Payment Tax Reporting: CESOP services

What is CESOP?

In an evolving financial landscape, PSPs operating within the European Union are facing new reporting obligations starting from January 2024. Council Directive (EU) 2020/284 and Council Regulation (EU) 2020/283 introduce these regulatory changes, of which the primary objective is to combat VAT fraud, granting national tax authorities the power to conduct thorough controls. 

PSPs will play a vital role by reporting data on relevant cross-border payments, creating a streamlined exchange of information between Member States within a centralized European database, known as the Central Electronic System of Payment (CESOP). This transformative approach aims to detect e-commerce VAT fraud more effectively, ensuring the harmonized collection and centralization of data at the European level. 

What are the reporting requirements?

PSPs providing payment services within the EU will have to report payments on a quarterly basis when all the below criteria are met:

1. The PSP provides payment services in an EU Member State – this includes legal entities, permanent establishment and passported services
2. A payment is made which is an in-scope payment type – broadly all payments covered by PSD2 are in scope - such as credit transfers, direct debits, credit cards, e-money and remittances
3. The payer is in the EU – typically determined by the country identifier in the payer’s IBAN, or another relevant identifier when no IBAN is involved
4. The payment is cross-border – from one EU Member State to another EU Member State or to a third country
5. More than 25 cross-border payments are made to the same payee within a calendar quarter – the payments can be from any payer to the payee, and where the payee has multiple accounts, the PSP must aggregate these for the purpose of this calculation

The CESOP report will have to be completed separately in each EU Member State where the PSP provides payment services. The submission should be made electronically and in a specified XML format, defined locally by each relevant tax administration. For each quarter, the CESOP reporting deadline will be one month after the end of the quarter. The deadline for the first reporting is 30 April 2024, regarding the in-scope payments performed during the first quarter of 2024.