France - EU “CESOP” Directive: Strengthening the Fight against VAT Fraud through the Transparency of Cross-border Payments

Background and Objective of the CESOP Directive

The CESOP Directive is part of an effort to strengthen the fight against VAT fraud in the EU, in particular in response to the rise of cross-border e-commerce. The latter, although beneficial for the European internal market, has also opened up loopholes allowing some companies to avoid their tax obligations, thus distorting competition and causing significant revenue losses for Member States.

The main objective of the CESOP Directive is therefore to provide the tax authorities of the Member States with effective tools to detect and prevent VAT fraud. By requiring PSPs to keep detailed records of cross-border payments and share them with tax authorities, the directive aims to increase the transparency of financial transactions within the EU.

Detailed Obligations for Payment Service Providers

Record keeping

PSPs are required to maintain an electronic register detailing the beneficiaries and payments related to the payment services provided. These records must be kept for three years after the end of the calendar year of the transaction.

Scope of application

This obligation applies to PSPs operating from France or offering services in France, whether based on French territory or operating there through branches or agents.

Article 286 sexies of the French Tax Code establishes an obligation for payment service providers to report to the administration all payment transactions to beneficiaries who have received more than twenty-five cross-border payments, from another Member State, during the previous calendar quarter.

PSPs need to define rules in order to identify the operators to be declared.

Data Reporting and Transmission Procedure

The information recorded must be sent to the French tax authorities at the end of the month following the quarter to which they relate. The transmission is done through a standardized XML file, prepared in accordance with the specifications published by the tax authority.

The schema is strict and involves formatting the data beforehand.

Implications for Cross-border E-Commerce

By imposing these new reporting obligations, the CESOP Directive aims to eliminate the undue advantages that some businesses could obtain by evading VAT. This should contribute to creating a fairer competitive environment for companies that comply with tax rules and to ensure an adequate fiscal contribution to the financing of public goods and services in the EU.

The administration will thus be able to more easily monitor compliance with the thresholds relating to the European franchise regime or distance sales. It will also be able to detect users who declare themselves as non-taxable individuals when the volume of transactions is significant.

The Role of Cyplom Avocats in the Declaration Process

At Cyplom Avocats, we understand the complexity and challenges that compliance with the CESOP directive represents for payment service providers. That is why we offer our services to support PSPs in preparing and submitting the necessary files on the tax administration portal. Our expertise in European financial and tax regulations allows us to offer tailor-made assistance, ensuring that our clients comply with their legal obligations while optimizing their reporting process.

Conclusion and Perspectives

The CESOP Directive is a significant step towards greater financial transparency in the EU. Payment service providers now play a crucial role in the fight against VAT fraud, which requires rapid adaptation to these new regulatory requirements.

The collective effort to strengthen transparency and tax compliance in the cross-border payments sector is essential to secure tax revenues and support the European single market. The CESOP Directive represents an important step in this effort, underlining the shared responsibility of economic actors and authorities in the fight against tax evasion.

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