Background and overview about EU legislation

In 2020, the European Council adopted Council Directive (EU) 2020/284 which amended the VAT Directive. As EU Directives have to be transformed into national law, each EU Member State must implement these changes into national law. According to this underlying Directive, with effect from 1 January 2024, certain payment service providers (PSPs) are obliged to retain and transmit to the EU authorities sufficiently detailed records of certain cross-border payments. The overall aim of this Directive is to enhance administrative cooperation in the fight against fraud. This aim shall be achieved by collecting the data through the PSPs which subsequently shall come together in a newly established Central Electronic System of Payment Information (CESOP) managed by the European Commission. It remains to be seen how the data can efficiently be analyzed, considering that each Member State shall be granted access to CESOP. Supposedly, the data contained therein shall help the EU Member States to detect VAT fraud, in particular in the e-commerce sector. Member States are currently implementing the respective national legislation. In Germany, the Annual Tax Bill 2022 contains a newly introduced Section 22g in the German VAT Act ("Umsatzsteuergesetz", "UStG"). According to this new rule, certain PSPs that provide payment services in Germany are obliged to report specific information relating to cross-border payments to the German Federal Central Tax Office. The German Federal Central Tax Office will temporarily store and transmit the data to CESOP.  

In depth: New Section 22g German VAT Act

I) For which PSPs are the new documentation and reporting obligations applicable?

Payment Service Providers ("Zahlungsdienstleister") are legally defined in Sec. 22g (7) of the German VAT Act; the legal definition for VAT purposes is closely linked to the definition under the German Payment Services Supervision Act ("Zahlungsdiensteaufsichtsgesetz") and various regulatory EU Directives. In essence, the definition covers:

• Banks, e-money issuers and payment institutions which are headquartered in Germany or non-German entities which have established a branch office in Germany - in each case if they provide payment services out of these locations
• Certain exempted payment services providers whose annual volume of processed payments does not exceed EUR 3 million (or a lower amount determined by their home member state - no such exemption exists under German law)
• Banks, e-money issuers and payment institutions from other EU member states which are headquartered outside of Germany, which do not have a branch office in Germany, and which provide payment services on a cross-border basis into Germany or via German payment services agents. 

With regard to the definition of the payment transactions that trigger the corresponding documentation and reporting obligations, Sec. 22g German VAT Act refers to Sec. 675f(4) of the German Civil Code. Accordingly, this covers bank transfers (credit transfers, standing orders, direct debits) as well as card transactions and according to our assessment, also e-money transfers between wallets. In addition, the reporting obligation also applies to money remittance, an essentially cash-based payment service.

II) What has to be collected and reported?

The catalogue of data to be collected, recorded and reported is defined in Sec. 22g(1) German VAT Act. Inter alia, PSPs must record the following: Name of payee, VAT ID, every other tax number, address of payee, IBAN of payee, BIC of PSP in certain situations, payment related data such as date and time, payment amount and currency, Member State from which the payment originates or into which it is made as well as information as to how the Member State was identified, every reference to the payment expressly mentioning that payment, and where applicable, the reference that the payment was made in the facilities of the payer.

III) Which payments are covered? Which PSP has to report?

The documentation and reporting obligations are only applicable in case of cross-border payments. A cross-border payment is given in case of payments made by a payer located in an EU member state (with the exception of the areas referred to in Article 6 of Directive 2006/112/EC) to a payee located in another EU member state or in a third country territory. Whether this is the case will be determined on the basis of the IBANs of the payer and the payee or in the absence thereof any other unique identifier. This may give rise to interesting discrepancies, e.g., where holders of an account have their account in a different country.

The reporting obligation arises if the PSP carries out > 25 cross-border payments to the same payee per calendar quarter. 

In principle, the reporting obligation lies with each involved PSP. An exception applies to the PSP of the payer, if at least one of the PSPs of the payee is based in the European Union in order to avoid duplicate reporting.

IV) When has the report to be filed?

Within one month after the end of each reporting period (calendar quarter), i.e., 30 April, 31 July, 31 October, 31 January.

In the event that a filing was incorrect or incomplete, the correction must also be filed within a month after the error was discovered.

V) How long do PSPs have to retain the data collected?

Three years after the end of the calendar year in which the payment was processed.

VI) Penalties

PSPs can face an administrative fine (EUR 5,000 per violation) according to Sec. 26a German VAT Act, in case:

• The filing is incomplete, incorrect or not submitted in due time
• The correction is incomplete, incorrect or not submitted in due time
• The relevant documentation is not retained for three years

Recommended Actions

First of all, considering that Sec. 22g will immediately enter into force on 1 January 2024, PSPs should bear in mind that - according to the information currently available - there will be no transition or "grace" period. Because of the regulatory background and the potentially complex analysis to assess whether/to which extent PSPs have to comply with the new documentation and reporting obligations, PSPs should start a corresponding analysis. 

Additionally, PSPs should ensure that the relevant data is (technically) available, retained for the relevant period and that the relevant data can be transmitted via the relevant interface or whether any new technical solution has to be implemented. As with any other reporting and filing deadline, PSPs should ensure that the relevant filing deadlines are being met by implementing adequate in-house reporting regimes.