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13/02/2024 YabandPay News | The new EU regulations are now officially implemented, cracking down on tax fraud in e-commerce.
On February 18, 2020, the European Council passed a directive (Directive EU 2020/284; also known as PSP-CESOP, Payment Service Providers—Central Electronic System of Payment Information), mandating that payment service providers (including banks, electronic money institutions, payment institutions, etc.) must report all payment records of member states and transaction information of beneficiaries (“payment receivers/merchants”).
PSP-CESOP has already started to be implemented, meaning third parties, such as payment service providers, must report transaction data to the tax system beginning January 1, 2024. This legislation establishes a more effective value-added tax (VAT) audit system, prevents fraudulent activities, and ensures customer data privacy. Tax authorities aim to use this data to combat VAT fraud, especially in e-commerce and cross-border commerce.
According to the legislation, payment service providers within the European Union must monitor transactions of recipients in cross-border payments and quarterly submit data on payment receivers (merchants) who acquire more than 25 payments in a single month to the member states’ tax authorities. Payment service providers must report that information to the Central Electronic System of Payment Information (CESOP), a database for storing, consolidating, and cross-verifying data with other European databases. Besides, all information in CESOP must be provided to anti-fraud experts in member states through the Eurofisc network.
The new legislation aims to provide sufficient information to the tax authorities of EU member states, combat tax evasion or VAT fraud, and regulate e-commerce VAT fraud by sellers operating in different EU or non-EU countries. For instance, if a merchant (whether registered in the EU or not) provides goods or services to consumers but fails to declare taxes in any EU country or provides inaccurate tax declarations, the legislation is developed to restrain such tax fraud.
Simultaneously, the legislation strictly adheres to the principles of data protection. Only payment information and tax data related to economic activities will be reported to tax authorities, while information about consumers and payment reasons is outside the scope of transmission.
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