EU | Enlistment of Payment Service Providers to Combat Cross-border VAT Fraud from 2022

Further to the recent adoption of the VAT e-commerce Directive, which launched new VAT compliance obligations for electronic marketplaces as well as compliance simplifications for online businesses, the Commission has published proposals amending EU VAT legislation and creating new reporting requirements for payment service providers (PSPs).  These businesses, which include credit card providers, involve a need to report details on clients’ payment transactions to tax authorities.

The reason for this initiative is to help tax authorities detect and crack-down on fraudulent activity.  They are complementary to the new compliance rules for e-commerce and have been introduced because the Commission thinks that if these compliance simplifications are not accompanied by anti-fraud measures, fraudsters will have little incentive to change their attitude and start complying with their VAT obligations. The proposed rules will provide tax authorities with a new tool to detect VAT fraud on cross-border B2C supplies, assisting with the task of monitoring VAT compliance in the e-commerce sector.

The proposals introduce new record-keeping requirements for PSPs and the setting up of a centralised EU-wide database of VAT related payment data to be accessible by Member States specifically to fight ecommerce VAT fraud.

Record-keeping requirements

The main features are:

  • Payment service providers will have to maintain records of payment services relating to the control of “cross-border” supplies of goods and services. This means transactions where the consumer is in a Member State and the supplier is in another Member State or in a third country/territory;
  • Domestic payments are outside the scope;
  • Records on a payee only need to be kept if it receives more than 25 payments on a quarterly basis; and
  • Records must be kept in electronic format for a two-year period.

 

Records will have to hold the following information, when applicable:

  • The IBAN or BIC or any other business/payment account identifier code;
  • The name and address of the payee or the business name;
  • The VAT identification number of the payee; and
  • Data relating to the individual payment transaction such as the amount, currency, date, origin of the payment and indication of any payment refund.

 

Centralised electronic system

The Commission plans to develop an EU-wide centralised electronic payment information system, known as “CESOP”, allowing Member States to transmit PSP payment information stored at a national level. Member States’ tax authorities will be required to transmit the information they collect, from the payment service providers established in their own Member State, on a quarterly basis to CESOP, which will retain it for two years.  PSPs will provide this information on standardised electronic forms.

CESOP will only be accessible to officials from Eurofisc, (the EU ‘s anti-fraud body), for the sole purpose of undertaking investigations into possible VAT fraud.

Pending these proposals being enacted, they will come into effect as of 1st January 2022. We are monitoring the progress of this initiative and shall report updates as they unfold.