Transmission and exchange of payment data to fight VAT fraud - Central Electronic System of Payment information

On 18 February 2020, the Council adopted a legislative package to require PSPs to transmit information on cross-border payments originating from Member States. This includes providing information on the beneficiary (recipient) of these cross-border payments. A PSP is defined as a third-party company that allows businesses to accept electronic payments, such as credit cards and debit cards payments. PSPs act as intermediaries between those who make payments, i.e. consumers, and those who accept them, i.e. retailers.  Under these rules, PSPs offering their payment services in the EU will have to monitor the beneficiaries of cross-border payments and transmit information on those who receive more than 25 cross-border payments per quarter.

This information will be centralised in a European database, the Central Electronic System of Payment information (CESOP) where it will be stored, aggregated, and cross-checked with other European databases. All information in CESOP will then be made available to anti-fraud experts of Member States via a network called Eurofisc.

The objective of this new measure is to give tax authorities in Member States information to detect possible e-commerce VAT fraud carried out by sellers established in another Member State or in a non-EU country.

In line with data protection rules, only information related to payments that are likely to be connected to an economic activity (i.e. payments made between 2 parties that relate to the procurement of goods or services) is transmitted to the tax authorities. Information on consumers (i.e. the party making the payment) and on the reason underlying the payment is not part of the transmission.

The process of collecting the cross-border payment information begins on January 1^st 2024, with the first CESOP filing due to the member states at the end of March 2024.

In order to implement these regulations, the European Commission has worked with Member States’ tax administrations and PSPs on both the reporting obligations and the development of CESOP.  This group:

• Created the electronic standard form to transmit data from payment service providers;
• Identified the technical measures for establishing, maintaining, and managing CESOP; and
• Created guidelines on the reporting obligations.

Who must report: Payment Service Providers, including:

• Credit institutions;
• Electronic money institutions;
• Post office giro institutions; and
• Payments institutions.

What a quarterly submission will entail

• PSP must transmit information on cross-border payments originating from Member States;
• Information on the recipient of these cross-border payments must be provided if more than 25 payments in a quarter are made to them;
• Submissions will be made quarterly to the appropriate member states through one of three methods:
  • Automated electronic filing through accredited software;
  • Manual e-filing through the member state’s portal; or
  • Through the use of a fiscal representative.

Am I required to report?

The obligation to report depends on the location of the payer’s PSP and the location of the recipient’s PSP.

• Payee PSP – the payment service provider handling the transaction on behalf of the recipient.
• Payer PSP – the payment service provider handling the transaction on behalf of the payer.

Preparing for the first filing submission at the end of Q1 2024

• Ensuring the correct data is being captured in relevant systems. There are 15 key data points that need to be tracked.
• Ensuring the data points can be consolidated, from 1 January 2024.
• Preparing .XML submission files for each reportable territory that they are operating in or have merchants operating in.

What are the options for reporting?

• Build your own compliance tools to enable you to report in each of the (current) 27 member states.
• Licence CESOP reporting software and use that to generate the .XML files that need to be reported.
• Outsource the compliance work to an advisor who can submit (or use fiscal reps where required) to file on your behalf.

As data gathering is required from January 1st, and the first submissions due at the end of March 2024, it is important to act now and make sure you are prepared.  Even if this reporting is being outsourced, onboarding software providers takes time and IT security due diligence must be followed.