E-commerce sellers beware: payment data analysis imminent – ensure your EU VAT is on point

1. Why the urgency?

The EU Member States will soon have more options to target and audit e-commerce businesses that have not paid or underpaid EU VAT. This may result in increased tax authority scrutiny risk for e-commerce sellers. 

2. What options are we talking about?

Effective 1 January 2024, the EU has introduced a new tax reporting requirement for payment service providers (PSPs). As of this date, PSPs must monitor payees in relation to cross-border payments and report related payment data to the EU Member States. The data will be collected and centralised in a new EU database called the Central Electronic System of Payment information (CESOP), where it will be stored, aggregated and cross-checked with other EU databases. All information in CESOP will be made available to anti-fraud experts of the EU Member States. The goal of CESOP is to detect and combat VAT non-compliance and VAT fraud in cross-border e-commerce by either EU or non-EU businesses. For more details on CESOP, we refer to our previous insight here.

3. Which e-commerce businesses may be covered and targeted by CESOP?

This has a broad scope and covers in principle all businesses selling goods or services to EU based consumers from either another EU Member State or a non-EU country. This may include webstores and online platforms, but also physical stores.

Furthermore, e-commerce businesses may be targeted for a variety of reasons. This could include businesses deliberately not paying or underpaying VAT, but also businesses that are uncertain or uninformed how to collect and remit VAT, for example if they are small businesses or new to the EU market. Also established e-commerce businesses need to make sure they have robust VAT policies and controls in place to manage complex multi-country e-commerce operations, deemed seller regimes, and should be able to reconcile their tax data with payment data reported by PSPs to CESOP upon tax authority enquiries.

4. How do I know if I manage EU VAT for cross border e-commerce correctly?

This highly depends on your business model and operations, as well as on the nature of the goods and services that you supply. However, as a EU VAT e-commerce default, the sale of goods and services direct to consumer is typically subject to VAT in the EU Member State where the consumer lives. EU VAT management for e-commerce is highly driven by the EU VAT rules for e-services that came into force on 1 January 2015 and by the EU VAT e-commerce recast of 1 July 2021. Moreover, the EU VAT rules for e-commerce are subject to further reforms that should be timely addressed by businesses, including new EU VAT rules for livestreaming and virtual events as of 1 January 2025, as well as the EU’s VAT in the Digital Age proposals that are on the horizon for enactment.

5. What are the exact timelines?

CESOP will be a quarterly tax reporting requirement for PSPs. The first reportable period covers Q1 of 2024 and has a reporting deadline of 30 April 2024. The EU Member States should transmit the data to CESOP by the 10th day of the following month, starting 10 May 2024.

Please contact Andy van Esdonk or your regular Bird & Bird contact to further discuss EU VAT management for e-commerce, as well as CESOP, for your business.