What is the deal with EDI and digital signatures after EU liberalisation?

July 24, 2012  |  Electronic Invoicing, Government, Legal

Just days are ticking away before European e-invoicing undergoes a full-fledged liberalisation. Walking a completely different path towards mass adoption and fraud prevention than Latin America.

Many of our readers reflect on the changes at hand. Some have the feeling that as from 1 January 2013 EDI and digital signatures have been thrown into the gutter, while at the same time there has been no good communication on exactly how to achieve authenticity and integrity under the new rules.

HMRC’s technical note

Luckily, for those of you residing in the UK, HMRC released a technical note that explains the proposed upcoming modifications to the existing UK VAT invoicing rules. The note reflects the changes introduced by the EU Council Directive 2010/45/EU in the EU. So that should help. Right?

Well. No. Not really. Nigel Taylor from GXS (a formidable expert in the field of e-invoicing) read through the notes and ended up having more questions than answers. OB10’s Markus Hornburg supports Nigel Taylor’s viewpoint.

Perhaps the upcoming VAT directive is just a bit too vague and “technology neutral” to actually spark massive adoption?

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  1. Nigel and Markus are spot on as always.

    We cannot blame politicians for deregulating. They are politicians. You cannot ask politicians in Europe to argue in favour of restrictive regulation; they have been blamed for over-regulating e-invoicing for a decade and could only act in one direction.

    As a matter of legal theory, I believe that freedom of evidence was the right choice to make. The problem isn’t the regulation.

    The problem as always on complex topics is that it opens the door for misinformation and misinterpretation. Politicians present Directive 2010/45 as a liberalization, whereas in effect it is a minor deregulation. “Liberalization” would have been the removal of the requirement for demonstrating integrity and authenticity of invoices during their legal lifetime. This has NOT happened.

    Because this is esoteric stuff for most non-experts (and who can blame them for not being passionate about this….), the notion has taken hold that indeed all requirements have been dropped from 1 January 2013. This is dangerously wrong: integrity and authenticity must still be guaranteed (I would add: more than ever) but you and your trading partners will be free to decide HOW to do that.

    It is in the interest of enterprises to have quick, convincing evidence. Invoice integrity and authenticity are standalone requirements which MAY be demonstrated by business process audit trails, but having good internal controls or being able to prove a supply DOES NOT automatically prove invoice integrity and authenticity. Long, complex audits are in no-one’s interest. If both parties have conclusive reliable audit trails corroborating the integrity and authenticity of all mandatory invoice content, they can use that. Other methods can also be used - ANY method can be used. Signatures and EDI continue to get the benefit of the doubt, because they are quite quick and easy to demonstrate. Qualified signatures in particular create a unique reversal of the burden of proof.

    I don’t want to reiterate all angles of this debate. Some basics precepts of the deregulation are debatable, such as the idea that the integrity and authenticity of paper invoices are today predominantly verified on the basis of business process audit trails. The normal method for verifying paper invoices is to check the paper invoice; further audits can be needed if this is insufficient, but most companies would try to avoid this wherever possible. Since, contrary to paper invoices, “naked” electronic invoices do not carry any kind of intrinsic evidence, they cannot easily be compared with paper in practice. These forms of invoicing are and should be equal in theory, but freedom of evidence should be presented as more freedom and NOT a complete liberalization to avoid Europe repeating its errors of the past.

    The way this debate is going, the only sector that will benefit from the new legislation is advisers - again. We want businesses to benefit, but for that to happen they should be informed clearly of what their rights and obligations are. And yes, the news won’t be 100% pleasant to anyone — many companies have to take measures over and above their business-as-usual processes to meet the requirements.

    Many of our EU politicians choose populist information tactics for short term career or political gain instead, setting us all up for huge disappointment…again. Meanwhile, countries that introduced e-invoicing five years after the EU have 5-8 times our e-invoicing adoption rates.

    Cherchez l’erreur….

  2. ’tis the time’s plague, when mad men lead the blind…

  3. There is nothing wrong with the new directive. Organisations fought for many years to ensure it would be ‘technology neutral’. Examples can and should be provided for companies to follow if they are not clear about how to comply. If tax departments are shying away from providing this level of detail, then we have the EU-level Multi-stakeholder Forum or the country-level eInvoicing Advocacy groups who could provide these via their websites.

    Those who have invested heavily in eSignature technology have nothing to worry about. The type of companies who use eSignatures will likely remain using them for eInvoicing and eSignatures will certainly continue to be used for electronic payments. The only difference is that experienced eBusiness professionals who rely on valid business controls to ensure authenticity and integrity now have the ability to do so - under the new legislation. Many have been doing this for some time in countries where these practices have often been accepted by auditors as falling loosely under the ‘EDI’ category. Legislation should tell us what the law is - not how we have to follow it. Time to move on from the ‘Nanny State’.