Tax Reporting Rules & the Future of Online Platforms in Europe

The European Union has often described tax transparency as a cornerstone of the modern digital economy. With the adoption of Directive DAC7, this policy objective has taken shape in a demanding new framework that directly targets online platforms. Since January 2023, platforms that mediate everything from short-term property rentals to freelance services have been drawn into a regulatory regime that reshapes how transactions are reported and monitored across the Union.

The stated purpose is clear: closing the gap between taxable income and hidden economic activity. Yet for practitioners and platform operators alike, DAC7 raises questions that go far beyond simple reporting duties. Its implementation not only creates fresh obligations but also reshuffles the competitive landscape in Europe’s platform economy.

New Burdens for Platform Operators

Under DAC7, platform operators are required to collect, verify, and annually transmit detailed information about their sellers. This includes personal identification data, tax numbers, business registration details, and proof of residency. Reports must be filed in a standardized XML format and transmitted to national tax authorities, who in turn share the data across the EU.

On paper, this seems straightforward. In practice, it means building entire compliance infrastructures before a platform can even generate its first euro of revenue. Larger players can absorb the cost of designing verification systems and XML export functions. Smaller and mid-sized operators, however, face disproportionate expense — investing heavily in compliance technology long before achieving commercial viability. The result is a market tilted in favour of platforms that already enjoy a dominant position.

One cannot ignore the irony: legislation intended to promote fairness may inadvertently act as a barrier to entry, discouraging precisely the kind of innovation that has long fuelled Europe’s digital marketplace.

Uncertain Boundaries in Enforcement

Another challenge arises from the way DAC7 defines “personal services.” The directive describes them as services based on work or time performed at the user’s request, whether online or offline. But what falls inside or outside this category remains subject to interpretation.

Consider the example used by Irish tax authorities: a pre-packaged sightseeing tour is treated as non-personal, while a tour where the customer chooses the stops becomes personal. That minimal degree of customization triggers an entirely different reporting obligation. For platforms that operate across borders, such fine distinctions create genuine uncertainty.

Fragmented implementation across EU member states compounds the problem. XML reporting specifications are not uniform, and verification criteria vary from one jurisdiction to another. Platforms are effectively forced to adopt the strictest possible interpretation just to ensure compliance everywhere. For legal advisors, this patchwork system is fertile ground for disputes and litigation — a reality that is already unfolding in practice.

Innovation and Competition at Risk

The economic impact of DAC7 is equally significant. A new start-up designed to connect niche professionals with small consumer groups is held to the same reporting standard as global giants such as Airbnb. Meanwhile, exemptions built into the directive — for listed companies or property operators with over 2,000 annual rentals — favour large, established players.

The so-called “small sellers” exclusion (fewer than 30 transactions and under €2,000 annually) is simply too narrow to ease the burden on the many service providers who form the backbone of the platform economy. The result is a regulatory asymmetry: the bigger the entity, the easier the compliance.

Tax transparency undoubtedly helps capture undeclared economic activity. But does it do so at the expense of entrepreneurial diversity? One cannot avoid the impression that DAC7 risks freezing the competitive landscape in favour of incumbents, leaving less room for the smaller innovators who drive genuine change.

As a litigation lawyer in Cyprus, I regularly advise clients on disputes where EU directives and local enforcement collide. DAC7 is no exception: its promises of transparency are already shaping legal strategies for platforms and service providers navigating the new rules. For more information regarding DAC7 compliance in Cyprus, please contact me.