Payment service provider’s information obligations on cross-border payments

From 2024 onwards, payment service providers will be obliged to keep additional records and report quarterly on payments that meet all of the following criteria:

  • payment services were provided in relation to the same payee during a quarter,
  • the total number of payments per payee exceeded 25 payments per quarter,
  • the payer is based in one EU country and the payee in another Member State or a non-Community country.

The first report must be submitted in the e-service environment of the tax authority or via X-road by 30 April 2024 at the latest. Subsequent deadlines are at the end of the month following the quarter, i.e. 31 July, 31 October, etc. A non-resident reporting agent must first apply for registration as a non-resident in Estonia.

The collected payment data will be exchanged between EU tax authorities via the central electronic payment information system (CESOP) in order to reduce fraud in cross-border e-commerce.

Country-by-country report must soon be submitted

Estonian tax resident members of large groups whose financial year ended on 31 December 2023 must notify the Estonian Tax and Customs Board of the entity who will submit the country-by-country report and its tax residence by 30 June 2024 at the latest.

A country-by-country report (CbC report) is a report concerning an international group of companies, which contains information on the group’s income, profit/loss, income tax paid and accrued, share capital, retained earnings, number of employees and tangible assets, as well as the main activities of the group members. The country-by-country report is filled in separately for each country in which the group operates. The report must be submitted by a group whose consolidated income in the previous financial year was at least €750 million.

A country-by-country report is typically submitted by the group’s parent entity or another entity designated by the group. An Estonian company belonging to a large group must inform the tax authorities which member of the group will file the country-by-country report and where the entity who will submits the report is a tax resident.

Deadline for filing annual report of the branch is approaching

According to the Income Tax Act, a non-resident legal entity with a permanent establishment registered in Estonia must submit a signed copy of the annual report of the permanent establishment to the Estonian Tax and Customs Board within six months after the end of the financial year.

The annual report must include at least the following:

  • management report, which also describes the activities of the permanent establishment in Estonia,
  • balance sheet,
  • income statement (statement of revenue and expenditure),
  • confirmation (signature) by authorised representative.

The deadline for filing the annual report is 30 June 2024 if the financial year ended on 31 December 2023.

Restructuring of business activities and associated tax and other risks

Changes in the economy also bring the need to review day-to-day business processes. The issues involved in restructuring a business are complex, and if they are not taken into account, they can be costly later on. Increasing efficiency, centralising or cutting costs can mean much more than discussing a separate accounting principle, applicable price or the taxation of a transaction.

It is important to understand whether, for example, when a transaction chain is restructured, it is also necessary to dispose of inventories, transfer customer contracts and value assets. Will other assets, including intellectual property, be transferred? This type of restructuring is often done within a group, which means that transactions are carried out between related parties, and potential changes in the pricing of transactions and their justification from a transfer pricing perspective need to be considered. It is also necessary to consider whether to the transfer price documentation must be updated. Sometimes, a foreign group needs a VAT number, registration as an employer, permanent establishment or business licences in Estonia when the situation changes.

Our advisors are ready to think along with you to map out the risks and find solutions to mitigate them.

Write-off of an interest claim and delays in tax proceedings

In case 3-21-2715/22, the Tallinn Circuit Court analysed a situation where the tax authority had imposed an obligation to pay excise duty on a company and submitted an interest claim. The company became liable to pay excise duty when fuel was detected in a trailer located on the company’s territory during state supervision. The company paid the excise duty demanded by the tax authority, but requested that the interest be written-off or disregarded due to an unjustified stoppage of the proceedings.

The Circuit Court found that subsection 114 (3) of the Taxation Act, which was the legal basis for the contested decision of the tax authority, is not applicable. The appropriate legal provision for the cancellation of interest is subsection 119 (5) of the Taxation Act, but it does not lead to the invalidity of the decision in this case. The Circuit Court stated that it is clear from the explanatory memorandum concerning this subsection that the application of the legal rule presupposes that the taxpayer itself has complied with all orders of the tax authority in due time and has not otherwise knowingly contributed to the delay in the proceedings. As the company’s representative requested several extensions of the deadlines during the proceedings, it cannot be considered that this precondition has been met.

Furthermore, the Circuit Court found that in the present tax proceedings, the actions of the tax authority cannot be judged solely by the amount of time it would have taken to measure the fuel in one trailer, but the tax proceedings must be viewed more broadly. During the proceedings, other tanks were inspected on the company’s territory in addition to the disputed tank. Thus, during the proceedings, the tax authority also carried out other operations and did not measure the fuel in only one trailer. Therefore, the Circuit Court found that, despite the deficiencies in the reasoning identified by the Administrative Court with regard to the delay, the tax authority reached the correct conclusion. The Circuit Court ruled that the company had to pay the full amount of the interest claimed by the tax office, and the costs of the company was also ordered to pay the costs of the proceedings.

More information about the judgment can be found here.