Last month the European Commission (EC) issued a statement concerning an agreement by EU Member States to improve the EU VAT system by requiring reporting of data with regard to online purchases.
The initial proposals date back to December 2018. The EC tabled two legislative proposals concerning the transmission and exchange of VAT-relevant payment data:
- Directive amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers; in addition to
- Regulation amending Regulation (EU) No. 904/2010 as regards measures to strengthen administrative co-operation in order to combat VAT fraud.
There were some concerns with the initial proposals laid down. However Member States have now reached an agreement on a compromise text to move this forward. Once approved by the European Parliament, it will be enacted into legislation by 1 January 2024.
E-Commerce VAT Fraud
The new rules will provide EU Member States’ with increased capacity to tackle e-commerce VAT fraud. They will provide anti-fraud experts access to VAT data held by payment intermediaries. This includes credit card and direct debit providers.
These payment service providers facilitate over 90% of online purchases in the EU. So Member States can use their payment data. The rules create a requirement to provide tax authorities with certain payment data from cross-border sales. The authorities can then access and analyse this data to identify both EU and Non-EU online sellers who are not complying with their VAT obligations.
According to the proposal, as soon as there are more than 25 cross-border payment transactions per quarter and payee, the payee’s payment service providers must collect, transmit, and retain certain data for three years, such as:
- the payee’s business name;
- VAT identification number;
- other identifier information which unambiguously identifies the payee and the location; and
- the identification of the payment transaction and payment refunds.
Local tax authorities collect this and then share the data with a centralised electronic system of payment information. It will be this system that is analysed by Eurofisc officers who determine if there is VAT fraud being undertaken.
The payment service providers have already raised concerns in regard to the detail of the information that will need to be collected as some of this is not currently collected, so it could be a costly exercise for them to upgrade their systems. Furthermore, with so much data collected, they are concerned by potential data breaches, especially due to the sensitive nature of the information.
This is another step towards tackling e-commerce VAT fraud and reducing the VAT Gap in the EU, which is sill at EUR 137 billion, as noted in our report back in September which you can find here.