The amendment to the VAT Act will strengthen control over e-shops and other entities that provide their goods or services to EU countries. It was approved by MPs on 27 October 2023 and is due to come into force at the beginning of 2024. Payment service providers, i.e. mainly banks, will have to start disclosing information on purchases from abroad, or from EU countries, to the tax administration. The latter expects the measure to be more effective in monitoring VAT payments and catching any possible unfairness or irregularities.
Until now, the European Union has lacked a truly effective way to control the payment of VAT abroad. Enforcement has been low, and Member States have lost large amounts of money each year. In 2021, the VAT collection deficit (VAT GAP) in the EU was approximately EUR 61 billion, of which the Czech Republic accounted for EUR 1.362 billion.
Banks in particular will now have to start reporting incoming payments from abroad to the Specialised Tax Office. The latter will track details of the payee, amount, currency, country of origin and other information. The data will be processed by the Central Electronic System of Payment Information (CESOP) and shared with financial authorities across the EU. Typically, the regulation will affect e-shops, but not only them. It will apply to all domestic operators who provide their goods or services to other EU countries.
Unified system can be used when paying foreign VAT
As regards B2C transactions, these entities have two options for declaring and paying foreign VAT. Either they can register in each Member State where they send the goods and file a VAT return, or they can declare all European VAT in the Czech One-Stop-Shop (OSS) return, which in my opinion is the better option, both administratively and cost-wise. The EU is gradually extending the OSS option to all cross-border transactions in goods and services for final consumers (B2C) for situations where the supplier is liable to pay VAT in another Member State.
Banks will incur millions of dollars in costs if the amendment is approved by the Senate and the President
According to the government's explanatory memorandum to the amendment to the VAT Act, the regulation should have a negative impact on payment service providers. The additional costs for them are estimated to be at least CZK 100 million. The amendment will now be submitted to the Senate for discussion and then to the President for signature. As this is a mandatory transposition of European legislation, it is very likely that this new obligation will come into force as early as 1 January 2024.