New VAT reporting requirements for Payments Service Providers at EU Level
CESOP
CESOP at a glance
Origins of CESOP
CESOP is the EU's new Central Electronic System of Payment information imposing new obligations to Payment Service Providers (PSPs).
It has been created by the European Commission to improve tax compliance and provide Member States with an additional tool to close the VAT gap in the EU, i.e., the VAT revenue that they are missing due to errors and fraudulent activities. This new directive, through the gathering of data on cross-border transactions, shall assist the EU in collecting VAT that was previously unpaid.
Legislative background
CESOP will enter into force on 1 January 2024. It will be implemented through a change to the EU VAT directive, along with some implementing measures.
It is at its core an administrative obligation on EU “Payment Service Providers” (EU PSPs), as defined in the Payment Services Directive (Directive (EU) 2015/2366 of the European Parliament and of the Council, “PSD2”). This encompasses credit, electronic money, post office giro and payment institutions, including those benefiting from the small payment institutions exemption.
In practice, banks, card schemes, merchant acquirers and PSPs will be affected the most, as well as retailers and marketplaces that have their own “in-house” PSP governed by PSD2.
Reporting obligations
EU PSPs will be required to keep records of all cross-border payments, with reporting requirements on those where the payer is in the EU and where the number of individual payments made to one single payee exceeds 25 in a calendar quarter.
A relief applied to the payer’s EU PSP if located in the EU, but does not extend any intermediate EU PSP in payment chains that involve more than two parties.
Depending on transaction characteristics, the following data elements must be included in the CESOP report:
EU PSPs with reportable data shall transmit this data every calendar quarter to the locally appointed tax authorities in their home Member State and (if applicable) any host Member State where they are active.
All data shall be transmitted in a standardized XML format, which available from the European Commission’s CESOP website.
The local tax authorities will, in turn, be responsible for performing quality checks on the data and to submit it to CESOP.
CESOP implementation step-by step
Considering the effective date (1 January 2024), and the implementation’s complexity due to high volumes of data, added to the applicable reporting rules and systems involved, performing quickly an impact assessment and designing an implementation’s roadmap is crucial. Stakeholders alignment, (re)design of internal controls and building and testing of the tool are also key aspects to assess as soon as possible.
Below, you will find the essential steps to consider as part of your CESOP compliance project. Those steps are also part of the range of services we can assist you with as you implement all CESOP compliance requirements.
Key questions to consider all along you CESOP compliance journey:
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How Deloitte can help
Deloitte can help PSPs in this journey, from the impact assessment to the implementation of a solution. We can support in the analysis and construction of the business case, in order to determine the most suitable solution for you.
In addition, we have developed a CESOP reporting solution to release PSPs from the main impacts of this new regulation. This solution aims at minimizing the need for internal IT or operational resources and covers data collection, qualification of the transactions, production of the CESOP report and submission to the tax authorities.
Contact us or learn more about our CESOP implementation framework and CESOP reporting solution.