New EU VAT reporting laws for Payment Service Providers

New EU VAT legislation was formally adopted last week which will have a significant impact for regulated payment service providers (PSPs) in the EU and (we anticipate) the UK.

Here are the key points to note:

What is the purpose of the new legislation?

The new rules have been adopted in order to help EU tax administrations gain access to specific information held by PSPs in respect of cross-border sales made in the EU, which they can use to facilitate in their objective of detecting and combating cross-border VAT fraud and in ensuring compliance with EU VAT obligations. 

The new measures seek to complement the EU's proposed VAT rules package for e-commerce transactions which will introduce new VAT obligations for online marketplaces and simplifications for online businesses carrying out cross-border sales and are due to come into force in 2021.

When will the new measures apply?

From 1 January 2024

Who will be affected and where?

The measures impose a substantial reporting obligation for EU regulated PSPs in relation to the payment services they provide on a quarterly basis, requiring them to keep sufficiently detailed records in respect of payees (whether inside or outside the EU) and of the cross-border payments those payees receive from EU payers.

While the primary objective is to collect information in relation to cross-border transactions done remotely (e.g. online), the requirements are not limited to remote transactions – they also apply to transactions at the premises of the payee (e.g. card-present/point-of-sale or face-to-face transactions).

There is a close alignment between these new measures and the updated EU Payment Services Directive (PSD2), given its overall scope and definitions such as "payments" are defined by reference to definitions contained in PSD2. 

The reporting obligations are otherwise subject to few limitations and are widely drawn, requiring PSPs to retain records for 3 calendar years.  A small ceiling will apply in respect of merchants receiving less than 25 cross-border payments over the course of a calendar quarter. 

The reporting obligation is intended to apply per Member State where a PSP is treated as located, i.e. by reference to their main establishment and/or any branches they have in other Member States. 

Records to be kept include:

  • Identifier codes identifying and giving the location of the payee, payer and PSP's location
  • Name and address of the payee and any VAT/tax identification number of the payee available
  • Details of payment refunds relating to relevant cross-border payments
  • Date, time, amount and currency of payments and related refunds
  • Member State of origin of payment and destination of payment or refund
  • Any other unique reference identifying the payment
  • Where applicable, information that the payment is initiated at the physical premises of a payee merchant (as opposed to remotely) 

The requirements are in principle imposed on the PSP of the payee (i.e. the acquirer for card transactions), unless the PSP of the payee is not located in the EU in which case the requirements are incumbent on the PSP of the payer (i.e. the issuer for card transactions).

Note that as regards refunds (which, as mentioned above, are also subject to the reporting requirements), the roles are inverted. For example in the case of a refund on a card, the PSP of the payee would be the issuer, and the PSP of the payer would be the acquirer - meaning that presumably it is the issuer (rather than the acquirer) who would need to comply with the requirements in relation to a refund?

These records will have to be made available to national tax administrations via a central electronic system under strict conditions, including those related to data protection.  The payment information provided in accordance with these new rules should then be processed only by EU anti-fraud experts of tax authorities when seeking to achieve the objective of combating VAT fraud.

How will these measures be implemented in practice?

This remains under discussion – an EU Commission expert group has been established to assist in the implementation of the new legislation and it has invited industry participants to contribute to the implementation package, which will primarily focus on how a PSP's data will need to be electronically formatted and transmitted to the central system being developed by tax administrations as a result of the new rules.

What about Brexit?

For the time being, the UK is expected to implement any EU legislation coming in force including in the transition period.  However this may change post-December 2020.

Bird & Bird Payments team and alerts

Should you have any questions about the above, please do not hesitate to contact one of the members of the Bird & Bird global payments and tax team.

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