New obligations for payment service providers in Germany

Key Takeaways

In its circular, the German Federal Ministry of Finance (BMF) clarifies many practical questions regarding the new regulations for payment service providers in accordance with Section 22g German VAT Act (UStG), such as whether payments in crypto are also covered. Although the BMF has granted an extension of the deadline for the first report, payment service providers affected should familiarise themselves with the new regulations affecting them now at the latest, introduce appropriate compliance mechanisms and also keep records.

In terms of timing, the BMF points out that the data must be submitted no later than the end of the calendar month following the quarter to which the data relates. This means that the report for the first quarter of a year must be submitted at the end of April. There is a non-objection rule for the first report. In this context, there is no objection if the payment service provider does not submit the information for the first calendar quarter of 2024 until 31 July 2024.

Since 1 January 2024, new recording, reporting and retention obligations have applied to payment service providers in accordance with Section 22 of the German Value Added Tax Act (UStG). The Federal Ministry of Finance (BMF) has also commented on these regulations (BMF letter dated 28 December 2023).

Obligations of payment service providers

Payment service providers whose home or host member state is the Federal Republic of Germany are affected. According to Section 22g UStG, they are obliged to keep records of cross-border payments processed through them and to transmit them to the Federal Central Tax Office (BZSt) if more than 25 cross-border payments are made to the same payee per quarter. This information is then transmitted to a European database, the Central Electronic System of Payment Information (CESOP). From this central database, the data is compared with databases in other European countries.

Section 22g UStG distinguishes between four obligations for payment service providers:

• Obligation to keep records (§ 22g para. 1 sentence 1, 2 UStG),
• Notification obligation (§ 22g para. 4 sentence 1, 2 UStG),
• Correction obligation (§ 22g para. 5 UStG) and
• Retention obligation (§ 22g para. 6 UStG).

The background to this newly introduced German regulation in the VAT Act is the implementation of European Union requirements. The aim is to combat VAT fraud in the European Union.

Content of the BMF letter

In the BMF letter published on 28 December 2023, the German tax authorities set out their position and explain important points of the new regulation. In doing so, the BMF addresses the material scope of the application, the procedure for transmitting the records and, finally, the sanctions for non-compliance.

Material scope of application

The BMF clarifies that any payment transaction that leads to the provision, transfer or withdrawal of an amount of money falls under the term “payment”. It also points out that payments in crypto are not covered.

A cross-border payment within the meaning of the provision only exists if the payer is located in a member state of the European Union. The payee, on the other hand, may be located in another Member State, another EEA country or in a third country. Only purely domestic payments and payments from a third country are not covered. The identification of an international, cross-border payment must always be carried out using the IBAN. Only if this is not available should all other factors be taken into account.

In addition, the threshold of 25 cross-border payments to the same payee in a calendar quarter must be exceeded. The number must be determined individually for each Member State. It should be noted that if the payment service provider has information that the payee has several identifiers with the payment service provider, these identifiers must be aggregated. If the threshold is exceeded, the payment service provider must report all payment transactions to the payee individually and may not only take into account those that exceed the threshold.

Furthermore, the BMF clarifies that the term “payment service provider” only includes

• CRR credit institutions pursuant to section 1 (1) sentence 1 no. 3 Act on the Supervision of Payment Services (ZAG),
• Electronic money institutions pursuant to Section 1 (1) sentence 1 no. 2 ZAG,
• Payment institutions pursuant to Section 1 (1) sentence 1 no. 1 ZAG and
• Postal giro offices,

that provide payment services in Germany.

Procedure for the transmission of records

The records must be submitted completely and correctly to the BZSt at the end of each calendar quarter. Details on the technical aspects can be found in the BZSt data record description and the CESOP communication manual of the BZSt.  

In terms of timing, the BMF points out that the data must be submitted no later than the end of the calendar month following the quarter to which the data relates. This means that the report for the first quarter of a year must be submitted at the end of April. There is a non-objection rule for the first report. In this context, there is no objection if the payment service provider does not submit the information for the first calendar quarter of 2024 until 31 July 2024.

Sanctions

The letter also refers to the threat of sanctions in the form of fines of up to EUR5,000 for failure to comply with recording, reporting or retention obligations.

The indirect tax team in Germany, led by Dr Björn Enders, can support you with queries regarding the new regulations. Get in touch with one of the authors or your usual DLA Piper contact.