New role for payment companies on VAT fraud

Out-Law News | 13 Nov 2019 | 9:37 am | 1 min. read

Banks and other payment service providers (PSPs) in the EU will be required to keep detailed records of electronic cross-border business transactions they process and make the data available to tax authorities on request, under proposed changes to EU VAT laws.

The reforms, which have yet to be finalised, were broadly endorsed by representatives of the national governments of EU member states late last week.

The new rules, which would take effect from 2024, are to be complemented by other EU reforms that have been proposed that address how national tax authorities will cooperate to combat VAT fraud.

"In order to provide payment services, a payment service provider holds specific information to identify the recipient, or payee, of that payment together with details on the amount and date of the payment and the member state of origin of the payment as well as information if the payment is initiated at the physical premises of the merchant," according to the proposals impacting payment service providers. "This is particularly the case in the context of a cross-border payment where the payer is located in one member state and the payee is located in another member state or in a third country or third territory."

"This information is necessary for tax authorities to carry out their basic tasks of detecting fraudulent businesses and controlling VAT liabilities. It is therefore necessary that this information, which is held by payment service providers, is made available to the tax authorities of the member states to help them identify and fight VAT fraud," it said.

Under the plans, PSPs will be obliged to use the international payment account number identifier (IBAN) and business identifier code (BIC) to keep track of e-commerce transactions. Where the PSPs help process more than 25 cross-border payments to the same payee in the course of a calendar quarter then they will be obliged to retain the details of those transactions.

The records would need to be kept for three years from the end of the calendar year in which they are first collected.

Officials from the anti-fraud network Eurofisc, which brings together national tax authorities, would have scope to access that information.

The reforms have still to be finalised by both the European Parliament and the Council of Ministers, but the Council reached provisional agreement on the planned amendments to the EU's VAT Directive late last week.

Once finalised, each EU country would have until 31 December 2023 at the latest to implement the reforms in national law.