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New EU rules introduced to tackle VAT fraud

Tax authorities will be able to more easily identify and crack down on VAT fraud following the introduction of new European Union (EU) rules.

A new system of enhanced transparency came into force on 1st January 2024, allowing national tax administrations greater access to payment information.

It is focused on the role of payment service providers (PSPs) – such as banks, payment institutions and e-money providers – that are now required to monitor the payees of cross-border payments.

And from 1st April 2024, PSPs will also be obliged to transmit information on companies and individuals that receive more than 25 cross-border payments per quarter to national tax authorities of EU member states.

The data received will be stored in a new, centralised European database, the Central Electronic System of Payment Information. Here, it will be stored, aggregated and cross-checked with other available data.

The new rules have been introduced with e-commerce in mind. Online sales are notoriously prone to VAT fraud and non-compliance, creating a gap in the amount of tax collected compared with what is due.

Paolo Gentiloni, Commissioner for Economy at the European Commission, said: “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 PSPs 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.”

What does it mean for e-commerce businesses?

Businesses that sell online know their transactions are under greater scrutiny than ever before; with all key details soon to be submitted to the relevant tax authority as a matter of course.

As such, there is nowhere to hide for any seller that may currently be failing to determine, apply and remit tax in an accurate and compliant manner.

The only way to ensure compliance is to accurately determine tax and remit dues in accordance with local regulations. To achieve this, we recommend investing in an automated tax solution that is purpose-built to meet your precise circumstances and objectives.