Payment Service Providers (“PSP”) facilitate merchants in the acceptance of online payments by providing a merchant account/payment gateway through which transactions can be safely and securely carried out. Typical PSP transactions include internet banking, credit/debit cards, e-wallets, etc.
To plug revenue leaks by detecting/combating VAT frauds, the European Union Council issued Directive 2020/284, mandating additional reporting obligations for payment service providers in the EU, which would take effect from January 1, 2024. It is expected that this initiative would strengthen the coordination between the tax authorities of EU members and key players in the e-commerce industry.
The defined PSPs that would need to comply with the requirements below align with the payment services directives of the European Union and includes credit/payment institutions, post office giro, electronic money institutions, etc.
The PSPs located in the EU would need to maintain electronic records of the recipients of “Cross Border Payments” and report the same every quarter to the appropriate tax authorities of the EU member state in which the PSP has its head office/registered office as well as the places where it has a branch/agency. They would need to submit the details listed below by the end of the month following the calendar quarter through a standard electronic form.
The following prerequisites would have to be met:
- The payer should be based out of an EU member state
- The payee should be outside the above EU member state – whether in another EU member state or even outside the EU; and
- The PSP provides services to the same payee for more than 25 such transactions during a calendar quarter
It is pertinent to note that if the PSPs of the payee and the payer are both located in the EU, it is the PSP of the payee that would be obliged to comply with the reporting requirements. If the PSP of the payee is not located in the EU, the obligations fall on the PSP of the payer.
The records must be maintained by the PSPs for a period of three years from the end of the tax year in which payment has been made and should typically contain the below information:
- Any identification (such as Bank Identifier Code – “BIC”) of the PSP
- Name of the payee, address, and location
- Any identification of the payee (such as International Bank Account Number Validation – “IBAN”)
- Supporting details of the payee, like VAT /other national identification numbers
- Any identification (such as Bank Identifier Code -“BIC”) of the PSP acting on behalf of the payee when the payee receives funds without any payment account
- Details of “Cross Border Payments”; and
- Information about any payment refunds corresponding to the cross border payments made concerning the last two points above, certain additional details, as given below would need to be maintained:
- The date/time of the payment/refund
- The origin and destination of the EU member states and the basis for determination of the same
- The transaction value and currency in which it is carried out, and
- Any other reference that relates to the payment
The data received from the PSPs would be fed into a “Central Electronic System of Payment” (CESOP), that would be operated at the EU level. Analysis of this data would provide valuable inputs for the EU member states to tackle fraudulent VAT transactions.
The above requirements would need to be transposed into their respective national laws by the EU member states by 31 December 2023 and the provisions would need to become applicable from January 1, 2024.