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More than 80 countries worldwide have e-Invoicing mandates and a further 50 have
announced their intention to impose new or additional mandates. The
expectation is that by 2030, the majority of the world’s 200 VAT regimes will have
mandatory continuous transaction controls in place around the invoice.
The Global Landscape for E-invoicing Compliance
The global landscape for e-Invoicing compliance is as diverse as the countries that constitute it. Each country has its own set of regulations and standards for e-Invoicing. For instance, the European Union has introduced the European Standard for e-Invoicing, while countries like Mexico and Brazil have their own specific requirements.
Moreover, this landscape is not static. It is continually evolving with new regulations being introduced and existing ones being updated. Staying abreast of these changes is not just a regulatory necessity but also a strategic advantage.
Europe/EU
The 2014 Public Procurement directive2 required all EU member states to mandate that government agencies be “e-Invoicing-ready,” i.e. to have the capability to receive electronic invoices from suppliers. Several EU countries took a step beyond and forced suppliers to issue e-Invoices for all business to government (B2G) supplies of goods.
As a CTC approach supersedes the post-audit model, early B2G mandates are now being joined by business to business (B2B) equivalents. Turkey and Italy have mature mandates for B2B electronic invoicing and France, Germany, Spain, Belgium and Poland are implementing mandates. Little standardization has been seen around e-Invoicing mandates, as few countries are implementing common standards like using Peppol. Some countries focusing on e-reporting as a means of combining e-Invoicing with other tax documentation and transactional data have adopted SAF-T (Standard Audit File for Tax).
North America
Canada has a VAT regime, but tax fraud is low. The United States has no VAT regime. In both countries therefore, regulations are minimal. Despite the lack of regulatory obstacles and the many potential benefits, voluntary take-up of e-Invoicing amongst private companies has been slow. The OMB (Office of Management and Budget) has expressed an interest in B2G e-Invoicing, and the Federal Reserve launched an initiative under the “Business Payments Coalition” to define a technical invoicing standard and interoperability framework to fit the U.S. market. The model defined is an open e-Invoicing framework based loosely on the Peppol approach without major requirements or obstacles imposed by law.
While e-Invoicing mandates may not be directly relevant to many U.S. businesses, since they apply only to domestic e-Invoices, those with operations overseas in VAT regimes must still take note. Additionally, businesses in the U.S. still stand to benefit from significant cost savings and operational efficiencies by switching to fully automated electronic invoicing.
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Latin America
Mexico and Brazil were the pioneers in mandatory real-time clearance e-Invoicing, and their approach has rapidly become the standard for electronic invoicing in the region. Country-wide mandates have since been implemented in Argentina, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras and Peru amongst others. For many Latin American countries, tax regimes have begun to include the likes of transportation documents, payroll and others to gain a wider view of taxation processes.
Global Invoicing Compliance: The Carrot and the Stick
While adopting electronic invoicing clearly provides efficiencies that lead to cost savings and cashflow—a juicy carrot for those adopting e-Invoicing, there’s also a very large stick. Non-compliance with regulations comes with the potential of significant business and financial harm including:
• Administrative fines
While fines vary between countries, organizations can face up to €2,000 or more per invoice in some EU states. Trading partners drawn into an audit can also be penalized.
• Legal sanctions
Non-compliance can be equated with tax evasion, making organizations liable to sanctions under both tax and criminal law.
• Loss of VAT rights
Companies unable to provide evidence of purchases may have to pay back input VAT, possibly more than their initial profit margin.
• Trading partner audits
If a tax authority audits and verifies activities of trading partners, the business relationship may become strained.
• Geographical mutual assistance procedures
Auditors may cause investigations in other countries as they dig, taking up more time and increasing potential exposure.
• Protracted audits
Audits can consume expert resources for weeks or even months and possibly spawn additional investigations. Fully one quarter of the companies surveyed by IDG confessed to having experienced one or more of these impacts arising from non-compliance in the past 12 months, with government audits and tax fraud being the most common.
