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CESOP - EU Cross-Border Payments Reporting Obligation
CESOP - EU Cross-Border Payments Reporting Obligation
Obligation
Starting January 2024, the EU tackles VAT fraud in e-commerce by requiring quarterly reporting on
cross-border payments from PSPs. Discover how CESOP helps close the VAT gap, ensuring sellers are
VAT-registered and declare taxes in the appropriate member state. Learn more here!
From January 2024, the EU will introduce a quarterly reporting obligation for payment service providers
(PSPs) on cross-border payments to combat VAT fraud in e-commerce. The Central Electronic System of
Payment information (CESOP) was set up by the European Commission to close the VAT gap. PSPs have
to report and keep transactions of their sellers to ensure correct VAT registration and declaration in EU
Member States.
Based on Directive 2015/2366/EU, the new regulations primarily affect payment service providers and
banks that process cross-border payments. These institutions must transmit specific payment
information to the financial administrations of EU member states. Collecting a combination of KYC
(Know Your Customer) and transaction data, they forward this information to CESOP, the Central
Electronic System of Payment Information.
This initiative from the European Commission aims to close the VAT gap across the European Union,
which refers to the missing VAT revenue that EU Member States lose due to errors and fraud. Through
CESOP, the EU hopes to recover previously unpaid VAT by analysing data on cross-border payments.
The new reporting obligations will apply to all cross-border transactions involving a payer based in the
EU. However, relief may be granted for certain PSPs if the payee’s PSP is also in the EU. However, this
relief will not extend to intermediate EU PSPs in more complex payment chains.
Entities in Scope
The new reporting obligation for the CESOP applies to a wide range of payment service providers (PSPs)
as defined in the Payment Services Directive (Directive (EU) 2015/2366 of the European Parliament and
of the Council, “PSD2”).
Affected entities include credit institutions, e-money institutions, payment institutions, and post-office
giro institutions operating within an EU member state in accordance with PSD2.
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The exemption for small PSPs (processing less than €3 million transaction value) does not apply to
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CESOP reporting obligations.
Banks, card schemes, merchant acquirers, and CPSPs are most likely to be impacted, as well as retailers
and marketplaces with their own “in-house” PSP governed by PSD2.
Entities covered by one of the exclusions or anticipating that the payments they process will not exceed
the de minimis threshold should periodically monitor their position and implement operational
procedures to comply with CESOP reporting requirements if they no longer fall within the exclusions or
below the threshold.
Payments in Scope
Reportable payments encompass various transaction types, including card payments, credit transfers,
direct debits, e-money, e-vouchers, e-wallet payments, and money remittance transactions.
These transactions must be reported if they meet certain criteria, such as the payer being resident in the
EU, the payment being cross-border, and more than twenty-five cross-border payments being made to
the same payee in a calendar quarter. Payments from a payer not in a Member State to a payee in a
Member State are considered out of scope.
The main objective is to identify the payee, the fund recipient, and the online B2C transaction seller
responsible for VAT. In most cases, the required information is already available to PSPs. The European
Commission has confirmed that the reporting should be an automated electronic filing in XML format,
submitted quarterly at the transaction level.
If both the payer’s and payee’s PSPs are in the EU, the payer’s EU PSP is granted relief; however, this
relief does not extend to any intermediate EU PSPs involved in payment chains with more than two
parties. The reported information aims to ensure better detection and prevention of VAT fraud in cross-
border e-commerce transactions.
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Data will be transmitted to CESOP by the EN DE
10th day of the second month following the end of the
reporting period.
Identify the payment channels: The companies concerned must identify the relevant channels for in-
scope payments.
Clear identification of the parties involved: It is essential to identify and assign the parties involved via
the various payment channels.
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Intra-group allocation of payment transactions: Companies must ensure that payment transactions are
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correctly allocated to their subsidiaries and/or branches.
Ensuring CESOP compliance according to local requirements: For potential audits, companies must
ensure compliance with CESOP requirements according to local requirements.
Determining the scope of reporting obligations: Companies must clarify to what extent they have
reporting obligations in the different EU Member States.
Observance of data protection requirements: When implementing the new reporting obligations,
companies must ensure compliance with data protection regulations.
Assess current processes and data: Ensure necessary resources and infrastructure are in place to
manage CESOP reporting requirements.
Identify payment channels: Determine all channels used for in-scope transactions.
Perform impact assessment: Assess the impact of reporting data and aggregate eligible transactions
per CESOP-specific instructions.
Implement data quality checks: Establish timely reporting procedures and end-to-end reporting
processes in a standardized XML format.
Address technical prerequisites: Collect necessary data from relevant IT systems and ensure data
protection compliance.
Train and educate employees: Implement training and awareness programs about CESOP requirements
for compliance.
Ongoing monitoring and review: Maintain compliance by regularly monitoring and reviewing systems
and processes.
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Ensure multi-jurisdiction compliance: Establish procedures for timely compliance in all required
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jurisdictions for EU PSPs operating in multiple Member States.
Build data ETL procedures: Assess data quality and create extract-transform-load (ETL) procedures for
tax authorities.
Correct and resubmit data: If a CESOP report fails the data acceptance check, correct the data and
resubmit a new dataset.
Note: Compliance with CESOP is crucial to avoid attracting regulatory attention and scrutiny from local
data protection authorities enforcing the EU GDPR.
Ensuring compliance with the reporting requirements can be challenging for businesses operating
across multiple member states. However, the centralisation of payment data through the CESOP
database will enhance transparency and facilitate a more efficient exchange of information between EU
tax authorities.
By monitoring and verifying the VAT registration of sellers and ensuring appropriate tax declaration in
the respective member states, the EU aims to close the VAT gap and promote a fairer e-commerce
market.
In conclusion, implementing CESOP and the subsequent reporting requirements for PSPs represent a
significant step forward in the fight against VAT fraud in the EU e-commerce sector. As the system
comes into effect, businesses must adapt to these new regulations to ensure compliance and maintain
their competitive edge in the evolving European e-commerce landscape.
For more information on CESOP and the reporting requirements, visit the European Commission’s
official website.
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