New reporting obligations for EU financial institutions

Article

New reporting obligations for EU financial institutions

Update June 2022

As part of a wider package to solve the VAT gap, and in particular VAT fraud in e-commerce, the European Parliament has adopted a Commission Proposal introducing new measures aimed at ‘improving the collaboration between tax authorities and financial institutions‘. What are these new reporting obligations for EU financial institutions and are they proportionate, enforceable and effective?

The VAT gap

In 2017, the EU suffered an estimated €137bn loss in tax revenues. This was due to the inability of the tax authorities to collect VAT from tax payers. One of the causes of this so-called VAT gap is VAT fraud in e-commerce.

New reporting obligations for EU financial institutions from 2024

New measures to fight VAT fraud in e-commerce

As part of a wider package to solve this gap, and in particular VAT fraud in e-commerce, the European Parliament has adopted a Commission Proposal introducing new measures aimed at ‘improving the collaboration between tax authorities and financial institutions’. Financial institutions need to report payment data to their local tax authorities on a quarterly basis, who will share this data with other EU countries in a central database called CESOP (Central Electronic System Of Payment information). The proposed “go-live” date of this reporting obligation is 1 January 2024.

A closer look at the new obligations

In our publication 'New reporting obligations for EU financial institutions from 2024 onwards’ we take a closer look at these measures. Who should report? Where to file? To what transactions and what data do the obligations apply?

Concerns about proportionality, enforceability and effectiveness

Naturally, it is understandable that the EU wants to fight VAT fraud in e-commerce. However, we have a number of concerns that we share in our Point of View. For instance, the scope of the reporting obligation is much wider than merely B2C e-commerce transactions. In discussions with industry players, we have found that it will be quite a burden for the responsible parties to change their administration and IT systems in order to comply with the new reporting obligation. A few other parties have voiced their concerns as well. In a combined opinion letter, the Dutch Payment Association, the Dutch Banking Association and the Dutch United Payment Institutions argue that the reporting obligation places a huge burden on PSPs and that the sector has not been sufficiently consulted.

Input from the industry

The new reporting obligations fit into a wider trend of governments pushing responsibilities around tax reporting and tax collection to businesses - once the exclusive domain of tax authorities. Although we understand the desire to obtain more insight into payments received by businesses to help close the VAT gap, the measures do raise concerns about their effectiveness, enforceability and proportionality.

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