EU to start electronic invoicing and archivingAugust 1, 2013
In its strategy for 2020, the European Commission (EC) stated that electronic invoicing should become the primary method of invoicing in the future. The EC believes that all member states need to revise existing burdens and barriers to the uptake of the technology, since it can help businesses reduce costs and be more competitive.
As a consequence, on 1 January 2013, the legal framework governing e-invoicing was simplified by means of the local implementation of Directive 2010/45/EU, and more flexible rules on invoicing came into force in the EU.
However, not every member state has implemented the rules in full yet. In this article, we share the current implementation status of e-invoicing in the EU and a client success story related to accounts payable.
Under the new rules, paper invoices and electronic invoices should be treated equally. In light of the EC’s objectives, the directive prohibits the EU member states from requiring the use of a certain technology to send or receive invoices electronically. However, the client’s acknowledgement of the receipt of an electronic invoice remains a prerequisite.
EU implementation overview of Directive 2010/45/EU
As of 8 May 2013, nearly every EU member state had transposed the directive into domestic legislation, but few of them had commented on the actual implications of the new legislation in their territory.
Although the format and the technology used to transmit the invoices can be chosen freely, businesses are required to demonstrate that the technical solution they have adopted ensures:
- The authenticity of the origin
- The integrity of content
- The legibility of the invoice
The focus for businesses to guarantee these three items has been shifted to internal business controls, technology or a combination thereof. Therefore, the ability for businesses to prove that they are in control of the entire invoicing and archiving process will become even more important in the future.
Taking this into account, businesses will need to ensure that their technology and processes are up to the challenge. They will need to assess, document and, where necessary, improve their internal processes and the technology used for issuing, receiving and storing electronic documents to ensure that they can meet this requirement. The tax authorities will have the power to audit the existence of adequate “business controls” during a tax audit.
Businesses that have accepted the possibility of sending and/or receiving electronic invoices should consider without delay how they are going to meet the conditions of authenticity, integrity and legibility and be able to demonstrate to the authorities that they have done so.
The concept of “business controls” is new for VAT. Numerous tax authorities are discussing with businesses what is at stake. However, even if they publish guidelines commenting on the practical impact of transposing the directive into their domestic legislation, they will need to be careful not to reinstate the differences between countries’ systems that the new rules were meant to tackle.
Case study: Borealis
EU-based company Borealis explains how it has successfully introduced electronic invoicing and archiving for accounts payable.
Plastic producer Borealis introduced electronic invoicing in 2011. Since then, more than half of its suppliers have adopted its electronic invoicing solution. Eddie Van den Eede, European Head of the Accounts Payable department, explains why Borealis introduced e-invoicing and points out the drivers for the success of the project.
Ernst & Young: How does your paper invoicing process work?
Eddie Van den Eede: As in most companies of our size, the paper invoicing process is a well-oiled process. We receive a paper invoice by regular mail from our suppliers. The invoice is manually scanned. Software which makes use of optical character recognition reads the relevant information and stores it into our ERP system. The scanned data is subsequently processed by the accounting department. We archive our documents electronically.
So that sounds very efficient. What was the main reason for the transition to an electronic alternative?
Cost savings. A paper invoice quickly costs the supplier €3 per invoice, and for us this amount can rise to €4 per invoice. I look at it this way: with paper invoices a lot of actions have to be carried out. At the premises of the supplier the invoice is printed, put in an envelope, stamped and posted.
The client sorts its mail, opens the envelope and scans the invoices manually. What is the result? An electronic image of the invoice which may not even be optimally readable.
If you abolish that whole paper detour, an important cost reduction, higher efficiency and improved quality can be realized.
How did the implementation of the project go?
The technical implementation of the e-invoicing project was rather straightforward. It took an IT programmer just two days to enable our ERP system to accept invoices in a PDF format. Since then our suppliers can simply send PDF invoices to one of our dedicated servers.
The real challenges lay elsewhere. First of all, we had to make sure that what we were doing was in line with the expectations of the authorities. For this reason, we decided to first roll out the project in Sweden, Finland, Belgium and Germany. In these countries, it was already acceptable to send PDF invoices by email. Moreover, Borealis disposes of sizable industrial sites in those countries with an important volume of invoices.
In other EU Member states, the legislation regarding e-invoicing imposed additional requirements at the time of the implementation of our e-invoicing solution, resulting in extra costs and complexity. Luckily, since 1 January 2013, all those requirements have been abolished.
In the light of the (former) legal requirements and the new requirement to have (internal) business controls which provided a sufficient audit trail, we always call upon the assistance of the E-Invoicing Center of Excellence of Ernst & Young to audit the compliance of our solutions with the applicable legislation.
Read the full version of this article in the Ernst & Young Indirect Tax Briefing, issue 7 (pdf, 7.13 MB).
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