and Consideration. In the following, these terms will be discussed.
Sellers / related entities
A Seller is defined in DAC7 as “a Platform user … that is registered at any moment during the Reportable Period on the Platform and carries out a Relevant Activity”, provided the user is domiciled in a EU Member State or rents out immovable property located in a EU Member State. In addition, a Relevant Activity is “an activity carried out for Consideration and being any of the following: (a) the rental of immovable property (…); (b) a Personal Service; (c) the sale of (tangible) Goods; (d) the rental of any mode of transport.”Although the definition of Seller does not refer to related entities, the definition of Relevant Activity excludes activities “… carried out by a Seller acting as an employee of the Platform Operator or a related Entity of the Platform Operator”. This wording has been interpreted by some as excluding all the activities of related entities from the definition of Relevant Activity and thus from the scope of the reporting obligations set out in DAC7. A review of the definition of Relevant Activity in languages different from English, such as Dutch, German, and Spanish, shows however that the wording of DAC7 only excludes from the definition of Relevant Activity (i) an activity carried out by a Seller acting as an employee of the Platform Operator, or (ii) an activity carried out by a Seller acting as an employee of a related entity of the Platform Operator.
Hence, as recognized by the OECD and the Dutch State Secretary of Finance, related entities can be Sellers under DAC7. Nonetheless, the analysis does not end there. The definition of Platform Operator is that of “an Entity that contracts with Sellers to make available all or part of a Platform to such Sellers”. Additionally, the definition of Seller requires registration on the Platform to complete Relevant Activities.
If a business carries out activities in its own name directly via its own software, it does not seem possible to regard it as a Seller because it does not need to register on the website or application for the purpose of being connected to users. Note that the term business in this context is to be broadly understood including all related entities within a group. Consequently, if group entities carry out Relevant Activities via a Platform of another group entity without registration, they do not meet the conditions for being considered Sellers under DAC7. Nor should the related party operating software be considered a Platform Operator, since it does not contract with Sellers. It follows that if software is exclusively used by the business (i.e., by related entities), this software should not qualify as a Platform under DAC7 because it is not used to connect Sellers to other users to carry out Relevant Activities.
Personal Service
Personal Service is defined in DAC7 as “a service involving time- or task-based work performed by one or more individuals, acting either independently or on behalf of an Entity, and which is carried out at the request of a user, either online or physically offline after having been facilitated via a Platform.” Personal Services that can be carried out online and being delivered to other users anywhere in the world include tutoring, IT services, data entry, copywriting and translations. On the other hand, Personal Services that can be carried out physically offline after being facilitated via a Platform include cleaning, gardening, handyman work, transportation and delivery. Irrespective of whether provided online or physically offline, the most important feature for qualifying as a Personal Service is that the service needs to be adapted or modified based on a user’s specific request.According to the Dutch Secretary of Finance, to assess whether a Personal Service exists, it is relevant that a user has the opportunity to exert influence. This is not the case, for example, with pre-recorded digital content (e.g., online courses, videos or music) or public-accessible transportation services operated in accordance with a predetermined timetable (e.g., train and airplane services).
But, what is the meaning of adaptation or modification in this context? Take the example of a business that sells goods in its own name directly via its own website or application and in addition connects users with independent insurance brokers. Can the insurance services qualify as Personal Services?
Insurance contracts tend to be standardized. However, the insured person can take certain decisions, e.g., concerning the scope of the insurance and sometimes also the value of the good to be insured. Is this enough to consider that the insured person has exerted influence in the provision of the services? The answer to this question is very important to determine whether the website or application in the described case is a Platform under DAC7. Since the goods are sold by the business in its own name, in principle, its software would not qualify as a Platform under DAC7. However, if the insurance services do qualify as Personal Services, this software would qualify as a Platform and its Operator would have reporting obligations in respect of the insurance brokers therein registered.
Consideration
DAC7 defines Consideration as “compensation in any form, net of any fees, commissions or taxes withheld or charged by the Reporting Platform Operator, that is paid or credited to a Seller in connection with the Relevant Activity, the amount of which is known or reasonably knowable by the Platform Operator.”According to the OECD, circumstances where amounts paid or credited to a Seller in connection with Relevant Activities are reasonably knowable by a Platform Operator include those (i) where the Platform Operator withholds or receives a fee, commission, or tax set in reference to the amounts paid by users in respect of Relevant Activities; (ii) where the Platform Operator assumes contractual obligations in respect of the provision of the Relevant Activity giving rise to the Consideration vis-à-vis a particular user (e.g., where the Platform Operator commits to providing a refund or other forms of buyer protection); and, (iii) where the Platform provides a functionality which declares or communicates to the user and Seller the terms of the agreement in respect of the Relevant Activities, including the amount of the underlying Consideration. In each case, the test to be applied is whether the business model of the Platform is such that it provides visibility over the Consideration to the Platform Operator. At the same time, there is no expectation that the Platform Operator puts in place additional procedures to gain access to information on the Consideration where it is not otherwise known.
Consider the case of software that facilitates the digital (re)order of goods sold by well-established wholesalers to retailers. Its operator has knowledge of the number of items ordered and their regular prices. However, she does not have knowledge about the fulfilment of the orders, the issuing of invoices and the relevant payments. As such, she does not know, e.g., whether the number of items ordered were effectively sold or whether discounts to the regular prices were applied. Can it be considered in this case that the operator has visibility over the Consideration paid to the Sellers and as such that she is in the position to know or reasonably know the Consideration? If the answer to the above question was affirmative this software would qualify as a Platform.