A group of Hungarian taxpayers will have to prepare for a new type of data reporting this year. The taxpayers are digital platform operators, who must complete the due diligence procedures for the data reporting by 31 December, and comply with the first reporting obligation by 31 January next year.
Member States had time until 31 December 2022 to transpose the provisions of the DAC7 Directive into their national law. Similarly to its predecessor, in Hungary the directive resulted in an obligation to report information to the tax authorities, and in this case the taxpayers are the digital platform operators.
Known as DAC7 (2023/514/EU), the amendment to Directive 2011/16/EU on administrative cooperation in the field of taxation aims to prevent tax fraud, avoidance and evasion by businesses that offer their products or services on digital platforms, mainly in cross-border transactions.
Who is subject to the obligations?
The obligations included in the Hungarian legal system with the amendment of Act XXXVII of 2013 increase the administrative burdens for digital platform operators. (Similar to various other elements of the 2023 tax law amendments, this amendment took effect at the beginning of 2023.) Digital platform operators are organisations that provide sellers (including organisations and individuals) with platforms accessible to users (buyers). Whether we are talking about websites or applications, this can cover any platform that allows for the establishment of a link between the seller and the user for the direct or indirect performance of the so-called “relevant activity” for the users.
However, the reporting obligation does not extend to software that is used only for
- handling payments related to the relevant activity;
- users to display or advertise the relevant activity;
- redirecting or moving users to some platform.
Moreover, it is not only Hungarian companies that are subject to the obligation, but also EU companies that are registered in Hungary and have their permanent establishment and place of business in Hungary. In certain cases, non-EU companies can also be subject to the reporting obligation.
This means, for example, that in addition to a Hungarian company offering an online marketplace, well-known multinational platform operators such as Amazon, eBay, Booking.com or Airbnb must also report data to the authorities.
What needs to be done, and by when?
The platform operator must register with the tax authority within 15 days of becoming a platform operator subject to the reporting obligation. (The first registration deadline for existing digital platform operators was 15 February 2023.)
EU businesses that meet the above conditions must register with the Hungarian tax authority even if they choose to report their data in another Member State.
2. Due diligence
The due diligence tasks include obtaining and verifying the details of the selling individual or organisation (e.g. checking tax number), establishing their domicile, and in the case of a property rental, obtaining information about the property. The due diligence procedures required for reporting the data must be completed by the end of the reporting period, by 31 December.
3. Keeping records
Records of the due diligence and reporting arrangements as well as of the underlying information shall be kept and retained for a period of ten years.
4. Data reporting
The data must be reported once a year, for one calendar year, but on a quarterly basis, by 31 January of the following year. The first reporting deadline for 2023 is 31 January 2024.
What has to be reported?
In specific cases, the data must be provided for the following relevant activities carried out for consideration:
- the rental of immovable property, including both residential and commercial property, as well as any other immovable property and parking spaces;
- personal services;
- the sale of goods;
- the rental of any mode of transport.
However, exemptions are possible, among others, for sellers to whom digital platform operators have facilitated less than 30 sales of goods for less than EUR 2,000, or facilitated more than 2,000 relevant activities by means of the rental of immovable property.
In addition to a range of information on the sellers, the reporting must also include the number of transactions, the amount of consideration, and where applicable, the bank account used.
If the digital platform operators fail to fulfil their registration, change notification, data reporting and record-keeping obligations, or fulfil them late, incorrectly, with untrue content or incompletely, the tax authority may impose a default penalty of up to HUF 2 million.
What do the tax authorities use the information from the digital platform operators for?
Reporting is the responsibility of digital platform operators, but sellers should also be aware of the potential tax inspection implications. This is because Member States use the data to exchange tax information in order to support the controls carried out by the authorities of each Member State.
With the proliferation of online sales platforms, cross-border services and product sales have become easy for all businesses to carry out, but at the same time, these transactions have often provided a breeding ground for aggressive tax planning. If the tax authorities have uniform information from platform providers at a European level, it will be easier for them to assess – in the context of local risk assessment procedures – the likelihood that a foreign person or organisation will incur a tax liability in their country for a business activity, be it VAT (see: distance selling) or income tax.
From the perspective of digital platform operators, the new reporting obligations require caution given the detailed rules and the numerous deadlines. A foreign seller also needs to assess exactly what tax obligations their cross-border activity entails. Whichever side you are on, if you need assistance with the related compliance work, our tax department will be happy to assist you.