Posts Tagged ‘VAT’
A business lobbying group has welcomed European Commission VAT plans to apply the same rules to paper and electronic invoices which will make invoicing cheaper and easier.
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This Code of Practice on Electronic Invoicing in Europe is recommended for implementation when and if the amended Directive on VAT as proposed by the European Commission on 28 January 2009 comes into effect.
Trading parties, solution providers and tax authorities need legal certainty, a key element for a proper functioning of the Internal Market and for realizing the huge process, labour and cost-efficiency benefits, which electronic invoicing processes could provide.
Legal certainty requires clear, easy to apply and EU wide harmonised regulations which are uniformly implemented by Member States across the EU and uniformly applied by the relevant tax administrations in the Member States.
The objective of this Code of Practice is therefore:
• to provide legal certainty for business in Europe in processing invoices by electronic means, and
• to foster an e-invoicing friendly environment in Europe by increasing mutual trust between all involved parties in the processes applied.
This will assist business and authorities to meet present and future regulatory requirements for electronic invoicing and to assure them on the best practice applied consistently across Europe.
The practices are equally applicable to transactions taking place within and between Member States of the European Union and could also be used to drive a common approach in countries outside the EU.
Full harmonization of provisions governing electronic invoicing within the EU27 should be a key objective in the interests of the Single Market and ease of use for trading parties across Europe to create a level playing field and legal certainty. There should be no distinction between invoicing carried out on a domestic basis or between Member States. The same harmonized provisions should apply for both e-invoices related to domestic transactions and for those related to intra-community transactions.
Many of these principles are already practiced in the EU27, and in some member countries these principles are explicitly stated in National Guidance Documents.
Research by Forrester has shown that each manually processed invoice can cost a company as much as €100. Yet the European Union’s drive to promote electronic invoice presentation and payment (EIPP) has not borne fruit. So what can be done to help EIPP take off? MasterCard’s Laurent Vreven has the answers.
FDE: How do you assess the EIPP market and what is your take on the reasons that it has failed so far to take off?
Laurent Vreven, Mastercard Product Manager for Company Payment Solutions: Less than 5% of all invoices are currently exchanged electronically, yet e-invoicing has been around for over ten years. One main reason is that EIPP solutions are vendor-centric. So, every single vendor has its own EIPP solution.
In addition, there is no single format for e-invoicing and this adds to the problem of systems, none of which are totally interoperable. It is therefore only big suppliers and purchasers that have had the time and money to link into these systems. At the moment, small and medium enterprises (SMEs) simply cannot afford to go into the EIPP space.
So what is changing?
The changes are coming about through a combination of cost-cutting pressures and the corporate social responsibility (CSR) agenda. As recent Forrester research has shown, the cost of manual invoice processing, with the inevitable errors and omissions that it brings, is now insupportable.
The savings, not simply in terms of staffing costs but actually of paper and its movement to and within an organisation, are substantial. Add to these the reduction of the corporate carbon footprint and specifically the saving of trees, and the case for EIPP is clear.
If companies can link into a payment network and make invoice processing electronic, they can thereby create process efficiencies while reducing their costs and contributing to their CSR agenda, there is surely no contest.
And who is driving these changes?
Large corporates that are already dealing with each other are now looking to push EIPP further down their customer and supplier chain. In Europe, perhaps surprisingly, it is the public sector that has so far been a significant driver for change. Many local governments already using EIPP have commitments to work with local suppliers, often SMEs.
The software suppliers are, therefore, responding by coming up with ingenious scaleable EIPP solutions that are affordable and manageable to these companies. But there remains the question of systems interoperability.
In terms of the scalability in EIPP systems, until now smaller companies found it hard to make the business case to invest in software and see the payback. MasterCard is seeking to break down those barriers and find a way to SMEs that do not have the time and funds to set up EIPP.
We recognise that there is a vast commercial opportunity there in terms of harmonisation and the business that can be captured.
So where does MasterCard fit into EIPP?
We already have a sizeable position in the e-invoicing space, though this is not widely appreciated. We are seeking to marry the advantages of e-invoicing to the MasterCard payment mechanism.
Whether a company is using a physical or a virtual payment card, we are linking all elements together to produce a one-stop-shop solution for invoicing, payments and some of the peripherals services linked in to them. And we are no longer aiming purely at the top sector on the market, we are focusing on mid-market companies and will eventually be looking to SMEs as well.
