A new type of tax reporting will enter into force starting in 2024, according to a European directive that is still waiting to be transposed into Romanian legislation. The new reporting, which is part of a wider package of measures aimed at the Central Electronic System for Information on Payments (CESOP), will oblige all payment processors operating in the European Union – regardless of whether they are banks, IFNs or institutions issuing electronic money – to declare quarterly precise information about cross-border payments made through them, so as to identify beneficiaries who receive more than 25 cross-border payments in a quarter. The measure is intended to improve the process of detecting VAT fraud, especially with regard to e-commerce.

The CESOP reporting obligation is provided for by European Directive 2020/284, which is to be transposed into national legislation by the end of this year. The new rules enter into force on January 1, 2024 and create for payment service providers established in the European Union the obligation to monitor and transmit quarterly data about the payments they process and about their beneficiaries.

The data will be stored centrally in a European database called the Central Electronic Information System on Payments (CESOP), the purpose of this system being to provide anti-fraud experts in EU member states with the information they need to more easily identify sellers from abroad who supply goods or provide services on their territory.

According to the European Commission, the use of the Internet and new technologies has allowed companies to sell goods abroad without having to ensure any kind of physical presence, which complicates the control activity of the member states, which do not have the possibility to know that foreign sellers are active on their territory unless they declare their transactions themselves. Even in cases where a Member State knows that sellers on a website are providing goods or services on its territory, it can be extremely difficult to identify the bad seller behind that online platform.

Entities and payment services covered by the new reporting

The reporting obligation is incidental to four categories of payment service providers:

• credit institutions, a category that includes, for example, fully authorized banks that are established in Europe, as well as European branches of credit institutions that have their headquarters outside the EU;

• institutions issuing electronic money, a category that includes all payment service providers that provide payment services in electronic money, for example issuers of electronic wallets and issuers of value coupons (vouchers)/electronic cards;

• payment institutions, a residual category that can include all enterprises that provide payment services and that do not meet the criteria for inclusion in any of the other listed categories. This category may include businesses providing payment services, such as issuing credit/debit cards, accepting payment transactions, processing payments, initiating payments or platforms, providing payment services and acting on behalf of both the payer and the payee, etc.;

• postal transfer institutions that provide payment services.

Although the definition of payment service providers is quite broad and covers most of the payments market, this definition must be interpreted in conjunction with the rules applicable to the payment services covered by the new regulations. In reality, not all payment services fall within the scope of the reporting obligation, so it is possible for an entity to meet the criteria to be considered a payment service provider but not provide any of the payment services covered by the new reporting, in which case the payment service provider will have no obligation in this regard.

Thus, it should be known that CESOP regulations oblige only payment service providers that provide the following types of services to report:

• execution of payment operations and fund transfers in payment accounts;

• execution of payment operations covered by a credit line;

• issuing payment instruments and purchasing payment operations;

• remittance of money.

The regulations exempt from the reporting obligation, among others, the deposit and withdrawal of cash, payment initiation services, as well as activities that only involve the provision of account information.
It is also worth noting that not all payments must be reported, there are several conditions that trigger the reporting obligation: the payer is in the EU and makes more than 25 cross-border payments to the same beneficiary every quarter. These two conditions must be verified and met each calendar quarter.

Data to be transmitted in CESOP

According to the European authorities, the CESOP system is designed in such a way as to limit the administrative burden of payment service providers, the data being collected through a harmonized standard form and limited to the data necessary to identify sellers and combat VAT fraud in the e-commerce sector.

Among other things, the information to be reported refers to the BIC code, data about the payee, data about the payment or the return of the payment as well as information about the location of the payer.

It is important to note that the data is reported at the transaction level, not globally, in electronic format through an XML file.

Reporting calendar

Reports are made quarterly, at the latest by the end of the month following the calendar quarter to which the data refer.

Thus, for the first quarter of 2024, the data will have to be transmitted through the CESOP system by April 30, 2024 at the latest. Similarly, for the second quarter, the deadline will be July 31, for the third quarter, October 31, and for the fourth quarter of 2024, January 31.

Article published in Business-Mark