New VAT Rules for EU Payment Service Providers: Part 2—The Requirements

To prevent VAT fraud in the e-commerce sector, the EU has applied a “follow the money” approach by enacting new obligations for payment service providers (PSPs) that take effect 1 Jan 2024.

My previous post examines the rationale for the change. Here, I’ll highlight which companies must comply with these rules and how they will need to do so. Again, the objective of these new measures is to give EU Member States detection and control instruments to correctly assess VAT liabilities on cross-border B2C supplies.

What Companies Need to Comply

The new legislation will apply to PSPs, which are defined as credit institutions; electronic money institutions; post office giro institutions; payment institutions; the European Central Bank and national central banks; and Member States or regional or local authorities when not acting in their capacity as public authorities. PSPs will need to record information on payment transactions if the following conditions are met:

The payer and payee are located in different EU Member States, or where the payee is established outside the EU and the payer within the EU; and the total number of payments received by a certain payee exceeds the threshold of 25 per calendar quarter (the limit of 25 transactions per quarter applies per PSP).

What Information Needs to Be Provided 

The information that a PSP must record for each transaction includes:

• The BIC or any other code that unambiguously identifies the PSP
• The name of the payee or the business name
• Any VAT identification number of the payee
• The IBAN or any other payment account number identifier which unambiguously identifies the individual payment account of the payee
• The BIC or any other business identifier code that unambiguously identifies the PSP acting on behalf of the payee where the payee receives funds without having any payment account
• The address of the payee in the records of the PSP
• Any executed payment transactions
• Any executed payment refunds for payment transactions recorded based on the above entry.

How the Information Is to Be Submitted

PSPs must transmit the data above to the Member State of their establishment no later than the end of the month following the calendar quarter to which the information relates. Member States will forward this information to a Central Electronic System of Payment Information (CESOP) where it will be stored for five years. The payment data will be used by Member States to cross-check information reported by marketplaces and other remote sellers with the objective of detecting foreign suppliers that sell goods to local consumers but fail to fulfil their VAT compliance obligations.

In the final instalment of this three-part series, I’ll assess how effective these new rules may be in closing the e-commerce VAT gap.