Reporting Obligations for Payment Service Providers

19. 4. 2023

On February 18, 2020, the Council of the European Union adopted a legislative package relating to the collection of data on payments with a view to improve the fight against VAT fraud in electronic commerce.

The package consists of the following two legal instruments:

- Council Directive (EU) 2020/284 of  February 18, 2020 amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers; and

- Council Regulation (EU) 2020/283 of February 18, 2020 amending Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation in order to combat VAT fraud.

The new rules will enter into force on January 1, 2024.

As a result of the amendments to Directive 2006/112/ES3, payment service providers established in the European Union will newly be required to report and maintain records of payment processed by them and recipients (payees) of such payments, while the amendments to Regulation (EU) No 904/2010 namely address the development of the central electronic system of payment information (hereinafter the “CESOP”) that will store and process any collected data prior to disclosing such data to individual Member States’ experts in the area of fight against VAT fraud.

The European Commission - Directorate-General for Taxation and Customs Union – has drawn up guidelines for the reporting of payment data from payment service providers and transmission to the central electronic system of payment information, where this area is explained in detail on more than 80 pages.

https://taxation-customs.ec.europa.eu/system/files/2022-12/TAXUD-2022-00763-00-02-CESOP%20CS-TRA-00.pdf

The use of payment information is based on the need to improve the fight against VAT fraud in electronic commerce.

Being European legislation (Directive and Regulation), it must be implemented into legislation of the Czech Republic. A draft amendment to the VAT Act that is based on the aforementioned changes to European legislation will be discussed by the Chamber of Deputies, as Parliamentary File No. 385. It was included on the agenda of the 63rd session from April 4, 2023.

Parliamentary File No. 385/0 (psp.cz)

Entities subject to the reporting obligations:

The reporting obligations only apply to payment service providers defined in Article 243a that provide their payment services in the European Union. Payment service providers that do not provide their payment services in the European Union are not subject to the reporting obligations.

Categories of payment service providers:

a) Credit institutions, meaning, for example, fully licensed banks established in Europe as well as European branches of credit institutions that have their head office outside the EU and that provide payment services;

b) E-money institutions, meaning all payment service providers providing payment services via electronic money (“e-money”), such as electronic wallet providers and electronic voucher/card providers;

c) Payment institutions, which is a residual category that can cover all companies providing payment services that do not qualify for any of the other categories listed in the PSD2. It can include companies that provide payment services such as issuing of credit/debit cards, acquiring of payment transaction, processing of payments, initiation of payments, platforms, which provide payment services and act on behalf of both the payer and payee, etc.;

d) Post-office giro institutions which provide payment services.

The obligation to maintain records thus applies to all payment service providers that provide their services in the Czech Republic. Payment services shall mean cashless transfers of funds using own or external resources in the form of card payments, direct debits or standing orders. What matters is that a transfer of (financial) funds takes place. According to the proposed amendment to the VAT Act, it will be necessary to record data on incoming payments from other Member States and on outgoing payments to third countries. Payment service providers will be subject to the reporting obligations if there are more than 25 cross-border payments executed by a provider in the course of a calendar quarter.

Notifications to be submitted to the Financial Administration of the Czech Republic by the end of the month following each quarter shall include payment service provider’s BIC, name of the recipient (payee), tax identification number (this may not necessarily be a tax identification number assigned for VAT purposes), IBAN or similar identifier that unambiguously identifies, and gives the location of, the recipient (payee), address of the recipient (payee), and other details of cross-border payments, such as date and time thereof.

If no such payments take place, payment service providers are still required to submit a “zero return”. Submissions will take place electronically in the form of data messages with a predefined structure by the end of the month following each quarter (see above) – regardless of whether it is a weekday or weekend.

Payment service providers are required to keep the relevant records in electronic format for a period of three calendar years from the end of the calendar year in which a cross-border payment was executed.

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