Electronic invoicing is no longer a trend – it’s the norm. With the spread of e-invoicing surging across the globe, with it comes a myriad of laws, mandates, and new electronic invoicing (e-invoicing) compliance requirements. These are often described as “post-audit” or “clearance” models. Read on to learn about where governments’ motivation to implement e-invoicing mandates stems from, and which main models they follow. With this knowledge, you can navigate the space of e-invoice compliance more easily.
Across the globe, economies are turning more and more towards e-invoicing. Why? Because the benefits speak for themselves. E-invoicing drastically reduces the cost of processing an invoice, decreases the likelihood of invoice disputes, eliminates manual entry errors, increases global tax compliance overall, reduces the reliance on paper processing, and therefore, creates a greener more sustainable workplace.
Why do governments implement e-invoicing mandates?
By making e-invoicing mandatory, governments strongly push for wider adoption of e-invoicing in their economy and thus push companies in the economy to realize the operational benefits listed above. But aside from operational benefits for companies, there’s another key driver for governments to implement e-invoicing mandates: the tax gap.
The tax gap describes the difference between what a country should get from companies as tax revenue, and what a country actually gets.
In a paper commissioned by the European Commission in 2020, the tax gap is estimated to be 120 billion Euros in the EU (European Union) alone, which is a massive loss of tax revenue. Now, this spend needs to be financed and recovered. And where should the money come from, if you don’t want to raise taxes to make sure you’re not impacting economic recovery? Fighting the tax gap is a great approach for governments to make sure to get the money in. And the invoice plays a key role in that process, as it is the prime audit source for tax collection.
What does it mean for you? It means that e-invoicing is here to stay, and it means countries all over the world have already or will start changing the way they control commerce. While in the past, developments on the topic have largely been pushed by the private sector, there is an ongoing and notable shift toward governments driving the adoption of e-invoicing during the past years.
In essence, there are two basic models which governments can follow when fighting the tax gap: the post-audit model and the clearance model. Depending on which model a government chooses, and depending on how it’s implemented, invoice compliance can look very different depending on the country. Or in short: regulations differ from country to country, they tend to be extremely technical and complex, and thus pose a real challenge to global organizations.
How does the post-audit model work?
Without getting too technical, let’s get the basics right on what the post-audit model looks like. Mainly used by European and Commonwealth countries, this model requires that e-invoices be preserved and made available for audit after the invoice has been issued. In post-audit countries, “authenticity and data integrity” need to be ensured by using digital signatures, EDI (Electronic Data Interchange), business controls, or other means. Post audit models legally regard compliance as “after the fact”, meaning that companies are allowed to choose their preferred way of (e-) invoicing themselves.
Or in a nutshell: it’s up to organizations how they transact, how they send and receive invoices, as long as they can ensure the correct storage of the invoices for an audit. Typically, the “veracity” of the invoices, which is accounting language for “authenticity” can be provable for up to ten years.
Of course, it’s a bit of a simplification to state that post-audit models are not the most challenging ones to comply with. But let’s look at the clearance models next and decide then!
How do clearance models work?
Clearance models have been common in Latin America and the Asian Pacific region for a while, and they are spreading increasingly among large European economies in Europe, too. Clearance models have a much more direct approach to monitoring and supervising transactions than the post-audit models described above. Connected to clearance models stand a whole plethora of regulations and technical specifications on how invoices are to be exchanged. The entire model with all its specifications is geared toward the elimination of tax fraud, and thus it is a powerful weapon to close the aforementioned tax gap.
In its simplest explanation, practice clearance models mean that invoices need to be sent and received in a specified format. However, the devil lies in the details, and clearance models often include:
highly specific local invoice formats (such as XML/UBL, CFDI, PEPPOL formats, etc.)
invoice approval before invoice issuance
buyer response message capabilities
specified archiving practices
mandated tax content
human readability specifications
routing of invoice documents to government servers that assign invoice IDs
and many more
Now, this wouldn’t be terrible if there was a globally agreed standard. But since countries tend to have the habit of running their own legislative and taxation systems, regulations around invoices differ from country to country. Even if two countries were to follow the same model, such as the clearance model: how they work in practice can be quite different.
Let’s paint a picture here: say you need to send an invoice from Germany to Italy. Singapore requires organizations to issue B2B invoices in a specific format, and the latest legislation in Italy requires the invoice recipient to register the invoice in a governmental database. All of this of course takes place in differing invoice formats. Let’s take it a step further and imagine you’re a global organization with supplier-buyer relationships and subsidiaries in many countries. The theory of exchanging invoices is one thing – making it work in a globally compliant manner is a whole different story. And that’s exactly where you need a seasoned partner, a partner who specializes in global e-invoice compliance.
Basware helps overcome compliance challenges
Basware delivers a total e-invoicing solution, assisting you with all your compliance challenges from identifying obligations and assessing requirements to designing and managing solutions and keeping track of all the changes in the regulatory environment.
In other words, we support you in all aspects of e-invoicing compliance.
For years, Basware has been gathering regulatory and best practice knowledge from local markets, building new format conversions, connecting locally authorized compliance partners and tax authorities, and enabling the use of digital signatures and certificates. With this all under our belt, we can support your global organization through all aspects of compliance, covering both B2B and B2G connectivity.
As a global market leader in e-invoicing, Basware is the strongest partner to consider for your global e-invoicing compliance requirements. No matter your needs, Basware helps you cover all e-invoice delivery channels.
We provide a single source for global compliance by providing support in over 60 countries through our 200+ interoperability partners. We deliver multi-channel coverage combined with localised knowledge and connectivity to third parties.
So, how is it that we can provide all this for organizations worldwide? For starters, we’ve partnered up with the leading e-invoicing and tax compliance advisers and service providers, as well as with various local partners, to ensure our business network supports our customers for compliant e-invoicing where it’s needed the most. On top of that, Basware’s in-house compliance management works together with our service management team as well as with external advisers and authorities to maintain and improve the compliance support provided by the Basware Network.
Our network and its country coverage are growing constantly, ensuring organizations like yours with total compliance support. This frees takes out some of the complexity organizations from the burden and complexity of surrounding global compliance and lets you focus on what matters – innovating the medical world.
As we discussed earlier, complying with global invoicing and tax mandates is complex and the consequences of non-compliance can be severe. But with Basware, you can automate your e-invoicing compliance across all B2G and B2B mandates that include different formats, processes, and archiving standards. You'll never lose sleep over compliance again as Basware supports you in your VAT (Value Added Tax) compliance work in more than 50 countries and is a certified PEPPOL access point.
Efficiency, compliance, and control – thanks to automation
At the end of the day, e-invoicing compliance isn’t easy. But when you let the experts support you, you gain efficiency, compliance, and control.