If you take the UK for instance, MasterCard has some 10,000 enabled business-to-business purchasing card suppliers. We see that market expanding rapidly. MasterCard is in a position to become a hub between the various parties, so that we can facilitate e-invoicing between vendors, buyers and issuing banks.
By encouraging companies to increase their use of commercial cards, be they physical cards or payments processed by MasterCard, we are going to see the dematerialising of paperwork and a major boost for EIPP.
Is MasterCard providing the EIPP software to enable SMEs to benefit?
No we are not; we are working with third party suppliers of EIPP systems. Our job is to provide the global platform for transactions and the flow of data necessary to allow the EIPP systems to do their work, not least in Europe in the way they account for VAT to the different tax authorities, the requirements for which vary from jurisdiction to jurisdiction.
What is the new EIPP software coming to market and where will it sit with the systems already used by large organisations? Will it be plug-and-play?
So far, the focus of the software houses has been on the top companies that have helped pay for the development of EIPP systems. But now there is a movement towards systems designed for smaller businesses that may ultimately be plug-and-play.
But the key consideration for us at MasterCard is not so much the software but what it provides, which is the next step in the value chain. We are looking to build a holistic solution. E-invoicing by itself does not for instance do much for the vendor, because you still have issues like delinquency and receivables management to be addressed.
However, when you start adding the MasterCard payment mechanism and the guarantees that come with our authorised transactions, it immediately addresses the receivables management for a supplier.
So this is what you mean by MasterCard acting as a facilitator?
Yes, an EIPP system by itself is fine from a data collection, record-keeping point of view, but for the merchant, it does not bring any certainty about the payment. However with MasterCard, the merchant enjoys our payment guarantee. The transaction details are submitted instantly and the merchant can normally be paid within two or three days.
All transaction data flows are integrated within MasterCard and our global data warehouse so the reporting and invoicing go into our system and then into the merchandisers’ or purchasers’ EIPP.
We appreciate that there are currently various levels of interaction by different players in the marketplace but by routing transactions through MasterCard, where we are already at the forefront with a sizeable position in the EIPP space, we believe that businesses and organisations obtain new efficiencies in accounts payable and receivable, cut costs, boost cash flow and improve their carbon footprint into the bargain.
We have already built a global infrastructure to handle any transaction and we therefore believe that we have all the right assets to be able to position ourselves strongly in the EIPP market space.
Are these new developments applicable only to MasterCard purchasing cards or do they also cover traditional travel and entertainment [T&E] cards?
From our point of view we see no difference between the cards, so yes both these transactional cards are being handled. Let me put this in context. Companies buy and source goods and services and whatever is purchased and wherever the transaction, it is sourcing.
In the past T&E has been regarded as a separate indirect cost that is treated differently, but we do now see a fundamental change in this. One indication of the change is that you see travel managers in larger companies are now coming under the control of the strategic sourcing directors. This is an indication that companies are starting to see T&E as sourcing like any other service.
Gianfranco Tabasso, a member of the EC’s experts group on e-invoicing and co-ordinator of CAST, stresses the importance of working capital management improvement programmes and its relationship with e-invoicing, and the automation of the financial supply chain (FSC).
When times are hard liquidity becomes the top priority for companies. Unfortunately, the current crisis in the capital markets and the shaky state of the banking system has made it harder to come by external sources of financing, such as capital and loans, and has increased costs.
With falling sales revenues, senior managers are increasingly looking for ways to free up cash within their companies such as delaying investments, cutting operating expenses and reducing working capital requirements.
Freeing up cash
Working capital management (WCM) is a CFO’s primary responsibility and the major source of internal financing, with corporations on both sides of the Atlantic operating with excess working capital, estimated in the order of €1,000bn.
“Companies that cut CC days improve their ROCE, showing up in the first quartile of C2C ranking in their industry.”
Working capital accounts roughly for 15% of sales and 20% of total capital employed. The appeal of focusing on working capital stretches beyond the balance sheet by positively affecting P&L. Effective management of working capital can also allow a one-off release of cash and ongoing cost benefits. Working capital management is therefore of strategic importance and a key driver for operational and financial performance and market valuations.
Improving the cash conversion cycle (C2C) is a key responsibility of CFOs and cash cycle (CC) days are the key indicators of WCM. There is a relation between good WCM and financial performance. Companies that cut CC days improve their ROCE, showing up in the first quartile of C2C ranking in their industry. For instance, according to Ernst & Young, between 2001 and 2005, 3M company managed to reduce CC days by 26%, and improved ROCE in the same period from 25% to 39%. BT cut C2C from 27 to 11 days and went from a negative ROCE in 2001 to 10% in 2005.
