E-Invoicing for Indirect Tax Managers

If you manage indirect tax and feel overwhelmed by the increasing complexity of e-invoicing and real-time reporting mandates, this post is for you. Governments worldwide are shifting from periodic tax reporting to real-time monitoring, and staying ahead of these changes is crucial to remain compliant. In this post, you’ll learn what e-invoicing really means, how these mandates impact your work, and how you can benefit from the shift.

I work with indirect tax and e-invoicing confuses me, what do I need to know?

Let's start with a basic definition (although there is no single global standard): An e-invoice is an electronic data-document generated on a computer and intended to be read by computers, not by humans. With this definition, an invoice sent as a PDF is not considered an e-invoice. E-invoices are designed to go directly from the supplier's accounts receivable (AR) system to the buyer's accounts payable (AP) system through automatic integrations. Compared to PDF invoices, e-invoices are cheaper, less error-prone, faster, and contain more data. Don’t worry, a PDF copy of the e-invoice is often created by either party if a human needs to view it.

This is important because governments are mandating controls on how invoices are transferred and when reporting of their data should occur. Countries like Belgium and Germany are implementing e-invoicing as the only acceptable method of invoice transfer. China and Malaysia, for instance, require real-time reporting of invoices but still allow various invoice transfer methods. Most countries adopt a combination of these approaches, mandating both e-invoicing and a live connection to a government portal. Most LATAM countries and several others around the globe already have e-invoicing mandates in place.

As an indirect tax professional, you are accustomed to digital reporting as a periodic control through measures such as SAF-T reports and VAT listings. With real-time reporting, the periodic control goes from a periodic transaction control to a Continuous Transaction Control (CTC). In practice, this means that as a supplier (and sometimes buyer), you must report relevant invoice data within a specific timeframe after issuance or receipt. Some countries (e.g., Brazil and Italy) even require pre-clearance of invoices before they become valid.

How will my work change based on the country invoicing mandates?

The transition to real-time or near real-time reporting of tax data is here to stay. You need to ensure that you have the right tools and processes in place to manage these methods. Tools include automated connections to government portals, while processes might involve getting reporting data in place earlier than before. Compliance issues should not hinder your tax planning and audit defense. The invoice lifecycle – tax validation, real-time reporting, periodic reporting, invoice transmission, and archiving – is all impacted by invoicing mandates.

You’re already used to juggling tons of local tax regulations, and now with country-specific invoicing mandates, there’s still no global framework to make life easier—each country has its own version (yes, every single one). But hey, it’s not all bad news, there are several benefits for you when managing indirect tax:

• Real-time validation: You get immediate confirmation of the data you provide tax authorities, allowing you to correct errors proactively (rather than after periodic reporting), ideally in an automated manner thanks to the integrations possible. Real-time visibility and control benefit both you and the government, and with the right tools, you'll gain better analytical insights.
• Fewer errors: E-invoices eliminate the need for data interpretation, leading to consistent data across invoices, especially in countries where the government is mandating e-invoicing with certain fields present on the invoice. Your tax filings will contain fewer errors, reducing the risk of disputes with the tax authorities.
• Solid audit trail: The fully electronic nature of e-invoices provides a traceable record throughout its lifetime. Fraudulent invoice issuance becomes more difficult, and data can be validated against what has been supplied to the government portal. Archiving and audit processes are also simplified with e-invoices.

I know about ViDA, but what is the DRR-pillar of it?

The proposed EU ViDA regulation includes three pillars: Single VAT-registration, Platform Economy, and Digital Reporting Requirements (DRR). This last pillar has several parts and has evolved since its initial proposal. The two main parts are outlined below and are currently planned for implementation in 2030:

• Reporting cross-border invoices: Most cross-border invoices within the EU will need to be reported to a local platform within 10 working days, replacing the current EC Sales List (ESL) requirements. Each country will establish its own system for this reporting (as is currently done for domestic transactions in many EU countries).
• E-invoicing only: Most cross-border invoices within the EU will require true e-invoices. Paper and PDF will no longer be accepted. While no specific format is defined, the invoice must comply with the EN16931 standard. 
  Additionally, the ViDA regulation will simplify the implementation of e-invoicing mandates by removing the need for derogations (since paper invoices currently have the same status as electronic invoices).

What are my colleagues in AP and AR struggling with?

As someone working with indirect tax, you'll benefit from faster validation, fewer errors, and a solid audit trail. Your AP/AR colleagues will also benefit from these improvements, along with additional advantages such as faster and cheaper invoice processing. This leads to better DPO/DSO figures, improved data quality, and more data to aid in analytics.

Beyond the same issues that you are concerned with – such as collecting the right data and determining the right tax – your colleagues within AP and AR will be focused on these aspects:

• Invoice lifecycle messages:Some countries mandate messages related to invoice status. These messages typically include responses from the buyer outlining payment status or the official acceptance/rejection of the invoice.

• Process steps: Due to the clearance requirements, process steps must be followed in a specific order. This means you may not be able to start AP processing on the invoice until its electronic stamp has been validated – or your service may not be delivered before the invoice has been cleared with the government portal.
• Data management challenges: When both sending and receiving invoices, working with the right data is a headache. Data needs to be collected from warehouses, financial software, ERPs, and more, then placed in the correct invoice fields for submission to the government portal. ERPs need to be set up to store mandatory new fields and distribute data as needed. Multiply this by the number of countries and ERPs in use within your company, and the complexity grows.
• National mandates not optimized for businesses: The regulations are constructed from the top down (with varying levels of business consultation), meaning they rarely reflect how businesses would design them. A good example is government portals offering only a limited dataset on invoices, requiring a parallel invoice flow to meet business data needs.

What can I expect will happen in the future?

While speculating about the future, we might see the following trends:

• Shrinking reporting delays: Reporting timelines will continue to shorten, moving from monthly to 1-4 days (reporting mandates) and eventually to real-time (invoice clearance). More countries will implement measures to view their businesses' data live. The reporting and clearance mandates currently being introduced are likely the first generation for many countries, with the next generation bringing even tighter integration between your tax systems and government platforms. The result is that the source of truth will shift from your own systems to the government’s data.
• Global service providers: Service providers will grow more global with increasingly automated connections. In the past, a limited set of invoicing mandates allowed global businesses to contract local service providers to automate their compliant invoicing processes. However, as more countries implement mandates, it is no longer feasible for global businesses to maintain separate integrations and relationships with multiple invoicing and tax providers. This will lead to more service providers offering global compliance and taking on a fuller scope (rather than just pure e-invoice delivery in a single country). Your company can take advantage of this by reducing the number of service providers needed for compliance.
• Expanded pre-validation: Pre-validation of invoices before reaching the government will be expanded with more features, driven by business needs. Today, most service providers help their clients by conducting a pre-check to see if they expect the invoice to pass government validation. This could very well be expanded to engage the buyer as well, checking that the invoice complies with the buyer’s business rules—thus optimizing the whole invoicing process into a test run before the invoice is officially submitted.

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You can also explore the changing landscape of electronic invoicing and tax compliance with the latest, highly regarded Billentis report, 'The Global E-Invoicing and Tax Compliance Report: Watch the Tornado!