Payment processors in Romania must comply, starting January 1, 2024, with the obligations established at the European level to monitor and report quarterly information on cross-border payments. It is about new reporting at the EU level, for which data will be transmitted at the transaction level in electronic XML format.

The main role of this new reporting, called Central Electronic System of Payment Information – CESOP (from the English name Central Electronic System of Payment Information), is to fight VAT fraud in e-commerce, an area that traditionally risks losing VAT revenue. Thus, the information transmitted by payment service providers will be centralized in the European CESOP database, where it will be analyzed by anti-fraud experts.

In other words, payment service providers will participate in the tax authorities’ efforts to combat tax evasion and fraud in online commerce by reporting relevant information that will facilitate the monitoring and identification of non-taxable activities.

What conditions lead to the obligation to report?

In order to monitor and verify those payment transactions that may indicate significant economic activity (which may be associated with the loss of VAT to the state budget), the European legislator has established a number of criteria that lead to the obligation to report:

• The payer is located in the European Union
• The payment is cross-border (the payer is in a member state and the beneficiary is in another EU member state or in a third country)
• More than 25 payments were processed to the recipient in the same calendar quarter.

Who is required to report? As a rule, the reporting obligation rests with the payee’s payment service provider. However, if this payment service provider is located in a third country, the reporting obligation rests with the payer’s payment service provider.

Therefore, for correct reporting, it is essential for payment service providers in Romania to follow the conditions that trigger reporting obligations, including the payment threshold of 25, to report the necessary data if beneficiaries in Romania receive payments from other Member States or if it processes payments from in the name of the payer in Romania to beneficiaries registered in a third country.

For which target organizations?

You can say simply payment processors, but for better identification it is important to list them: credit institutions – banks, financial institutions, leasing institutions that issue electronic money, payment institutions, postal transfer institutions that provide payment services. In practice, the new rules will be most affected by banks, providers of card payment systems, as well as online platforms and trading platforms that hold funds on behalf of their customers.

We emphasize that payment service providers that process payment transactions of less than EUR 3 million annually are also subject to CESOP reporting.

Reporting conditions and type of reported data

According to the rules established at the European level for CESOP, reporting will take place quarterly starting from January 2024, at the latest by the end of the month following the calendar quarter. Thus, for the first quarter of 2024, the data must be sent to the Romanian authorities no later than April 30, 2024.

Information reported at the transaction level includes, but is not limited to, BIC code, payee information, payment or chargeback information, and payer location information.

Steps to prepare for CESOP reporting?

The CESOP reporting obligation is provided for in the European Directive 2020/284, which must be transposed into national law by the end of this year and will enter into force on January 1, 2024.

Given the short reporting timelines and the fact that the new obligation will only come into force in a few months, we recommend that payment processors falling within the scope of CESOP reporting already start their preparations in this regard.

For accurate and timely reporting, pending the legislative draft implementing the European Directive, payment processors should proactively begin implementation steps to ensure that at the beginning of next year they are aware and ready to report in accordance with the requirements, requiring:

• understand the new requirements and train your staff on CESOP reporting;
• identify all payments and transactions subject to reporting, including being able to determine the conditions that trigger reporting;
• assess the quality of the data, specifically whether the data required for reporting is available, is collected consistently for all transactions, or is complete and correct;
• configure ERP systems or find solutions to be able to extract the necessary data and report on it in XML format;
• create control procedures to check the accuracy of the data before sending the XML file to the tax authorities.

January 2024 is just one step away if we think about what it means to prepare for tax reporting at the operational level. We recommend all entities processing payments in Romania to start the necessary analysis to determine to what extent the new reporting is incidental to them and how to prepare to be able to report CESOP from 2024.

The article is signed by Florina Paring, Director of Indirect Taxes at EY Romania and Oana Popescu, Manager of Indirect Taxes at EY Romania