CESOP: fighting VAT fraud in Online Sales in the EU
The digital revolution has transformed the way we shop, with online transactions becoming increasingly commonplace. However, with this surge in e-commerce comes a growing concern: VAT fraud in online sales. The European Union, recognizing the significant impact of VAT fraud on revenue collection, has introduced new measures to tackle this challenge head-on: CESOP (Central Electronic System of Payment). In a recent interview published on the EC’s website, DG TAXUD experts Costantino Lanza (Deputy Head of the VAT Administrative Cooperation and Legal Issues Unit) and Simone Brogi (Team Leader on Indirect Taxation for IT Systems) shed light on the EU’s efforts.
Costantino Lanza highlights that the VAT Gap within the EU amounted to €61 billion in 2021, and emphasized the need for effective measures to combat fraud, particularly in the realm of e-commerce. He explains how traditional approaches to VAT enforcement struggle to address the challenges posed by online businesses operating across borders. VAT fraud, especially prevalent in online transactions, erodes tax revenues and undermines public services vital for EU citizens. “As VAT fraud, including in online shopping, remains a significant contributor to the VAT Gap, it’s imperative to enhance cooperation between Member States to detect and prevent such fraudulent activities,” he says.
Simone Brogi elaborates on the new Central Electronic System of Payment Information (CESOP) as a game-changer in combating VAT fraud in online sales. By leveraging payment data shared by payment service providers (PSPs), CESOP enables tax authorities to identify and track online sellers more effectively. He emphasizes the importance of starting from the bottom, tracing payments to their origins, and linking them to specific Member States to enhance VAT enforcement. He explains “CESOP revolutionizes our approach by leveraging payment data to trace transactions and pinpoint the origin of online sellers”.
In the context of CESOP, PSPs report transaction data to tax authorities, triggering alerts for cross-border transactions exceeding a specified threshold. This data is then aggregated and analyzed within the CESOP system, empowering Member States to detect suspicious activity and coordinate enforcement actions. “In 2025, we anticipate tangible results from this collaborative effort, with Member States empowered to take coordinated actions against VAT fraud in online sales,” adds Simone Broggi.
Smoothen your CESOP compliance journey
As a compliance solution and payments experts, LUXHUB is well equipped to support PSPs in this upcoming regulatory challenge. The LUXHUB CESOP solution enables the efficient generation of the CESOP reporting file, CESOP feedback files management, and the automated transfer of the requested XML file to the NTA, if available.