Accordance explains how new EU rules are intended to establish a level playing field between paper and electronic invoices

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Accordance, the VAT consultancy, is encouraging companies to be aware of new rules that the EU is implementing next year in respect of e-invoicing and VAT.

“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,” says Andy Spencer, Accordance’s head of consulting. “The EU sees electronic invoicing as a way of reducing costs on businesses thereby increasing the efficiency of EU companies. The new invoicing directive therefore 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 this document and emailing it as an attachment, is this an invoice issued and received in an electronic format or is it now a paper invoice sent electronically?” says Andy. “Which is to be considered the original invoice? Has the supplier inadvertently issued two invoices? There are uncertainties in these circumstances which businesses must be aware of.”

Authenticity, integrity and legibility
Invoices must reflect actual supplies and their authenticity, integrity and legibility should therefore be ensured and it is up to 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

Will one set of procedures to ensure authenticity be acceptable for all tax authorities?
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, for example:

  • In Sweden, the concept of business controls has been in place since before 2003. The 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 taxpayers system.
  • In Portugal, it is currently a requirement to use advanced e-signature or EDI. In addition SAF-T (standard audit file with legally defined data structure). From 2013, business controls/reliable audit trail will replace the requirement for advanced e signature or EDI but the requirements for SAF-T will remain. It will be possible to apply to the Portuguese Tax Authorities for guidance and binding rulings on the controls used – there may be a fee payable.
  • In Poland, it is thought 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.
  • In 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 Authorities will issue binding rulings on request.
  • The Netherlands has accepted business controls since 1992 and they 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.
  • Germany has issued a Draft Circular from the Federal Ministry of Finance saying ‘with the internal control procedures only the correct transmission of the invoices should be ensured’. A proper invoice (e.g. correct service, correct supplier, correct receipt of payment, correct net amount) justifies the assumption that during the transmission no mistakes have occurred regarding the authenticity or integrity of the content. That means the invoice was neither false nor forged or altered in any way; the invoice complies with the service provided. The requirements for the internal control procedure have to be guided by this procedure. In other words, if the invoice is correct, the assumption is that good business controls exist but if the invoice is deficient this is assumed to indicate poor business controls.

Other issues to consider
In respect of ensuring authenticity, integrity and legibility, taxpayers will also have to consider potentially different rules in different Member States for:

  • Storage, conversion from one electronic format to another e.g. TIF to PDF and archiving.
  • 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,” says Andy. “It is, therefore, sensible to take advice where possible.”

Notes to editors:

  • Accordance is a unified VAT Compliance and Consulting practice, with a focus on cross-border transactions.
  • The company provides practical, commercially beneficial VAT assistance to blue-chip companies across the EU and beyond.
  • Accordance assists a full spectrum of international businesses better manage cross-border VAT costs.
  • The company reaches across Europe, but manages all work from an accessible and responsive hub in the UK.
  • Accordance often works with accountants, acting as an ‘outsourced VAT department’ for their clients.
  • The Accordance team includes senior ex-Big 4 VAT personnel, expert European VAT Compliance management, VAT legal specialists, Customs and Duty Experts and VAT savings experts.

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Angela Ward
The Marketing Eye
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