Navigating CESOP – Unlocking EU payment services compliance

What is CESOP?

CESOP (Cross-Border Electronic Services of Payment) is a forthcoming EU regulation set to take effect on 1 January 2024 and the first returns are due by 30 April 2024. It mandates that Payment Service Providers (PSP) report payment transactions where the payer is located within the EU, and the payee is based in a second country (whether in or out of the EU). The purpose behind CESOP is to combat VAT fraud on cross-border transactions.

Who could be affected?

The CESOP rules could affect businesses that provide a payment service in the EU including:

• Banks and other credit institutions
• E-Money institutions
• Post Office Giro institutions
• Payment institutions
• Intermediaries or marketplaces

The CESOP rules could also affect UK businesses who have licence to operate in the EU (for example, where one has a licensed EU branch).

What are the implications of CESOP?

While the new EU rules are intended to provide better tools to the tax authorities for tackling VAT fraud, they will place an additional compliance obligation on PSPs to report on relevant payment transactions originating from the EU.

The rules regarding who should report each transaction are not straightforward and depend on whether the transaction falls within the scope of CESOP (for example, whether any de-minimis applies), the mechanics of the transaction (e.g., credit card transactions, e-wallet, marketplace, etc) and the location of the other parties involved in the payment transaction. This means that there are a number of permutations of transactions that PSP businesses need to factor in to identify their reporting obligations - a complex process.

As part of the reporting obligation, PSPs will need to share certain data concerning the payee and the details of the payments.

While there are currently no specific penalty provisions laid out in the EU law, PSPs should consider the local country's rules for any local penalty implications for failing their reporting obligations.

Next steps

For any PSP operating within the EU, understanding CESOP's intricacies is crucial. It's time to explore the nuances of CESOP compliance and take proactive steps to safeguard your business's future.

If you consider your business could be impacted by CESOP, you may wish to consider undertaking the following:

• Scope Assessment - to determine if CESOP applies to your business
• Transaction Analysis - we can help you understand the criteria for transactions falling under CESOP's reporting requirements, who reports the transactions to the tax authorities as well as well as the administration aspects of what to report, etc
• Readiness Assessment - whether your business’s systems have the capability to comply with CESOP or whether additional solutions are required
• Implementation Assistance - we can assist your business in meeting the CESOP requirements by working with solution providers for your business

Our team of financial services VAT experts would be happy to discuss how you plan to cope with CESOP reporting so please get in touch with Aditi Hyett, or your usual contact at BDO.