The potential of WC
Ernst & Young estimates that the leading 1,000 European companies have a €420bn ‘excess’ of working capital, or 18% total working capital. By implementing best practices they could see an annual cost reduction of €18bn. For these companies, realising the full working capital cash and cost potential would reduce debt by 33%, increase net profit by 8% and improve ROCE from 13.5% to 15.4%.
The same projection shows that these companies have a WC reduction potential of -47% (inventory -16%, A/R -15 %, A/P +24%). Comparable US companies have a -36% potential, having done some of the work already.
Improvement programmes tackle each component of WC and specialists and well-established methodologies can be used to reduce inventory, re-negotiate terms of trade with clients and suppliers, improve payments and collections, and improve conditions with banks.
Working capital and e-invoicing
You may be convinced of the importance of WCM improvement programmes but what is their relationship with e-invoicing and automation of the financial supply chain (FSC)?
FSC automation and e-invoicing are the most powerful tools to reduce working capital requirements, cut operating costs, increase quality of service, reduce operational risks, and improve relations with suppliers, customers, banks and other parties along the chain.
Unlike other methods for improving WC that usually end in a zero-sum game, dematerialisation, standardisation, and full integration of the links of the chain creates a win-win situation.
Corporate Action for Standards (CAST), an ongoing initiative of the European Association of Corporate Treasurers, estimates that if European companies switched from paper to electronic invoicing they would make annual savings of €243bn. Individual companies could reduce administrative process costs by as much as 80%.
A combination of e-invoicing and ‘reverse factoring’ could also cut financing delays by 37 days and reduce interest rates for suppliers.
Another area that is labour-intensive and prone to errors is automatic reconciliation of A/R with incoming payments. CAST studied a number of cases and found that possible improvements affected each component of the cycle, including sending, receiving, controlling and booking of an invoice, payment, remittance advice, reconciliation and booking of payment.
CAST recommended the use of new XML standards for the invoice, remittance advice and payment, improvements in ERP functionalities and more cooperation between the parties. The result is a higher degree of end to end straight-through processing (E2E STP) which benefits all parties.
Until recently, few CFOs thought of electronic invoicing, standards, the internet and FSC automation as strategic projects that demanded their attention and involvement. It was considered too technical, something to be left entirely to CIOs and IT managers. The evidence gathered by CAST in 2007-2008 shows how the presence of financial departments is still minimal in FSC automation projects.
But times are changing. A survey of German CFOs shows how e-invoicing ranks as the number one area for potential improvements. The study found:
- 76.4% of CFOs prefer an integrated solution for the financial supply chain to optimisation of single components because there is more potential in a harmonised approach
- 52% consider the interlocking of financial processes with customers and suppliers to be fundamental
- Although 25% of the IT budget is allocated to financial processes only 6% are content with their financial processes.
“Standards are primarily set by banks, ICT providers and consultants, all from the ‘sell side’.
Setting standards
To work efficiently and operate at low cost, a ‘network economy’ needs commonly accepted standards. To obtain cooperation, the solution must benefit all participants in the chain, for example it should achieve E2E STP in communication and interfaces with internal procedures, which is possible only by adopting the same standards.
After years of confusion and dispersion, a ‘new world order’ is taking shape, with ISO and UN CEFACT recognised as the international standards in the business domain. Under the aegis of ISO 20022, a new family of XML standards has been developed over the last four years, covering the area of payments, invoicing, financing and securities.
Various standards organisations, covering single industries, are adopting XML and wish to register under the ISO label, which guarantees compatibility and acceptance. While this is fine in principle, there is a problem with the limited involvement of end-users in setting standards. Corporates and CFOs take standards for granted and few companies send their experts to organisations and working groups that evaluate and develop business standards. Standards are primarily set by banks, ICT providers and consultants, all from the ‘sell side’.
Another anomaly with standards is that, despite their importance, there is little or no money supporting their development. Experts have other jobs, their time for standards is limited. There is no money for field research and testing.
SWIFT is a notable exception. It employs experts, has a budget, pays expenses of working group members and has always tried to include corporates in its development process. But often, corporate response has been disappointing.
Therefore, CAST’s other major objective is to familiarise CFOs with the world of standards and commit them to support development work.
Standards organisations need corporate people to define business requirements, evaluate and test finished results. Corporates experts must sit at the same table as banks, ERP providers and standards experts to produce workable solutions. SEPA is the latest unfortunate example of standards decided by banks alone.
