Executive summary: e-Invoicing – the rapid pace of change
There has been a rapid advancement of e-invoicing recently and a number of new countries, notably in Europe, have announced plans to implement mandatory requirements in the coming months. It is important therefore that businesses not only have access to critical information but also develop a plan to address the upcoming changes. This paper is a start along that journey.
Electronic invoicing, or e-invoicing, is the process of exchanging machine readable invoice data with vendors and customers through a designated tax authority portal. E-invoicing has been gaining significant momentum globally, both from the perspective of multinational companies engaging in significant cross-border transactions, as well as global value added tax (VAT) authorities seeking to close the VAT gap – the difference between expected VAT collections and actual VAT collections.
Understanding your obligations and developing a plan
Businesses conducting transactions in the European Union (EU) in particular, but in many other countries, face an increasingly complex tax-compliance environment, as global VAT authorities require the generation of invoices in a particular format and standardized structure, while also seeking real-time visibility into the data exchange between a buyer and seller to ensure compliance. Such transparency also serves as a powerful tool for global VAT authorities to deter fraud. It is also notable that there is no common standard between tax authorities around the technology requirements for the data or the tax authority portal.
The accelerated pace at which countries around the world are legislating mandatory e-invoicing regimes presents a mixed bag to businesses. In one sense, cost savings, increased accuracy/less errors, reduced risk, enhanced security and more streamlined operations will ultimately accrue to the organization. At the same time, however, global regulatory e-invoicing regimes typically differ from one another, resulting in a myriad of rules and requirements that companies must navigate. In addition, an initial assessment of existing technological capabilities, processes, data quality, data sources and ERP system future-readiness will be necessary for affected businesses, either separately or as part of their broader digital transformation journey. Remaining compliant can be a challenge, and companies lacking a cohesive technology and broader corporate strategy can quickly see a benign tax issue morph into a larger, more significant business issue.
Devising a gameplan
Adapting to a mandatory e-invoicing regulatory environment ultimately requires consideration of a digital solution involving some type of software or process (existing, new or modified) that can transmit data in a manner that is compliant with a specific country’s requirements. Given the high degree of variation among the different regimes, a threshold consideration will be whether having a single global e-invoicing platform is warranted, rather than developing solutions that focus on compliance on a local basis. This will depend on, among other things, the number of foreign jurisdictions in which the organization conducts business, the volume of its invoicing activity, its VAT filing profile and the related business need. As part of this determination, the current functionalities and capabilities of existing technology and software systems must also be assessed, such that an informed choice can be made to ensure the best course is taken.
Although the detailed requirements will require a number of technology steps to be completed the two main requirements to keep in mind are the machine readable data format and the connection with the tax authority portal that will enable data transmission (AR) and data receipt (AP).
There are essentially three approaches by which an organization can put its e-invoicing strategy into action. Determinative factors that will guide a business down a particular pathway include, amongst others, financial cost, speed of implementation, access to and availability of internal IT resources, appetite to manage future changes. The first step however is an assessment of need and system readiness.
System readiness assessment
This step involves a review of the business operating model, current billing processes, VAT data management processes and VAT data outputs for both the accounts payable and accounts receivable functions. In addition, confirmation will need to be made of current and future e-invoicing needs by reference to tax law and jurisdiction.
Through these efforts, the company will glean insight into (i) invoicing data quality, accessibility and additional required information and any recommended steps to improve this; (ii) current country e-invoicing filing obligations and (iii) known future requirements for the business.
Three main options to enable the global e-invoice function
Option 1 – ERP and billing system enhancement
Working closely with vendors of existing ERP and billing systems there may be upgrades available to create an internally supported solution. However there are two critical points to bear in mind. The IT department will likely have to own the maintenance of this and keeping track of changes will require access to a good and reliable information source. Also the connector with the tax authority portal is unlikely to be something that most ERP or billing system software vendors will be able to support and so some additional technology development will likely be needed.
Option 2 – deploying software designed for the purpose
There are an increasing number of software companies that have developed solutions to meet the new e-invoicing requirements, and these typically cover the data formatting requirements and the tax portal connectors. These solutions bolt on to the existing ERP and billing systems and run the e-invoicing processes through a combination of software deployment and service delivery. The software will need to be configured to the existing ERP and billing data sources and as with Option 1 will require IT support during the configuration and deployment process, which could well take several months.
Option 3 – the outsourced service
Some service providers, RSM being one of them, have developed a service offering whereby the data transformation and e-invoicing data exchange is provided as an outsourced service. In this model we would extract the relevant data at source, transform it using a proprietary process and upload it to the tax authority portal through an intermediary platform. In the RSM case we have partnered with Pagero to provide the connection with the tax authority portals. The advantage of this solution is the speed by which it can be deployed. The critical effort would focus on client data assessment and mapping the process up front.
This option removes the costly and time-consuming requirement to develop or license new technology within an existing IT environment and enables a business to quickly stand up a solution without requiring a significant investment of time or money.
Mandatory e-invoicing legislation continues to proliferate across the globe, either on its own accord, or as part of broader, corollary initiatives such as VAT in the Digital Age (VIDA) in the EU, it is imperative for organizations to develop a strategy to assess its current invoicing profile and process so as identify the changes needed that will enable compliance.
RSM has the knowledge and experience to assist you in the critical first step – assessing your needs – and subsequently with selection, development and deployment of a solution that best meets your needs.