To combat e-commerce VAT fraud within the European Union (EU) new Council Directive (EU) 2020/284 came into effect establishing the Central Electronic System of Payment Information (CESOP) and implementing a mandate for payment service providers (PSPs) to monitor and report beneficiaries of cross-border payments.
What is new?
Effective April 1, 2024, PSPs operating within the EU will be required to transmit information regarding individuals or entities receiving more than 25 cross-border payments per quarter to the administrations of EU Member States.
Under these regulations, a centralized European database, known as CESOP, is established to store, aggregate, and cross-check the transmitted data with other European databases. This information will then be accessible to anti-fraud experts of Member States via a network called EUROFISC.
These measures aim to equip Member States’ tax authorities with the necessary tools to identify potential instances of e-commerce VAT fraud perpetrated by sellers operating in another Member State or in a non-EU country. However, it’s important to note that these measures are designed to respect data protection rules, ensuring that only information related to payments likely associated with economic activities is transmitted to tax authorities. Information about consumers and payment reasons will not be part of the transmission.
Reporting in Lithuania
Reportable data must be submitted through the State Tax Inspectorate (VMI) Tax Information Exchange System (TIES).
The obligation falls upon credit institutions, electronic money institutions, payment institutions, and money transfer system institutions that are authorized to provide payment services under the Law on Payments and are supervised by the Bank of Lithuania.
Payments that must be reported to VMI include all international payments as defined by the Law on Payments, with exceptions outlined in Article 3, Part 5 of the same law. Notably, CESOP regulates the provision of data solely on international payments.
PSPs must submit collected information for each calendar quarter to VMI no later than the end of the following month. Subsequently, VMI will forward this data to CESOP no later than the tenth day of the second month following the relevant quarter.
The implementation of these measures underscores the EU’s commitment to enhancing transparency and integrity in cross-border financial transactions while addressing the challenges posed by e-commerce VAT fraud. By leveraging technological advancements and data-sharing mechanisms, authorities aim to strengthen their ability to detect and deter fraudulent activities, ultimately fostering a fair and compliant business environment within the EU.
Should you find yourself confronted with the complexities of these new requirements we invite you to initiate contact with our law firm at your earliest convenience to arrange a consultation.
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