The European Union (EU) has enforced new transparency rules from 1 January 2024 aimed at combating fraud on cross-border payments in the EU and helping member states in clamping down on value-added tax (VAT) deceit.
According to the EU, the new regulations will furnish the tax administrations of member states with payment information, which will facilitate more efficient detection of VAT fraud. This emphasis is particularly directed towards the e-commerce sector, known for its susceptibility to VAT non-compliance and fraud.
Addressing these issues is crucial to preventing gaps in tax revenues that fund essential public services, said the EU.
As an example, the EU said that certain online sellers lacking a physical presence in an EU member state engage in selling goods and services to EU consumers without registering for VAT anywhere in the EU. Alternatively, they may declare a value lower than the actual amount for their online sales.
Consequently, member states require enhanced tools to identify and put a stop to such illicit practices.
The new system leverages the significant role played by payment service providers (PSPs), including banks, e-money institutions, payment institutions, and post office giro services, which collectively manage more than 90% of online purchases in the EU.
Starting from 1 January 2024, these PSPs will be required to monitor the recipients of cross-border payments. By 1 April 2024, they must transmit information about those receiving more than 25 cross-border payments per quarter to the administrations of EU member states.
The information will be centralised in a newly developed European Commission database called the Central Electronic System of Payment Information (CESOP). Here, it will be stored, aggregated, and cross-referenced with other data.
The data stored in CESOP will subsequently be accessible to member states through Eurofisc, the EU’s network of specialists focused on combating VAT fraud. This streamlined access will significantly facilitate the analysis of data, aiding member states in identifying online sellers who fail to adhere to VAT obligations, even those businesses located outside the EU.
EU Economy Commissioner Paolo Gentiloni said: “These new rules will play a crucial role in the fight against VAT fraud, which costs EU governments billions in lost revenues every year.
“By harnessing the information collected by payment service providers such as banks and credit card companies, anti-fraud specialists in Member States will be able to more easily and accurately pinpoint and crack down on fraudulent behaviour in the e-commerce sector.”
