Negligence penalty for a third-party filer regarding the information-reporting requirement of payment service providers

This is an unofficial translation into English. The official guidance is available in Finnish and Swedish, the national languages: VH/2702/00.01.00/2023.

The guidance concerns the grounds for imposing a negligence penalty charge under § 22a of the act on assessment procedure (Laki verotusmenettelystä 1558/1995) as regards the information-reporting requirement of third parties that are payment service providers offering services related to cross-border payment transactions.

The guidance applies on reportable periods (calendar quarters) ending on a date when the guidance is in force. 

1 The relevant information-reporting requirement

The primary objective of the legal provisions requiring third parties to report information on cross-border payments is to combat VAT fraud and other types of tax fraud. The provisions establish an information-reporting requirement on payment service providers (PSPs), i.e. payment institutions, issuers of e-wallets and e-money, credit institutions, and other comparable operators.

Under § 29, subsection 7 of the act on assessment procedure for self-assessed taxes (Laki oma-aloitteisten verojen verotusmenettelystä 768/2016), the PSPs referred to in the act on payment service providers liable to report cross-border payment data (Laki rajat ylittäviä maksuja koskevasta maksupalveluntarjoajien tiedonantovelvollisuudesta 659/2023) must provide the Finnish Tax Administration with information concerning cross-border payment transactions connected with the PSP’s payment services in Finland. The act on payment service providers liable to report cross-border payment data contains detailed rules on identifying the third parties that need to report information, on determining the cross-border payments and the reportable information content, on the due dates of reporting, on data storage requirements and on the limitations relating to reporting and storage requirements.

The PSPs in scope are mainly those that offer payment services in more than 25 occurrences to a single recipient of cross-border payments in the course of one calendar quarter.

Legislation on third-party reporting by PSPs is applied in 2024 for the first time. The third parties must submit data electronically for every calendar quarter, the due date of the quarterly report being the end date of the first month of the next quarter. After the Tax Administration has received the reports, the Tax Administration will send them on to the European Commission’s Central Electronic System of Payment information. In the future, the public authorities in charge of anti-fraud measures in each member state will have access to the reported and stored information. 

The text of the act contains no provisions on extensions of the due date for reporting.

The authorities may require a third party to pay a negligence penalty charge not only because of problems related to reporting but also for neglect of the duty of care as referred to in the act. The penalty charge is imposed for a specific report or a specific information flow.

2 Applicable legal statutes

Under § 29, subsection 7 of the act on assessment procedure for self-assessed taxes, the provisions of § 22a of the act on assessment procedure are applied to occurrences of neglect of the reporting and data storage requirements.

In accordance with the provisions of § 22a, subsection 1, of the act on assessment procedure, a negligence penalty of max. €2,000 can be imposed on the third party in the following circumstances:

1. If there is a minor omission or error in the report, other data or document submitted to fulfil the information-reporting requirement or another obligation under chapter 3 of the act on assessment procedure, and the third party had not remedied the errors or omissions although they were requested to do so; or
2. if they submitted a report, information or document late without a valid reason; or
3. if they submitted the information by using a method other than decreed by law or specified by the Tax Administration.

In accordance with the provisions of § 22a, subsection 2, of the act on the assessment procedure, if there are substantial errors or omissions in a return, in other information or in a document submitted by a third party liable to report information, or liable for fulfilling another obligation as outlined in this chapter, or if the third party has committed substantial errors or omissions in a process they are required to carry out, or if the third party had not remedied the errors or omissions until after they were requested to do so, a negligence penalty of max. €5,000 can be imposed on the third party.

In accordance with the provisions of § 22a, subsection 3, of the act on assessment procedure, if the third party has intentionally or through gross negligence submitted a substantially incorrect return, other information or document, with a view to fulfil the third party’s information-reporting requirement, or if the party has failed to submit a report at all, or if the party has intentionally or through gross negligence substantially neglected another obligation under this chapter, partly or in full, a negligence penalty of max. €15,000 can be imposed.

Furthermore, in accordance with the provisions of § 22a of the act on assessment procedure, when the Tax Administration determines the exact amount of the penalty, it considers the extent of the information that should have been reported. The charges are imposed in euros rounded out to even hundreds, i.e., the lowest charge to be imposed is €100.

No penalty charges are imposed on natural persons and estates of deceased persons unless the failure relates to reporting requirements connected to business, agriculture or forestry. No payments of negligence penalties can be claimed as deductible expenses in tax assessment.

