How to prepare for CESOP?

As from early 2024, PSPs will be required to produce additional reporting on cross-border payments, representing new operational challenges.

In brief:

• Payment Service Providers in the EU will need to report cross-border payments on a quarterly basis as from Q1 2024 (first reporting due by 30 April 2024)
• The rules have similarities with other tax driven obligations (FATCA/CRS and DAC6, 7 and 8) and apply to payments originating from an EU Member State
• Detailed information on the transactions, including identification of the beneficiary of the payment (payee) will need to be shared with local tax authorities

As from the 1st of January 2024, new rules will require Payment Service Providers (PSPs) in the European Union (EU) to report cross-border payments information on a quarterly basis.

This obligation originates from a legislative package adopted in February 2020, amending the EU VAT Directive and the Regulation on administrative cooperation and combating fraud in the field of VAT.

CESOP, or Central Electronic System of Payment information, is the name of the European database that will centralize the information reported by PSPs to their local tax authorities, allowing it to be analyzed by anti-fraud data experts.

CESOP has similar objectives as DAC7 for Digital platforms and DAC8 for Cryptocurrency and e-money.
 

What institutions are in scope?

Essentially, almost all PSPs providing payment services in an EU Member State are in scope, i.e.:

• credit institutions, i.e. banks,
• e-money institutions,
• payment institutions,
• post-office giro institutions which are entitled under national law to provide payment services.

PSPs that process less than € 3 million of payment transactions annually are also in scope.

What transactions are eligible for reporting?

All types of payment transactions, i.e., card payments (debit and credit), credit and bank transfers (including SWIFT), direct debits (SEPA and non SEPA), e-money and money remittance transactions are reportable, provided that:

1. the payer of the transaction is in the EU (based on the IBAN or BIC),
2. the payment is cross-border, i.e. the payment is made to another EU Member State or to a third country outside of the EU,
3. more than 25 cross-border payments have been made to a same payee in a calendar quarter.
    

The PSP of the payer and the PSP of the payee are required to report, among other things, the following information on the transactions:

• IBAN, or any other identifier of the payee,
• BIC, or any other unique identifier of the PSP of the payee,
• name of the payee,
• VAT number or national tax number of the payee, if available,
• address of the payee,
• BIC, or any other business identifier of the PSP of the payer,
• details on the payment (e.g. date, currency, amount, reference, card present or not present transactions…),
• details on payment refunds.

How should banks and in-scope PSPs prepare?

The main challenges for PSPs are to:

• identify all payment channels used for in-scope transactions,
• assess whether the required data for reporting is available, complete and accurate,
• understand intragroup relationships and map payment transactions to subsidiaries or branches across the countries (within or outside EU),
• aggregate the data and implement rules and criteria to select the transactions eligible for reporting and which PSPs should report,
• implement an end-to-end reporting process to produce and send the data in the required format (xml) to local tax authorities on a quarterly basis.

PSPs might want to leverage the existing data warehouse and data reporting processes developed in the context of PSD2 (Fraud Reporting) and PSR (Payment Statistics Reporting). However, these reporting types only include statistics of transactions and don’t detail information on a transaction by transaction basis.

What are the next steps?

In order to implement the proposal, the European Commission is working with Member States’ tax administrations and PSPs in an expert group, which is providing input to:

• create the electronic standard form to transmit data,
• identify the technical measures for establishing, maintaining and technically managing CESOP,
• draft guidelines on the reporting obligations,
• engage with the payment sector and Member States.

Banks and PSPs should however not wait to analyze the data requirements and assess their current data reporting capabilities.

Do not hesitate to contact us, should you wish to discuss the detailed requirements or seek any assistance in this respect.