Necessity is the mother of invention, just as late transposition of directives is the mother of unlawful solutions.
Council Directive (EU) 2021/514, of March 22 2021, amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC7) entered into force on April 11 2021. Coordinated transposition of the directive in all EU member states is particularly important, due to the cooperative nature of its regime, as is explained below.
DAC7 in a nutshell
The main objective of DAC7 is to “strengthen the fight against tax fraud, tax evasion and tax avoidance”.
DAC7 includes the obligation of online platform operators to provide information on sellers deriving income from activities facilitated by them, to one authority included in the list published by the European Commission in the Official Journal of the EU. The provision that platform operators may choose to register with the competent authority of a single member state (and only report to that member state) is aimed at reducing the administrative burden of platform operators.
The authorities included in the above-mentioned list receive information from registered platform operators and from the authorities of other member states and third countries (under bilateral and/or multilateral agreements and/or conventions) concerning other operators that have activities in several jurisdictions or are incorporated outside the EU.
The above set-up requires exchange of information mechanisms and administrative cooperation with third countries. It also requires the timely transposition of DAC7 by all member states, given the interdependence between authorities.
Transposition of DAC7
According to Article 2(1) of DAC7, “[m]ember States shall adopt and publish, by 31 December 2022, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall immediately inform the Commission thereof”.
Article 2(1) additionally provided that the member states shall apply the provisions of the directive from January 1 2023.
Notwithstanding, the directive was transposed in Portugal by Law 36/2023, of July 26 (the Transposition Law), which entered into force on July 27 2023.
Portugal was one of the 14 member states that received a letter of formal notice, from the European Commission, due to non-/partial notification of the national measures transposing DAC7.
The remaining member states transposed DAC7 as early as July 2022 (Austria and Slovakia), and September and October 2022 (Denmark and Ireland), while the majority complied in November and December 2022.
The Portuguese case: a retroactive application of the law
According to the Transposition Law, online platform operators shall report the information from January 1 2023 until the end of the year by February 29 2024. Failure to report the information in a timely fashion is punishable by a penalty ranging from €500 to €22,500.
Although the Transposition Law only entered into force on July 27 2023, online platform operators are required to report information from their sellers dating from January 1 2023, forcing them to gather and deliver information regarding past events.
This retroactive effect was included in the Transposition Law as a way to ‘correct’ the effects and consequences of the late transposition by Portugal. But in doing so, the Transposition Law puts an excessive legal burden on the online platform operators. In other words, Portugal is imposing the consequences of its own delay on the operators.
It is questionable whether the state can impose penalties if online platform operators are unable, for any reason, to comply with all the obligations concerning events that occurred prior to the entry into force of the Transposition Law (i.e., between January and the end of July 2023).
Non-compliance and penalties
According to the Single Market Scoreboard, Portugal’s average delay in transposing directives is 26.3 months, while the EU average is 18.3.
Also, according to the infringement decisions database of the European Commission, there have been 132 formal notices to Portugal regarding the late transposition of directives.
The late transposition of directives directly impairs the free market and the relations between parties, and between parties and the state.
In this regard, the late transposition of DAC7 creates the possibility for individuals to open proceedings against the Portuguese state (vertical direct effect), but not against other individuals (horizontal direct effect).
Considering that the information required from online platform operators relates to the sellers that use the platform, the obligation falling on the former is dependent on the information provided by the latter.
Will online platform operators be responsible if they are not able to obtain the information from the sellers regarding past events? The answer must be negative, since online platform operators have no legal mechanism to collect the information from the sellers and cannot cancel the service retroactively. This, in turn, means that no penalty should apply in these circumstances, given that it is not possible to demonstrate a wrongful conduct by the operator.
