Sales on online platforms must be reported to tax authorities as of 2023

Facebook marketplace search bar on smartphone. [Shutterstock]

The Council of the European Union (EU), currently chaired by Portugal, on Monday (22 March) adopted new rules to improve administrative cooperation in the field of taxation by obliging digital platform operators to report the income earned by sellers.

At stake are new rules to “address the challenges posed by the digital platform economy”, adopted today by the Council of the EU and which will enter into force as of 1 January 2023, covering digital platforms located both within and outside the EU (such as Facebook or Instagram), says a statement from the structure where Member States are represented.

Through a revision of the European directive on administrative cooperation in the field of taxation, from that date there will be “an obligation for digital platform operators to report the income earned by sellers on their platforms and for member states to automatically exchange this information,” the Council of the EU explains in the statement.

Specifically, according to the Council, the new rules “will allow national tax authorities to detect income earned through digital platforms and determine the relevant tax obligations”.

“Compliance will also become easier for digital platform operators, as notification will only take place in one member state, in accordance with a common EU framework,” it adds.

Quoted by the note, Portuguese Finance Minister João Leão notes that this is “an important update to EU rules, which will help ensure that sellers active on digital platforms also pay their fair share of taxes”.

“It is particularly welcome at a time when more and more sales are being made over the internet and when the Covid-19 pandemic is putting pressure on public finances,” he said.

João Leão also believes that “the EU is setting an example to the world by extending its rules on the automatic exchange of information to the economy of digital platforms”.

This revision aims to extend European tax rules to businesses promoted through social networks such as Facebook or Instagram, which have been growing, particularly due to the pandemic and the restrictive measures adopted for physical sales.

However, despite this growing number of people and companies using digital platforms to sell goods or provide services, such income is usually not declared and taxes are not paid.

This situation leads to Member States ending up losing tax revenues and creates inequalities vis-à-vis traditional retailers and shops.

In July 2020, the European proposed rules for greater tax transparency in the EU, aiming to oblige those who earn money through ‘online’ platforms to pay taxes according to revenues collected, to thus prevent tax evasion.

According to the Council, the amendments to the directive on administrative cooperation in the field of taxation are also aimed at improving the exchange of information and cooperation between member states’ tax authorities.

This will, for example, allow the authorities of two or more member states to carry out joint audits, under a framework that will be operational in all countries from 2024.

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