In case of non-payment of an imposed negligence penalty for which the due date for payment has passed, the third party liable to report information must pay late-payment interest as referred to in the provisions of § 5a of the act on surtax and penalty interest (Laki veronlisäyksestä ja viivekorosta (1556/1995)). The interest period begins on the day following the set due date, and the accrual of interest will continue until the actual payment date of the imposed charge. No payments of such interest can be claimed as deductible expenses in tax assessment.

3 Rules on defining the grounds for the penalty charge and on determining its amounts

The negligence penalty charge under § 22a of the act on assessment procedure can be imposed if a third party neglects its requirement to report information.  Correspondingly, the penalty charge can also be imposed if a third party has not complied with the rules on data storage. 

The requirement to report information to CESOP is new. For this reason, when any occurrences of neglect during the first reporting year are examined, the Tax Administration will decide on each case separately. When the size of a possible penalty charge is determined and, in general, when any negligence penalty would be imposed during the first reporting year, the Tax Administration will note that the information-reporting requirement is new. In case of problems or unclarities relating to reporting, do not hesitate to contact the Tax Administration.

Separate negligence penalty charges will be imposed for each report that is missing, contains significant errors, or submitted late, as well as for each request for additional information by the Tax Administration for which no acceptable response is received.  When the amount is determined, the factors taken into consideration include whether or not the third party’s neglect has been recurrent, how many specifications or similar items are missing, whether the Tax Administration has sent a reminder message to the third party, whether the reportable information is of financial importance, and the point in time when the third party actually submits its report.  If the report is submitted but a method not compliant with the Tax Administration’s instructions is used, a negligence penalty may be imposed on those grounds as well.

The calendar quarter is the reportable period referred to in the act on payment service providers liable to report cross-border payment data. From this, it follows that the PSP must provide the Tax Administration with the required information after each calendar quarter’s end. If the Tax Administration becomes aware of negligence occurring during one calendar year and relating to several reportable periods, specific penalty charges may be imposed one by one for every report that should have been submitted for each one of the quarter-year periods. The negligence penalty charge can be imposed independently for several different occurrences of neglect. This means that there may be more than one penalty charge for a single reportable period. For example, if the PSP has not complied with data storage rules, the Tax Administration imposes one penalty charge, and if the PSP has also submitted its reports past deadline, the Tax Administration imposes another penalty charge. 

If a third party has intentionally or through gross negligence submitted a report, other information or a document that is substantially incorrect, or has failed to submit a report at all, or has neglected some other responsibility defined in chapter 3 of the act on assessment procedure, partially or fully, the amount of the negligence penalty is max. €15,000.              

For a justified reason, the Tax Administration can reduce the negligence penalty or not impose it at all. For example, when the neglect is minor in view of the circumstances, this can be a justified reason for reducing the penalty charge.

However, the Tax Administration may also impose an increased penalty charge. For example, if recurrent negligence is taking place, it is considered a reason to increase the penalty charge. Negligence is recurrent if, during the year preceding the reporting date, the PSP has neglected to fulfil its requirements in a similar way as it has done relating to the current reporting date. The one-year period is 12 months preceding the reporting date, not necessarily a calendar year.

The size of the negligence penalty for neglecting the data storage rules that concern PSPs is always based on a case-specific evaluation. This negligence penalty is subject to separate decision-making, unrelated to any neglect of the PSPs reports concerning the reportable calendar quarters. The Tax Administration would need to detect an irregularity in the PSP’s compliance with data storage rules, during a tax audit, etc., before a penalty charge for data storage could be imposed.

4 Procedures of imposing negligence penalty charges – information on making an appeal

The process of imposing a negligence penalty is always preceded by arranging an opportunity for the concerned third party to be heard. During a hearing, the third party can provide an explanation of the reason for the party’s neglect of the information-reporting requirement as well as present its views concerning the grounds for the negligence penalty and the amount of the penalty charge. When requesting a third party to remedy an occurrence of neglect, the Tax Administration is under obligation to inform the third party simultaneously of a possible penalty charge to be imposed. A negligence penalty is imposed by a separate decision.

The third parties – and the Tax Recipients' Legal Services Unit – can appeal against a decision made by the Tax Administration on a negligence penalty charge by submitting a written claim for adjustment to the Adjustment Board. The claim for adjustment must be submitted within 60 days of the date when a notice of the Tax Administration’s decision was received. If the appellant is the Tax Recipients’ Legal Services Unit, the appeal period is 60 days from the date of decision. The claim for adjustment must be submitted to the Tax Administration by the end date of the appeal period.