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TechTalk Blog - European e-Invoicing Directive Starts: Italy Moves Further With Contractor to Government to Business Owner e-Invoicing

By David Colgren posted 06-07-2018 11:34 AM

  

Just came back from the European Accounting Association in Milan, Italy (which the IMA served as one of the sponsors) and heard interesting news from the IMA’s Italy Chapter President – Mr. Francesco Aldo De Luca about the new EU e-Invoicing Directive and what is happening in Italy and its impact on management accountants involved in IT, FinTech, RegTech and data analytics. 

Could technologies like XBRL be linked in this effort related to what securities regulators are doing to tag specific data elements for better data analytics in the capital markets? Will LEI be applied to e-Invoicing to manage an organization's business relationships to better manage risk?

After hearing Francesco's presentation -- I came back to the USA and did some additional research and found this great overview of the European e-Invoicing Directive which requires all public-sector bodies to be able to receive e-invoices by April 2019 across the EU from companies and citizens.

Specific countries like Italy (As Mr. Francesco Aldo De Luca described…) are going even further than this directive and requiring that ALL COMPANY INVOICING GO THROUGH GOVERNMENT PLATFORM FOR VAT TAX ANALYSIS PURPOSES. What will this e-invoicing directive mean for management accountant working with companies preparing for this new directive? Will this follow in the United States and other parts of the world as e-Invoicing spreads? How will this impact the development of Blockchain and Distributed Ledgers and data analytics?

This article below talks about e-invoicing and the obligation to create and transfer structured invoice data to tax platforms and its impact on pushing businesses to accelerate their e-invoice adoption.

According to the article I read … by 2030, the transformation to fully electronic, mostly structured e-invoice exchange in all directions should be all but complete. We can also see widespread use of blockchain and distributed Ledgers as governments and industries move forward with mandatory e-invoicing as governments utilize for VAT, money laundering, and tax/insider trading/financial risk management/bankruptcy oversight and we move away from PDF to structured data and data analytics for the automation of accounting.

Lisa Beaudoin, CMA, CSCA, CAE, Director of Business Development with the IMA talked at the IMA Italy Chapter Event about how IMA members are "future-proofing" their careers and staying relevant in the Digital Age by preparing for e-invoicing technologies and learning additional data analytic skills to prepare for the use of blockchain and distributed ledger technologies and play a more strategic consulting role within the organization. Learning these additional skills provide greater relevancy and better salary opportunities for management accountants.  

FROM ARTICLE AND WHAT FRANCESCO ALDO LUCA DISCUSSED IN MILAN AT THE IMA ITALY CHAPTER EVENT:

Italy inaugurated 2018 by confirming what experts had predicted: It is the first E.U. member state to mandate e-invoicing with real-time VAT controls. In so doing, it permanently closes the debate about the direction of European and global electronic invoicing regulation. VAT compliance v2.0 is now officially irreversible. How can businesses prepare for this world where governments leverage technology to get “inside” business transactions as they happen?

Electronic invoicing growth is set to accelerate. It’s just not happening as a lot of us thought it’d happen. I predict that by 2025 companies in industrialized and emerging economies will exchange more than 75% of all invoices electronically with tax administrations in real time or very shortly after the business invoice exchange process.

By contrast, I believe that about 40% of invoices will by that time also be exchanged in electronic format between the trading partners. This dissymmetry is not because the business case for governments to receive and analyze business transaction data in structured format is necessarily better than it is for companies. The reason is rather that most central governments have larger budgets, aren’t obsessed about meeting the next quarter’s financial KPIs and their decision processes tend to be more suited for longer-term planning.

Nonetheless, I believe that, over time, the obligation to create and transfer structured invoice data to tax platforms will also push businesses to accelerate their e-invoice adoption. By 2030, the transformation to fully electronic, mostly structured e-invoice exchange in all directions should be all but complete.

As mentioned, VAT compliance v2.0 isn’t only about e-invoicing. To me, it’s all about governments leveraging technology to get “inside” business transactions as they happen. In other words, a lot of the VAT action in process and technology terms moves closer to where sellers and buyers actually interchange sales/purchase transaction data rather than inside their internal business processes.

Let’s break it down. These are the principal functional components I believe businesses need to plan for in the move to VAT compliance v2.0:

  1. Regulatory mapping.There will be mandatory structured (nearly always XML based) data formats for the mandatory exchange of invoice (and possibly other) data with the tax administration platform.
  2. Regulatory transaction orchestration and process alignment.Your e-business transaction platform will need to be able to send and receive different types of transactions to and from the tax administration platform. Examples include specific types of invoice processes (e.g., cancelation, contingency issuance or confirmation, buy-side acceptance or rejection) and also, increasingly, similar processes for other types of tax-relevant documents. Your business and trading partner data exchange process may need to be revised to ensure that mandatory data exchange with the tax administration platform can be performed as required. You and your customer may never have thought of a supplier invoice cancelation message type, but in some countries you’ll need one to comply with tax law. And in some jurisdictions, particularly in Europe (and probably India), this type of exchange of business data with government control platforms will evolve by tax administrations slowly increasing the frequency, automation requirements and granularity around historical VAT reporting requirements.
  3. Authentication and security.Most real-time or near-time tax administration platforms require some combination of transmission security and data-level control technology requirements — usually some form of electronic signature and web server authentication based on public key certificates issued by a government-approved or government-controlled certification authority (CA).
  4. Tax determination.Since every line of every invoice will be available for deep analysis by the tax administration, it becomes much more important for both trading partners that their tax determination decisions are 100% correct.
  5. Where archiving remains compulsory — which is currently the case in most countries with different forms of real-time or near-real-time VAT controls — the “legal invoice” and the “business invoice” exchanged between the parties, if different, needs to be archived and available for internal and tax administration audit.

