EU's new transparency rules to tackle e-com VAT fraud come into effect

The crux of these new regulations lies in the involvement of payment service providers (PSPs), including banks, e-money institutions, payment institutions, and post office giro services. These entities are responsible for over 90 per cent of online purchases within the EU. Now PSPs are required to monitor the recipients of cross-border payments. Starting April 1, they must report to the tax administrations of EU member states any entity receiving more than 25 cross-border payments per quarter.

This data will be centralised in the new European database developed by the European Commission, the Central Electronic System of Payment information (CESOP). Here, information will be stored, aggregated, and cross-checked with other data to identify inconsistencies or potential fraud. CESOP's role is vital in the EU's strategy to close loopholes in tax revenues, which are crucial for funding public services, the European Commission said in a press release.

The issue at hand is the ease with which some online sellers, especially those without a physical presence in an EU member state, evade VAT. These sellers either fail to register for VAT in the EU or underdeclare the value of their online sales. The new system aims to strengthen the tools available to member states to detect and shut down such unlawful activities.

Eurofisc, the EU's network of anti-VAT fraud specialists established in 2010, will have access to all information in CESOP. This access will significantly enhance the ability of member states to analyse data and pinpoint online sellers evading VAT obligations, including those businesses not based in the EU.

Moreover, Eurofisc liaison officials are empowered to take national-level actions, such as information requests, audits, or deregistration of VAT numbers. Similar measures have been implemented in some member states and other countries, proving effective in tackling e-commerce fraud.

“These new rules will play a crucial role in the fight against VAT fraud, which costs EU governments billions in lost revenues every year. By harnessing the information collected by payment service providers such as banks and credit card companies, anti-fraud specialists in member states will be able to more easily and accurately pinpoint and crack down on fraudulent behaviour in the e-commerce sector, said Paolo Gentiloni, European commissioner for economy.

Fibre2Fashion News Desk (DP)