Tying it together
E-invoicing is the linchpin of the financial value chain because it starts the payment cycle, records monetary amounts in GL and provides VAT to governments.
Directive 2006/112/EC, amending Directive 2001/115/EC, currently rules VAT and e-invoicing but the EC has published a proposal of amendments and an expert group created by the commission is at work to provide a European e-invoicing framework to overcome barriers and provide incentives for faster growth of e-invoicing, particularly among SMEs.
What are the barriers and the problems of e-invoicing? The primary barrier is legal uncertainty in cross border e-invoicing. The VAT directive left too many options to member states and too much room for interpretation. The result is the existence of national legislations with differences that make it complex and expensive for a multinational and/or its service provider to be compliant in all the countries where it operates.
Today there is little interoperability between operators of different countries, because of competition, cost, complexity, and the risk of ‘loss of control’ when conferring a file to another intermediary who is not the final end-user.
Some of the differences and complexities concern the use of electronic signatures. The directive defines three systems for producing a valid electronic invoice: EDI, advanced electronic signature, and other means to prove authenticity and integrity. Most countries opted for electronic signature. The Nordic countries, the UK and a few others chose EDI and other means.
In the current directive, the concern of the legislator is data protection including proof of origin, authenticity and the integrity of the electronic document, from its creation to its archiving. The proposal changes all of this. Directives must be technology-neutral with no prescriptions but only high principles, a code of practice and best-practice guidelines. The basic principles are:
- equal legal treatment for paper and electronic invoices
- control in internal processes of companies is more important than data protection.
Electronic signature is allowed but no longer prescribed as a method for producing valid e-invoices.
To be approved and adopted by member states by the end of 2012, the new directive must be voted in unanimously by the European Council. National communities are starting to evaluate the proposal and its implications. Smooth sailing through the council is by no means guaranteed.
Source: www.the-financedirector.com
Lufthansa is reducing costs and paper consumption with OB10 e-Invoicing in its accounting department.
Lufthansa has announced that it is implementing electronic invoicing with OB10, the world’s leading e-Invoicing network. The objective is to use the OB10 service to generate tax-compliant invoices, thereby reducing invoice management costs both in Germany and internationally.
“OB10 is an international operation - like Lufthansa - and fulfils our requirements for electronic invoice processing in the countries that are most important to us. Thanks to our ANY-TO-ANY DATA FORMATTING we can handle any type of invoice format - without requiring our customers or their suppliers to install additional hardware or software.”
“We are proud that with Deutsche Lufthansa AG, we are working with another client who wants to encourage their suppliers to become part of our global network.”
Although the majority of invoices at Lufthansa in Germany are already received via EDI (with the accompanying summary invoice) thousands of paper invoices for goods and services still arrive at Lufthansa every year. The manual processes for managing incoming invoices are not only time-consuming and costly, but also prone to error. All of this will now come to an end. As part of the new e-Invoicing project, which will initially be implemented in Germany and eight other countries including the US, the UK and Canada, the majority of invoices will be processed completely in electronic form using OB10.
Lufthansa equips itself for the future
In addition to the cost savings e-Invoicing delivers, Lufthansa expects the cooperation with OB10 to lead to considerable process simplification. Over the medium term, the entire Financial Supply Chain is to be moved to an electronic process. Additional advantages of the e-Invoicing system include faster transmission of invoices and significantly improved data quality as invoice information is fed directly into the ERP system and its associated archive. Lufthansa will also benefit from higher productivity in its invoice processing due to the automated validation of invoice data. Furthermore, pure electronic invoicing will greatly reduce the number of invoices from suppliers that cannot be allocated, and therefore significantly reduce the accompanying queries and complaints regarding payment. e-Invoicing also has advantages for suppliers as they not only profit from reduced process costs, but also the cost and time delays associated with posting invoices.
“OB10 is an international operation - like Lufthansa - and fulfils our requirements for electronic invoice processing in the countries that are most important to us,” says Martin Steuernagel, Department Manager for External Accounting at Deutsche Lufthansa AG. “That makes OB10 the ideal partner to simplify many of our more complex external invoicing procedures with e-Invoicing. What really tipped the scales for OB10, however, was the supplier enrolment programme, which will ensure that our international suppliers and partners will also be promptly connected to the OB10 network. Nobody else offers this type of programme - in seven different languages - and it will help us save valuable time and resources as we implement the overall project.”
