Business

EXPERT ADVICE

Europe’s E-Invoicing Compliance Guidelines and You

The following is an excerpt from an 12-page special report, exclusive to ECT News Network,that details the impact of the European Committee for Standardization’s new electronic invoicing compliance guidelines on companies engaged in global e-business, regardless of where they are based. The complete report is available as a free download to ECT News Network subscribers.

Value-Added Tax (VAT) generates approximately one-third of all public revenue in many of the world’s wealthiest countries; in some EU Member States, the VAT contribution to the fiscal mix is close to 40 percent.

Electronic invoicing remains one of the most challenging areas of conducting e-business in and with the European Union. Tax administrations want long-term access to the invoice as the ultimate guarantee of proper VAT treatment of a sales transaction. Businesses, meanwhile, want a seamless and efficient electronic invoicing system that brings value through automation and the robustness of electronic data.

This article introduces the new CEN (European Committee for Standardization) E-Invoicing Compliance Guidelines and explains how businesses can use these guidelines to implement e-invoicing processes with more legal certainty.

Under the current legal regime in the EU, parties have very limited choice in relation to the control methods they use to ensure integrity and authenticity — the focus has been almost exclusively on advanced electronic signatures and a narrowly defined EDI process, thereby excluding many other options available to businesses to ensure auditability. This article and the CEN E-Invoicing Compliance Guidelines seek to redress this by comprehensively addressing all process and technology control options currently available to businesses (even though not all controls or processes may be currently available in all Member States).

Existing Legal Framework for Electronic Invoicing in Europe

The European Commission, which is the Union’s executive body headed by non-elected Commissioners, views e-invoicing as an important driver of economic competitiveness and environmental protection. A Commission proposal for a Directive setting out changes to the invoicing rules of the Value Added Tax (VAT) Directive was formally adopted in 2001 and entered into force on Jan. 1, 2004.

On the Directive level, the rules for e-invoicing are different from paper-based invoicing in one major way: Article 233 of the VAT Directive specifies that Member States must accept electronic invoicing provided taxable persons guarantee the authenticity of the origin and the integrity of their content are guaranteed by one of the following methods:

  1. by means of an advanced electronic signature within the meaning of Section (2) of Article 2 of Directive 1999/93/EC of the European Parliament and of the Council of Dec. 13, 1999, on a Community framework for electronic signatures;
  2. by means of electronic data interchange (EDI), as defined in Article 2 of Commission Recommendation 1994/820/EC of Oct. 19, 1994, relating to the legal aspects of electronic data interchange, provided that the agreement relating to the exchange provides for the use of procedures guaranteeing the authenticity of the origin and integrity of the data;
  3. as a third, slightly different option, electronic invoices may also be sent or made available by other electronic means (read: with or without guarantees of integrity and authenticity), subject to acceptance by the Member States concerned.

Within the three methods above, a number of different implementations exist among Members States.For all other invoices, the VAT Directive in Article 246 lays down functional requirements for safeguarding integrity and authenticity, but no specific methods or technologies for achieving these results are mentioned.

EU Directives are not federal law: They have to be transposed into the national laws of Member States. The result of this transposition process for the 2001 Invoicing Directive was that Member States chose different combinations of Article 233 options. Many Member States transposed options (1) and (2) without option (3), while a few others transposed only option (3). This led to discrepancies among Member States on the level of primary legislation.

Compliance Challenges

The differences in primary Member State legislation that resulted from the transposition of choices in Art 233 of the Invoicing Directive were compounded by variations in tax administrations’ audit practices and among those hard-to-define yet tightly knit fabrics of countries’ general legal and tax cultures, business practices and standards frameworks. Because there are no hard-and-fast rules concerning the applicability of origin and/or destination legal requirements when an invoice crosses an internal EU border, this non-uniform transposition creates legal uncertainty for businesses transacting between Member States.

EU tax administrations typically have audit departments that specialize in the verification of systems and processes utilizing information technologies. When an invoicing process is fully electronic, the underlying systems and processes logically fall within the jurisdiction of such expert auditors. From a business implementation perspective, therefore, there is a lot more to compliant e-invoicing than the few lines about integrity and authenticity-specific measures one can find in a Member State’s law. In theory, a company’s e-invoicing process — after many years of successful operation — may be declared non-compliant by tax auditors based on shortcomings that are hard to relate to explicit statutory requirements.

The combination of these two factors — inconsistent primary law and implicit requirements applied in tax audits — has had a negative impact on investment decisions by businesses. Few tax administrations have channels for companies to obtain certainty prior to implementing an e-invoicing process. Audits or design reviews by tax consulting firms provide no formal certainty either. …

Click here to continue reading this 12-page special report.


Phillip Schmandt is head of the technology practice group at McGinnis Lochridge & Kilgore. Christiaan van der Valk, CEO of TrustWeaver, is Co-Chair of the ICC EBITT Commission’s Task Force on Security and Authentication.

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