New transparency rules will come into force on 1 January, which will help EU Member States fight value added tax (VAT) fraud.

The new rules will provide EU Member States’ tax administrations with information on payments that will allow them to more easily detect VAT fraud, with a particular focus on e-commerce, which is particularly prone to non-compliance and fraud in the sector of VAT. This in turn creates gaps in tax revenue that fund vital public services.

For example, some online sellers without a physical presence in an EU member state sell goods and services to EU consumers without registering for VAT anywhere in the EU or under-declaring the true value of their online sales.

Member States therefore need enhanced tools to detect and stop this illegal behaviour.

More detail

The new system capitalizes on the key role played by payment service providers (PSPs), such as banks, electronic money institutions, payment institutions and postal check services, which collectively facilitate over 90% of online purchases in the EU.

From 1 January, these DPAs will have to monitor the beneficiaries of cross-border payments and, from 1 April, forward to EU Member State administrations information about those who receive more than 25 cross-border payments per quarter.

This information will then be collected in a new European database to be developed by the European Commission, the Central Electronic Information System for Payments (CESOP), where it will be stored, aggregated and cross-referenced with other data.

All information in the CESOP will then be made available to Member States through Eurofisc, the EU’s network of experts in the fight against VAT fraud, which was launched in 2010. This will make it much easier for Member States to data analysis and detection of non-compliant online sellers in the field of VAT, including businesses not established in the EU.

Eurofisc liaison officers are also empowered to take appropriate measures at national level, such as processing requests for information, audits or deleting VAT numbers from registers. Similar provisions are already in place in some Member States and other countries and have had tangible results in the fight against e-commerce fraud.

Athena Papakosta