Changes to EU VAT rules mean paper invoicers will not be penalised by refusal to adopt electronic invoices, says Andy Spencer
The new rules on e-invoicing and VAT that the EU is implementing this month will create a level playing field between paper and electronic invoices. There are many benefits to companies that use e-invoicing to alert business partners of their billing and payment information; including time and cost savings.
Changes to EU VAT rules mean paper invoicers will not be penalised by refusal to adopt electronic invoices, says Andy Spencer
The new rules on e-invoicing and VAT that the EU is implementing this month will create a level playing field between paper and electronic invoices. There are many benefits to companies that use e-invoicing to alert business partners of their billing and payment information; including time and cost savings.
From an EU perspective, electronic invoicing is seen as a way of reducing costs on businesses, thereby increasing the efficiency of EU companies.
The new invoicing directive contains detailed rules for the implementation of electronic invoices to ensure that there is a level playing field between paper and electronic invoices.
What is an electronic invoice?
For the purposes of this new directive, ‘electronic invoice’ means an invoice which has been issued and received in any electronic format.
Where a computer system creates an invoice and stores it as a PDF, which is then transmitted to the customer, then this will be an invoice which has been issued and received in electronic format and there is no question that the invoice transmitted electronically is the original.
However, if a supplier creates an invoice on their computer and then prints this off before scanning the document and emailing it as an attachment, they must ask the question whether this an invoice issued and received in an electronic format or is it now a paper invoice sent electronically.
Which is to be considered the original invoice? Has the supplier inadvertently issued two invoices? There are uncertainties in these circumstances which businesses must take into account.
Authenticity and legibility
Invoices must reflect actual supplies and their authenticity, integrity and legibility should therefore be ensured. It is the responsibility of each taxable person to ensure that the invoice information being exchanged reflects an actual supply.
How this is done is the choice of the taxable person. Business controls can be used to establish reliable audit trails linking invoices and supplies, thereby ensuring that any invoice (whether on paper or in electronic form) complies with those requirements.
The authenticity and integrity of electronic invoices can also be ensured by using certain existing technologies, such as Electronic Data Interchange (EDI) and advanced electronic signatures. However, since other technologies exist, taxable persons should not be required to use any particular electronic-invoicing technology and the new rules state that options should not be restricted by member states.
Tax compliance At first glance the flexibility in the directive may appear to be beneficial but different member states have different rules in existence already for e-invoicing. As illustrated in the diagram above, policies vary across the EU.
Other issues to consider
Unlike most of the EU directives, the new rules do not require businesses to make any changes to their business unless they want to.
Companies are under no obligation to implement e-invoicing but the effect of this directive is that EU governments who could previously impose conditions to use e-invoices in future will not be able to do this once the directive come into force.
If your business does not already use electronic invoicing, consider the benefits that it could bring to your business and weigh them up against how your existing business processes would handle the implementation of this EU directive.
Would your existing systems be capable of producing electronic invoices and accurately tracking these for audit trail purposes? If you have branches/subsidiaries elsewhere in the EU, would you have a system in place to implement electronic invoices?
In respect of ensuring authenticity, integrity and legibility, taxpayers will also have to consider potentially different rules in different member states, covering the following:
storage, conversion from one electronic format to another, ie, TIF to PDF and archiving; and
customer agreement to electronic invoicing, the procedure for refusing to accept an electronic invoice, amendments/credit notes, self-billing and other similar issues.
This is a complex area and, as can be seen, there are different rules in different countries. It is, therefore, sensible to take advice where possible.
Netherlands
Business controls have been accepted since 1992 and the Dutch say they expect that a company is in control (by internationally accepted standards) and is able to demonstrate this within a reasonable time. It is unlikely that the Netherlands will issue guidance notes, binding rulings or certification.
Portugal
Has to use advanced e-signature or EDI, in addition to SAF-T. From 2013, business controls/reliable audit trail will replace requirement for advanced e-signature or EDI but SAF-T will be compulsory. It will be possible to apply to Portuguese tax authorities for guidance and binding rulings on controls used. A fee may be payable.
Germany
The Federal Ministry of Finance has issued a draft circular stating that ‘with the internal control procedures only the correct transmission of the invoices should be ensured’. A proper invoice (eg, correct service, supplier, receipt of payment, net amount) indicates that during the transmission no mistakes have occurred regarding authenticity or integrity of content.
Sweden
The concept of business controls has been in place since before 2003. Current Swedish law says ‘it is for the seller and buyer to decide what is needed to make an electronic invoice reliable’. The Swedish authorities are not expected to issue guidance and will not provide certification of a taxpayer’s system.
Poland
It is likely that the law will refer to EDI, a signature and business controls. It is thought that there will be no intention to issue binding guidance or certification.
Italy
It is thought that business controls will only be available to businesses with structured organisation and internal control mechanisms which will include a user manual of the business controls used. Other businesses using electronic invoicing will still be subject to advanced signature or EDI. The Italian authorities will issue binding rulings on request.
Andy Spencer, head of consulting at VAT compliance and consulting practice, Accordance