FRANCESCO ALDO LUCA added at the IMA Italy Chapter Event in Milan: "Indeed, Italy passed the law that mandates e-invoicing in defiance of a formal E.U. requirement that buyers are free to reject the receipt of invoices in electronic format. EU’s formally authorized Italy to do this with a special exception. Here are some details, ( FRANCESCO ALDO LUCA translation ):

“Therefore, in light of these considerations and the reasons given by Italy in its request, the EU Council authorizes Italy:

  • to accept as invoices documents or messages only in electronic format if they are issued by taxable persons established in Italy other than taxable persons who benefit from the exemption for small businesses referred to in Article 282 of the aforementioned Directive
  • to provide that the use of electronic invoices issued by taxable persons established in Italy is not subject to the recipient's agreement, except in the case in which such invoices are issued by taxable persons benefiting from the mentioned exemption for small businesses.”

 But what we’ve in front of is a huge opportunity to automatically address postings relevant to management accounting ( Cost Centers, Orders, Customers ), but this is something under development."


What is happening outside Italy in the EU?

Ireland is moving forward as well with e-Invoicing. As this article describes:

It may be e-invoicing today, but blockchain and distributed ledgers tomorrow…

Ireland has been signed up as a PEPPOL (Pan-European Public Procurement Online) Authority member in what is a critical first step towards e-invoicing.

What this effectively means is that the Irish Government is putting in place a structure for modern e-invoicing. This could speed up transactions between Government and SMEs, but could also open up the entire EU for Irish businesses to sell to the European public sector digitally.

The PEPPOL eDelivery network enables businesses to connect to European public-sector buyers.

Yesterday, the Minister of State with special responsibility for Public Procurement Patrick O’Donovan, TD, signed an agreement with André Hoddevik, secretary general of OpenPEPPOL, officially confirming Ireland’s status as a PEPPOL Authority member.

The European eInvoicing Directive obliges all public-sector bodies to be able to receive e-invoices by April 2019.

What is PEPPOL?

PEPPOL is a set of artefacts and specifications enabling cross-border e-procurement.

It is not an e-procurement platform but instead provides a set of technical specifications that can be implemented in existing e-procurement solutions and e-commerce exchange services to make them interoperable between disparate systems across Europe.

Trading partners can use PEPPOL to exchange standards-based electronic documents over the PEPPOL network, including e-orders, e-advance shipping notes, e-invoices, e-catalogues and more.

“As a PEPPOL Authority member, Ireland will participate in the development and governance of the PEPPOL network,” Minister O’Donovan said.

“Ireland will now be part of a wider international community that is focused on harnessing digital technology to create opportunities for greater transparency and competition in public procurement, better value for money for the taxpayer, and reducing the environmental impact of traditional paper-based processes.”

Keys to the Digital Inner Market?

The key word here is interoperability.

The Office of Government Procurement (OGP) will operate the PEPPOL Authority function on behalf of the Government and will facilitate public-sector bodies in meeting their e-invoicing obligation by providing a framework of commercially available solutions.

There is no requirement for suppliers in Ireland to send e-invoices to Irish public-sector bodies at this time.

“The interoperability that the PEPPOL network delivers is key to the standards-based, sector-led approach to e-invoicing being adopted by Ireland, providing a ‘Connect Once – Connect to All’ channel for suppliers, while respecting the diversity of the public and private sectors both here and throughout Europe,” explained Paul Quinn, Government chief procurement officer and CEO of OGP.

Hoddevik added: “Ireland joins a growing number of European countries using PEPPOL as a cornerstone for their national e-invoicing activities. The continued growth of OpenPEPPOL well positions the association to support and enable the move towards the Digital Inner Market.”

So, what comes next?

That is down to how the various public-sector bodies go about enabling e-invoicing for their suppliers.

While no one has specifically mentioned blockchain, it is a tantalising thought that e-invoicing represents an important first step towards getting in place the disciplines and procedures that are needed before blockchain truly enters the fray.

While the fluctuations in cryptocurrencies such as bitcoin, Ethereum and Ripple capture the headlines, they distract from the real evolution through the enabling technology itself, which is blockchain.

A blockchain is a digitised, decentralised public ledger, and ‘blocks’ are recorded in chronological order to allow users to keep track of transactions without central record-keeping. Each node or computer connected to the network gets a block copy automatically downloaded.

Blockchain could represent the future of smart, legal contracts, or how entire industries conduct themselves in a regulated, streamlined manner.

For example, Finland and other Nordic countries are world leaders in the digitalisation of invoice traffic between companies and government buyers. Worldwide, the market penetration of business-to-business (B2B) e-invoices is assumed to be around 10pc whereas in the Nordic countries, the corresponding figure is already almost 50pc, according to OpusCapita.

An attempt to build a new kind of organisationally distributed but logically centralised e-invoicing address registry has now been started in Finland. The technology platform utilised for the project will be based on the Ethereum blockchain.

Ireland may be a long way off from applying blockchain to speed up public-sector procurement, but the fact that the country is signed up to the PEPPOL network opens the door to a world of tantalising opportunities.

Outside the USA and e-Invoicing:

WHAT IS HAPPENING IN THE UNITED STATES? ARE WE JOINING THE REST OF THE WORLD REGARDING E-Invoicing? Is the US Government preparing a platform to accept e-invoicing? We will need to wait and see but meanwhile we can watch what’s happening in the EU and how this is unfolding…

Thank you FRANCESCO ALDO LUCA and Lisa Beaudoin supporting the IMA and its membership as we continue to utilize business opportunities and technologies to move the management accounting profession forward. 

Stay tuned.


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