CESOP 101: 10 things to get started with the new regulation
What is CESOP all about? Who’s concerned by this new European regulation and reporting? What are the biggest challenges for entities in scope? We’ve cooked for you’re a list of 10 key questions, with straightforward answers!
#1 What is CESOP and what does it stand for?
It stands for Central European System of Payments. CESOP is a new European regulation, which aims at detecting possible VAT fraud in the context of cross-border transactions.
It will enter into force on January 1st, 2024, in all Member States.
#2 Who’s concerned by CESOP?
Payment Service Providers – Credit institutions, EMIs, Payment Institutions and Post office giro institution – will have to report cross- border transactions data to their local National Tax Administration – and potentially to several international NTAs.
#3 What do they need to report?
CESOP concerns EU or non-EU payees that receive more than 25 cross-border payments during a quarter.
The following data elements should be included in the CESOP report:
- Reporting PSP BIC/ID
- Sending PSP BIC/ID
- Payee name
- Payee VAT ID/TIN
- Payee account ID
- Payee Address
- Payer location information
- Refund Y/N
- Transaction date/time
- Amount
- Currency
- Payee country
- Transaction ID
- Physical presence
- Payment method
- Payment origin country
#4 How do they need to report these transactions?
Data must be transmitted to NTAs in a well-defined XML format, following standards and data fields defined by the European Commission.
The EC developed a Validation Module, allowing the cross-check of the XML file against the XSD (XML Schema Definition) and therefore making sure the data file is compliant and will be successfully submitted to CESOP.
#5 How many times per year do they need to report?
The CESOP regulation enters into force on January 1st, 2024, meaning that PSPs will have to start collecting transactions on less than two months.
They will have to report to the NTAs at the end of each quarter. The first ever CESOP report is therefore to be transmitted by April 30th, 2024.
PSPs need to keep in mind that April 30th deadline concerns the last step (the NTA transmitting the file to CESOP). It is therefore necessary for PSPs to transmit the file to their NTA at least 10 days before, keeping in mind that changes/corrections might be requested.
#6 What if they do not send the report on time?
Important fines will be imposed to PSPs, depending on each country. Several of them have already communicated the amounts of such fines. It goes up to 4,000,000€ for non-compliance with the regulation. Other countries, on the other hand, will impose fines for each reported error.
#7 What are the PSPs’ main challenges?
The identification of the different data sets that must be collected is the first obvious challenge for PSPs. In other words, they need to make sure that all required information is available within their internal systems to be able to create the necessary report.
Then, finding out in which Member State to report represents an important challenge. There are some specific rules to define the location of the payee and/or payer and thus the reporting country.
The technical challenge – the production of the XML report file – and especially the respect of the aggregation rules, file size, file naming conventions, etc. must not be overlooked.
#8 What’s going to happen with the data PSPs send to their NTAs?
The information collected will be stored in a European database, where it will be aggregated and cross-checked with additional European databases. Finally, these pieces of information will be made available to anti-fraud experts in the Member States, via the Eurofisc network.
Back in 2015, VAT fraud accounted for around 5 billion euros: it has become a key topic for the European Commission.
#9 How can LUXHUB support PSPs with CESOP?
With LUXHUB CESOP, the Luxembourgish company developed an efficient reporting engine that will first check and pre-process input data to ensure that the needed data is comprehensive and valid.
Then, it will filter and convert the transaction data in scope into XML report files, following the technical specification provided by CESOP and pre-validate these files using the CESOP official validation tool.
Finally, after receiving feedback from the NTA and/or CESOP system, our reporting solution will also process the returned error messages to help generate the corrected reports.
#10 Why trust LUXHUB with my CESOP compliance?
As a compliance solution and payments expert, LUXHUB is well equipped to support PSPs in this upcoming regulatory challenge.
LUXHUB emerged in the wake of PSD2, providing an internationally recognized and efficient PSD2 XS2A solution. It also specializes in financial data aggregation and payment initiation.
Moreover, LUXHUB’s shareholders are banks located in Europe, with solid foundations and a clear vision that is to shape the future of finance, through digital and mutualization.