Internet Law - EU regulations for e-Invoicing

March 3, 2009  |  Adoption, Publications

european-union flag 230x200To achieve basic standards of clarity and certainty in a taxation system, the incidence of taxation must be well defined. The tracking of indirect taxes such as VAT relies on invoices as the primary evidence of a commercial transaction.
When business evolves by means of advance technologies, documentary evidence such as invoices must match these advances. The European Union has recognized the importance of e-invoicing for e-commerce. Various EU standards have contributed to the evolution of e-invoicing..

These include the European Commission Recommendation 1994/820/EC, the European Directive 1999/93/EC and the European Directive 2001/115/EC. These standards have served the dual purposes of facilitating VAT administration on the one hand and fostering e-commerce on the other.

What Is The Importance Of E-Invoicing VAT Transactions In E-Commerce?
The invoice of a commercial transaction is one of the most important documents in any business. The invoice must conform to accounting, tax, business and even linguistic rules. Guidelines governing indirect taxes such as VAT that are levied on the basis of a commercial transaction specifically provide rules for authenticity of origin of an invoice as well as the integrity of its content. The invoice is also necessary in order for the recipient to claim a VAT refund. With the transformation of conventional business into e-business, all member states have individually tried to regulate the complex legal issue of invoicing. These disparate efforts resulted in a disruption of the smooth functioning of the Internal Market.

The Commission launched a multi-annual project “Simpler Legislation for the Internal Market” (SLIM) in 1996 to streamline key Internal Market Legislation. The Commission’s report on the SLIM initiative was approved by the Internal Market Council on November 27, 1997. This report includes a commitment to study “the details considered necessary for drawing up an invoice for VAT purposes and the legal and technical requirements for electronic invoicing”.CEN, the European Committee for Standardization or Comité Européen de Normalisation, was founded in 1961 with twenty nine national members to develop voluntary European standards and to foster the European economy in global trading.

In 2003, at the request of the European Commission, CEN set up an open “E-Invoicing Focus Group” and issued a report analyzing the requirements on standardization issues relating to electronic invoicing resulting from the new VAT legal framework. The Council Directive 2001/1115/EC recognizes the legal validity of electronic invoices for VAT purposes and specifies the related, required, technical conditions.

What Is The European Commission Recommendation 1994/820/EC.?
The Commission Recommendation was developed at the request of the European Trade and Industry Electronic Data Interchange (EDI) user groups to provide the required legality, acceptability and security in the use of EDI in European member states. The Recommendation includes the Model European Interchange Agreement that was developed in line with the work carried out by the International Chamber of Commerce and several major industry sectors, including the automotive, electronics, retail and distribution sectors.

Trading partners were advised to agree and sign interchange agreements based on the European model prior to commencing the exchange of EDI messages. The Recommendation specifically deals with the definition of EDI, EDI messages, essential characteristics of EDI messages, security of EDI messages, admissibility of evidence regarding EDI messages, storage of EDI messages, EDI standards, applicable laws and security measures when using EDI.

Article 2 of the Commission Recommendation also provides for alternative provisions for accepting electronic invoices when they are sent by EDI, and the agreement then provides for the use of procedures guaranteeing authenticity of origin and integrity of contents. The Recommendation deals with the legal status of EDI by mandating that EDI is admissible in a member state to the extent permitted by national law.

How Did Directive 1999/93/EC Contribute To The Development Of E-Invoicing?
The European Parliament and Council issued Directive 1999/93/EC on Community Framework for Electronic Signatures. The Directive introduced a legal framework to guarantee EU-wide recognition of electronic signatures. This Directive recognizes the importance of the electronic signature as a prerequisite for e-invoicing and security of data transmitted electronically.

The purpose of the Electronic Signature Directive is to facilitate the use of electronic signatures in e-invoicing and to contribute to their legal recognition. It establishes a general framework for electronic signatures and certain certification services to ensure the proper functioning of the internal market. Electronic signatures are also considered important as they facilitate the wide use of e-invoicing. Apart from its commercial value, the invoice is an accounting document, it has legal implications to both transacting parties and it is the basis for VAT declaration and reclamation, statistics declaration for intra-community trade and export and import declaration for extra-community trade.

How Has Directive 2001/115/EC Enabled E-Invoicing For VAT?
European Directive 2001/115/EC specifically deals with e-invoicing. It clarifies the implementation of e-invoicing and aims to introduce harmonized procedures for paper as well as e-invoicing across all member states. The Directive outlines the liability of taxable persons and their service providers for the integrity of content and authenticity of origin of electronic invoices for VAT purposes. This relates mainly to the invoices exchanged electronically and to the storage of invoices.

Under the Directive, no member state can refuse the invoice of goods or services sent by electronic means provided that the authenticity of the origin and integrity of the contents are guaranteed by means of an advanced electronic signature (AES), or by means of EDI as defined in Commission recommendations. Member states may, however, require the advanced electronic signature to be based on a qualified certificate. Invoices may also be sent by other electronic means subject to acceptance by the member state(s) concerned.

Although the EDI invoice message has been adopted by several industry and trade sectors in Europe, it has not been implemented to its full potential. Paper invoices have been maintained to overcome difficulties surrounding VAT regulation. Several member states introduced special procedures to allow EDI paperless invoicing but still require companies to apply for permission from the tax administration and in some cases to exchange summary VAT control messages, electronically or on paper. For cross-border electronic invoicing, companies are exchanging electronic invoices for company administration application, but are forced to parallel the exchanges with paper invoices to meet member state VAT requirements.


Related Posts

1 Comment

  1. Yes…This is really good and accounting are so demanding and important for business………