“Thanks to our ANY-TO-ANY DATA FORMATTING we can handle any type of invoice format - without requiring our customers or their suppliers to install additional hardware or software,” adds Jamie Gunn, CEO, OB10. “We are proud that with Deutsche Lufthansa AG, we are working with another client who wants to encourage their suppliers to become part of our global network.”
About OB10
OB10 (www.OB10.com) is the leading global B2B e-Invoicing network. OB10 simplifies and streamlines the complex invoice-to-pay processes. Neither client organizations nor their suppliers are required to implement any hardware or software, and OB10 is independent of data file formats. OB10 can reduce the cost of paper invoice processing by typically 60 percent and can deliver an ROI in less than a year if the program follows OB10′s best practice guidelines. Operational across Europe, North America and Asia, OB10 is compliant with the requirements of VAT, tax and e-Invoicing legislation and receives invoices from suppliers in over 100 countries. To ensure unrivalled and rapid supplier enrollment, each new customer’s suppliers are supported by an implementation services team responsible for getting them up and running on the OB10 network.
Logica, a leading IT and business services company, today announces an extension to its partnership with OB10, the largest global electronic invoicing (e-invoicing) network. The new interoperation agreement brings together the scale, geographic spread and full tax compliance from two large e-invoicing networks with nearly 50,000 corporate users across more than 90 countries between them. It will enable customers of both networks to accelerate cost savings from e-invoicing worth millions of Euros every year.
Both e-invoice networks feed invoice data directly into ERP and accounting systems, delivering significant cost savings and business process efficiencies to customers. The networks are a key component of Logica’s award winning total invoice management (TIM) solution.
With OB10, the total invoice management solution streamlines paper and electronic invoice processing. TIM addresses the key challenges to the successful deployment of electronic invoicing, including accurate line item detail, legal compliance, archiving and leveraging existing ERP functionality to maximise straight through processing. Importantly, the service includes a programme to recruit a client’s supplier-base backed by volume assurances.
Accounts Payable paper invoices can each cost up to euro 50 to process, accounting for both the direct and indirect costs. Logica’s total invoice management solution allows organisations to achieve cost efficiencies (up to 70 per cent per invoice) and streamline their invoice payment processes. Because data is delivered directly into the accounting system, e-invoicing leads to improved efficiency, speedier VAT recovery and greater accuracy in reporting and forecasting. As well as their positive environmental impact, e-invoices offer improved support for corporate governance initiatives.
Already, more than 10,000 organisations send over 30 million electronic invoices a year over Logica’s network and benefit from significant improvements in both purchase-to-pay and order-to-cash processes.
Garry Young, director invoice management practice at Logica, explains the benefits of the interoperation agreement for customers: ‘Inbound paper invoices are expensive to process with an average direct cost alone, of between euro 5 and euro 15 per invoice. For an enterprise processing 250,000 paper invoices a year that represents potentially euro 3,750,000 every year in direct costs. ‘
‘One key factor in achieving cost savings from e-invoicing is to ensure that your supplier base agree to send invoices electronically. Logica’s TIM service provides customers with 100 per cent electronic data from day one, via a combination of scanning and optical character recognition (OCR) of paper invoices and e-invoicing provided both by OB10 and Logica’s own network. In addition, OB10 manage the company’s supplier enrolment to the e-invoicing service, a key element in the success of the TIM business benefits case for clients. Through this interoperation agreement, we will accelerate the migration away from paper to e-invoices and deliver even greater cost savings to our respective clients.’
‘All existing customers will benefit as we work to move them away from paper scanning and OCR to ‘true’ e-invoices. OB10 customers will benefit from Logica’s large number of Nordic based corporate users, whilst Logica customers will benefit from OB10’s broad spread in Europe, North America and the Asia-pacific region.’
Jamie Gunn, CEO at OB10, comments: ‘We are delighted to extend our partnership with Logica. This interoperation agreement strengthens OB10’s commitment to growth by helping us to open up markets in the Nordic countries and adds value to Logica’s customers through our global e-invoicing capability. We are looking forward to continuing a prosperous relationship that adds real value to both Logica’s and OB10’s customers.
The Semantic Interoperability Centre Europe’s repository of interoperability assets has passed an important milestone. Two new core components were provided by the French Ministry of Budget’s General Directorate for State Modernisation (DGME), pushing the number of available solutions into the triple digits.
The 100th asset is a specification of “Financial Institution” in France. It is used as a standard to describe an institution, such as a bank, building society, credit union, stock brokerage, or similar business.
Other data models and solutions span domains as diverse as employment and energy, agriculture and public health.
