Combating fraud in European cross-border payments

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New rules provide the EU states’ tax authorities dealing with payments opportunities to detect VAT fraud more easily, with a particular focus on e-commerce, which is the main concern to VAT non-compliance and fraud. The issue created big holes in the states’ tax revenues that often used to support for vital public services. New transparency rules come into force this January and will help the member states to combat fraud in the value-added taxation system.   

Background: last year’s efforts
In February 2020, the Council adopted a legislative package to request payment service providers to transmit information on cross-border payments originating from the EU states and on the beneficiary (“the payee”) of these cross-border payments. Under the law, payment service providers offering payment services in the EU will have to monitor the payees of cross-border payments and transmit information on those who receive more than 25 cross-border payments per quarter to the administrations of all EU states.
This information will then be centralized in a European database (i.e. 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 all EU states via a Eurofisc’s network.
In December 2022, the European Commission proposed the VAT in the Digital Age package which will make the EU’s Value-Added Tax system more resilient to fraud by embracing and promoting digitalisation. It introduces real-time digital reporting for VAT purposes based on e-invoicing that will give the EU states valuable information they need to step up the fight against VAT fraud. Cooperation between the tax administration is also significantly reinforced through the introduction of a new central VAT Information Exchange System (central VIES) somehow attached to Eurofisc.

On Eurofisc
Administrative cooperation between the EU states’ competent authorities in the field of VAT helps ensuring correct application of VAT rules on cross-border transactions; the cooperation is based on Council Regulation 904/2010.
The Regulation provides for the exchange of specific information between tax administrations:
= Spontaneous exchange of information takes place if a country discovers information on VAT transactions that may be relevant to another country.
= Exchange of information on request occurs when additional information on VAT transactions is needed from another country.
= Automatic exchange of information is used when the information is relevant for other countries, for example on new means of transport or non-established traders.
= Joint audits and simultaneous controls allow officials from national tax authorities to form international audit teams to control multinational companies.
Source: https://taxation-customs.ec.europa.eu/taxation-1/vat-and-administrative-cooperation_en

  Eurofisc liaison officials are also empowered to take appropriate action at national level, such as proceeding with requests for information, audits, or deregistration of VAT numbers. Similar provisions are already in place in some EU states and are having tangible effect in tackling fraud in the e-commerce sector.

New transparent payment system
The new system harnesses the key role played by payment service providers (PSPs) such as banks, e-money institutions, payment institutions and post office-giro-services, which collectively handle over 90% of online purchases in the EU.
Thus, since January 2024, the PSPs will have to monitor the payees of cross-border payments and, as of 1 April, transmit information on those who receive more than 25 cross-border payments per quarter to the administrations of the EU member states. This information will then be centralized in a new European database developed by the European Commission, the Central Electronic System of Payment information (CESOP), where it will be stored, aggregated and cross-checked with other data.
New transparency rules come into force in January 2024 and will help EU member states to combat fraud in the value-added taxation system.
The objective of the new rules is to give tax authorities of the EU states the right instruments to detect possible e-commerce VAT fraud carried out by sellers established in another member state or in a non-EU country. For example, some online sellers with no physical presence in an EU state sell goods and services to EU consumers without registering for VAT anywhere in the EU, or by declaring less than the actual value of their online sales. Member States therefore need strengthened tools to detect and shut down this unlawful behavior.
The new rules respect data protection rules: only information related to payments that are likely to be connected to an economic activity is transmitted to the tax authorities. Information on consumers and on the reason underlying the payment is not part of the transmission which starts in January 2024.
Source: https://taxation-customs.ec.europa.eu/taxation-1/central-electronic-system-payment-information-cesop_en

  Paolo Gentiloni, Commissioner for the EU economy underlined that new rules would “play a combating VAT fraud”, which already deprived the member states’ budgets of enormous amounts in lost revenues every year. By harnessing the information collected by payment service providers (e.g. banks and credit card companies) the anti-fraud specialists in the states will be able to easily and accurately pinpoint and crack down on fraudulent behavior in the e-commerce sector.
Citation from: https://ec.europa.eu/commission/presscorner/detail/en/IP_23_6714

 

 

 

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