Moving towards a common e-invoicing standard in Europe?
More and more countries globally are implementing mandatory e-invoicing or digital reporting requirements. The requirements differ significantly between countries, with different standards and formats, diverse data fields required, as well as different processes relating to how the invoice and its data are shared with tax authorities and received by customers. In the European Union (EU), the first country that mandated e-invoicing for B2B transactions was Italy in 2019. However, the majority of EU countries are now moving forward with implementing mandatory e-invoicing, either for B2G or for B2B supplies, with some launching pilot programs and others bringing in new legislation to bring in e-invoicing in the next 12 – 24 months.
Diverse reporting requirements but clear direction of travel
In addition to e-invoicing, there are several distinct types of digital near-real time reporting including SAF-T (Standard Audit File for Tax) which is an digital tax audit file that needs to be submitted covered all transactional data (this can be monthly, quarterly or annual), real time data submission (submitting invoice level detail to the tax authority either on the same day or within a few days), through to fiscalisation of retail sales (where mandated government software must be used with point of sales solutions including cash registers to record sales and transmit data direct to the tax authority). Despite the different formats and types of VAT digital compliance filings, the direction of travel for indirect tax is clear – it is digital and real time reporting of transactions and governments are increasingly mandating e-invoicing as the method of obtaining this transactional-level data. The number of countries with e-invoicing mandates across the globe continues to grow every month, and we have now reached a major turning point and critical mass in Europe, as both France and Spain have announced mandatory e-invoicing from 2024 (and it is expected that Germany will follow soon).
VAT in the Digital Age
The European Commission’s “VAT in the Digital Age” initiative (and subject of a current public consultation) is looking at increasing the use of e-invoicing across the EU as well as looking to move towards a more harmonised set of requirements for e-invoicing and cross-border digital reporting. The policy options being considered include:
- A more widespread adoption of digital reporting and e-invoicing requirements across EU
- Fostering the adoption of digital reporting requirements that optimise the use of digital technologies
- Reducing the fragmentation of digital reporting requirements
- Issuing a non-binding recommendation providing a common design for reporting obligations across the EU
- EU member states no longer having to request an explicit derogation for introducing mandatory e-invoicing for B2B transactions
- The introduction of partial (limited to cross-border transactions) digital reporting and e-invoicing requirements
- The introduction of fully harmonised (covering domestic and cross-border transactions) digital reporting and e-invoicing requirements
- Requiring taxpayers to record data about their VAT transactions in a standard pre-determined digital format, which tax authorities can access upon request.
“The time needed for Member States and businesses to implement any IT system will be carefully assessed, notably in relation to digital reporting requirements which might require a longer implementation period. The full implementation of digital reporting requirements might therefore run until 2030 but will depend on the level of centralisation of the IT infrastructure to be built”.
European Commission, VAT in the Digital Age public consultation
While it may be difficult to reach consensus on a single standard for e-invoicing, the real impetus for change and conformity may instead come from collaboration between the countries themselves rather than through legislation or guidance from Brussels. A great example of this is the new version of the French-German e-invoicing standard that has just been released – the Factur-X / ZUGFeRD. This standard has been developed through cooperation between France’s National Forum for Electronic Invoices and Electronic Public Contracts (FNFE-MPE) and Germany’s Forum elektronische Rechnung Deutschland (FeRD).
Could this be the blueprint for a harmonised European e-invoice standard?
Factur-X / ZUGFeRD – the French-German standard
The new versions of Factur-X 1.0.06 and ZUGFeRD 2.2 are technically identical e-invoice formats that can be used in both Germany and France, meeting local requirements in each country (for example the German Core Invoice User Specification (CIUS) "XRechnung” in Germany). In addition, the technical specifications for Factur-X / ZUGFeRD are based on international standards that guarantee interoperability and regulatory compliance (i.e. meeting global and scalable policies, standards and guidelines that enable the exchange of e-invoices across multiple systems, borders and national platforms) including:
- The UN/ CEFACT SCRDM Cross Industry Invoice (CII)
- The ISO PDF/A-3 standard
- The European semantic standard EN 16931 (which specifies technical standards and rules for e-invoicing in Europe).
With one eye on the upcoming French e-invoicing mandate, the Factur-X / ZUGFeRD format is also compatible with the French national e-invoicing platform, ChorusPro, which will be scaled for mandatory B2B e-invoicing and e-reporting for the mandate starting in 2024. The other interesting feature of the Factur-X / ZUGFeRD is that it is a hybrid document that combines both a human readable PDF with machine readable XML language. One of the challenges to businesses is that mandated digital reporting is often a parallel process to issuing invoices to customers and the VAT return that is completed and submitted to a tax authority.
This not only involves duplication of time, effort and data, but also leads to additional complexities in relation to data reconciliation between returns and reporting. Under Factur-X / ZUGFeRD, the hybrid document that is delivered to a customer can be the same that is sent to the tax authority. This is a real game changer for e-invoicing and a step further than Hungary’s recent 3.0 XML schema which aimed to combine the e-invoice document that is sent to the customer and the data that is required to be sent to the tax authority. In addition, the new version of Factur-X / ZUGFeRD includes a standard library of additional invoice data that might be needed for specific business needs or use cases, including incorporating “Order-X” which involves additional business data to allow electronic exchange of purchase orders and payment details to fully digitalise and automate the Procure-to-pay (P2P) process.
"This new level of standardization of a common format electronic invoicing in France and Germany gave us the opportunity to extend the EN 16931 standard to meet 100% of use cases and to develop Order-X, a format intended for order processing, compatible with Factur- X and based on the same dataset”
Cyrille Sautereau, President, National Forum for Electronic Invoices and Electronic Public Contracts (FNFE-MPE)
Use of transactional data by tax authorities
As well as this shift towards a single scalable invoicing and reporting process by national Governments, tax authorities and national e-invoicing forums, we are also seeing this trend driven from businesses themselves. Historically, many businesses wanted a quick local tactical solution to comply with new digital reporting requirements in Europe, for example, licensing a solution from a local software vendor or even simply outsourcing the digital reporting of data to a third-party compliance provider. However, given the number of e-invoicing and digital reporting mandates in place or confirmed on the roadmap, tax and finance leaders are now looking at this strategically and holistically, looking to select and implement a global and scalable e-invoicing solution, as well as digitally transform how they interact with their customers and suppliers.
Whatever the future holds in terms of common standards and how Governments and tax authorities receive and ingest the tax and transactional data, it is clear that they are certainly getting savvier with data and technology and following their own finance transformation projects and digitalization journeys, are starting to run more detailed exemption reporting, analytics, and even AI on the larger data sets that they are receiving. This is used to spot tax errors (in real time under a pre-clearance model, or during an audit), as well as to highlight and profile higher risk taxpayers in relation to errors, omissions and fraud. Tax authorities are also starting to use the data they are receiving through e-invoicing and digital reporting to pre-populate VAT returns (e.g. the Annual VAT return in Spain produced by the tax authority based on the transactional data submitted under the SII). It is anticipated that the preparation of the VAT return as we know it will disappear, and taxpayers will review, edit and augment VAT returns pre-prepared by the tax authority.
Get in touch now and speak to one of our indirect tax experts to see how Avalara can assist with e-invoicing and digital reporting.
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