SEMIC.EU cooperates with numerous European projects and experts. Among the providers are the European Commission itself, Eurostat, the eGovernment units of Austria, Denmark, Finland, France, Germany, Italy and the Netherlands, regional agencies from Italy and Spain as well as international organisations like OASIS and the Dublin Core Metadata Initiative.
Examples of transnational interoperability assets:
- MoReq2 (Model Requirements for the Management of Electronic Records)
- IDABC’s schemas for public procurement
- European Arrest Warrant
Examples of national models include:
- Interprana (extensive Italian model for person-related data)
- Austrian life event catalogue
As a service, SEMIC.EU gives active support to eGovernment projects that intend to reuse existing semantic solutions tailored to their own needs.
The Semantic Interoperability Centre Europe is one of the “horizontal measures” of the European Commission’s programme “Interoperable Delivery of European eGovernment Services to public Administrations, Businesses and Citizens” (IDABC). Others include the European Interoperability Framework (EIF), the Open Source Observatory and Repository (OSOR.eu) and the European Union Public Licence (EUPL).
Source: www.epractice.eu
Organisations across all industries are feeling the impact of the current economic downturn and looking for ways to cut costs and increase efficiencies without disruption to their productivity. Ideal solutions should be implemented swiftly; leveraging earlier IT investments and not requiring large capital investments.
According to the European Commission, businesses across Europe can save up to 18 billion € by using an e-Invoicing solution. The Aberdeen report from May 2007 quotes a reduction of processing costs of 74 - 89%. Whether you are looking to cut costs quickly or sustain your business for future growth, OB10 will help you achieve your goals:
Reduction in costs – OB10 customers reduce by typically 60%
ROI in less than one year
Improve efficiency – removing manual tasks
Sustain your business growth
Focus within your organisation – improve efficiency and reduce costs
We all know that paper invoicing is inefficient, expensive and error prone. It uses expensive resources to manually input data and deal with supplier queries due to lost invoices, incorrect or missing information resulting in inefficiencies and inaccuracies which can affect cash flow management and effective forecasting.
Imagine if the manual invoice handling process could be removed. If data was received directly into your accounting system – containing all the information you require. As a business you would immediately increase efficiency, reduce processing time and costs and rely on invoice data for cash flow and forecast management.
Electronic invoicing from OB10 enables your suppliers to send data in their preferred format directly to your accounting system. We will work with you and your suppliers to ensure you receive reliable, tax compliant electronic invoice data. This not only enables you to remove manual input from the process and to focus staff on tasks that add value to your organisation, but also provides accurate real-time data to improve working capital and management reporting.
> Find out more on how e-Invoicing from OB10 works
Get the most from your suppliers
There has never been a more important time for buying organisations to support their supply chains. Suppliers are an integral, essential component of your business. Many suppliers are struggling due to the drop in business volumes, late payments and pressure being placed on them to squeeze profit-margins. It is important to you and the success of your business that your suppliers can continue to offer their services or products through the economic downturn - for your own benefit.
Reduce your costs and support suppliers with Supplier Payments
The Supplier Payments service is a powerful combination of e-Invoicing and innovative supply chain financing from Abbey UK Corporate Banking, bringing benefits to buying organisations and suppliers alike.
Developed with our partner Abbey UK Corporate Banking, this proven working capital solution reduces the cost of finance for the whole supply chain. In contrast to most other forms of supply chain financing, the payment is provided in the form of early cash to the supplier. Because payment is made early, your suppliers benefit from a reduced cost of finance and are able to provide services or products to their full potential. At the same time, you are able to support your suppliers during this difficult economic situation whilst maintaining your working capital position. Alternatively you may choose to negotiate a reduction in the cost of goods purchased.
To 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.
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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.
Source: ibls.com
The Observatory on Electronic Invoicing and Dematerialization was set up in 2006 by the Politecnico di Milano’s School of Management with the specific aim of demonstrating the inherent value of adopting electronic invoicing and document dematerialization processes and, in general, of digitalising the entire order-payment cycle. At the same time, the Observatory seeks to encourage a wider and more advanced adoption of these technologies within the national economic system.
By clicking the link below you can read the report: “Electronic Invoicing as a “keystone” in the collaboration between companies, banks and PA.” (Politecnico di Milano (2008): Report 2008, Observatory on electronic Invoicing and Dematerialisation)
Click the link to obtain access to the report
You will be redirected to the ICT & Management Observatories by Politecnico di Milano website.
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