On 12 December 2018, the European Commission launched a new proposal for a Council Directive introducing certain requirements to be imposed on payment service providers involved in cross-border e-commerce transactions. The requirements laid down in the proposal are meant to facilitate member states’ fight against VAT fraud in e-commerce. If approved, member states will have to adopt and apply these measures from 1 January 2022.
The new e-commerce proposal is specifically aimed at the cross-border supply of goods and services to end consumers in member states of the European Union. In other words, this covers situations where the VAT is due in the consumer’s member state and the supplier is based in another member state or in a third country. As end consumers do not have any VAT or accounting obligations, a risk emerges of fraudulent businesses exploiting this situation to avoid VAT liability in the member state of consumption.
Since payment service providers are often involved in executing payments in e-commerce transactions, the European Commission’s proposal would require that information on certain cross-border payment transactions now be made available – within the legal framework of administrative cooperation and the exchange of information between member states – to the tax authorities of member states. This would be done via sufficiently detailed records containing specific information (such as the payer and payee’s identity, amount, transaction date, the member state the payment originated in, etc.). It is expected that payment service providers should be able to determine this information based on the payer and payee’s IBAN or BIC numbers in the respective member states.
Note that these requirements will only apply if the payment service provider (i) transfers funds from a payer located in one member state to a recipient in another member state or third country and (ii) executes more than 25 payment transactions to the same payee per calendar quarter. In such cases, the payment service provider will have to keep the required records electronically for a period of at least two years starting from the end of the year in which the payment transaction took place.
“Payment service providers” refers to all bodies envisaged in Article 1, paragraph 1, points (a) to (f) of the Payment Services Directive 2015/2366, not benefitting from the exemption laid down in Article 32 of the same Directive, and established in the European Union. In practical terms, this includes credit institutions, electronic money institutions, payment institutions, post office giro institutions, but also the ECB and national central banks and other public authorities when they are not acting in their capacity of monetary authority or public authority.
Once introduced, it will be important for payment service providers involved in e-commerce transactions to comply with the proposed records obligations in order to avoid liabilities in the member states concerned. This will require sufficient preparation by all payment service providers should this new directive be approved by the Council.
The Global VAT Newsletter focuses on changes in compliance duties in various EU and non-EU countries
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