Recent surveys identified a number of barriers for the introduction of electronic invoicing including the perception of complexity, unclear legislation and absence of standards. The largest obstacle to the adoption and the use of electronic invoicing are ambiguous laws and regulations.
Although the laws and regulations have changed in the past years this feeling remains present among many of us. Especially cross-border invoicing does not seem to come from the ground - mainly - due to these laws and regulations.
Is all of this caused by ambiguous laws and regulations or by the way European authorities and Member States have implemented these regulations. One such bottleneck is the regulatory environment surrounding the use of electronic signatures.
.What is the regulatory environment surrounding the Electronic signature?
The European Commission on 28 January 2009 adopted a proposal to change the VAT Directive 2006/112/EC (from 28 November 2006) with respect to the invoicing rules. The European Commision published a communication on the technological developments in the field of electronic invoicing (COM/2009/20).
The aim of the proposal is to increase the use of electronic invoicing, reduce burdens on business, support small and medium sized enterprises (SMEs) and help Member States to tackle fraud. This publication includes also measures aimed at further simplifying, modernizing and harmonizing the VAT invoicing rules.
The proposed changes for electronic invoicing are:
- Treat the transmission of paper and electronic invoices equally by removing the conditions for advanced electronic signatures (AES) and electronic data interchange (EDI).
- Notification and acceptance by the receiver of the invoice and Tax Authorities is no longer required instead normal commercial practice will apply.
- Period of storage: Common storage period of 6 years within Europe for VAT invoices.
- Format of storage: Paper invoices may be converted into electronic form for storage purposes. Storage of invoices in original format is no longer required.
- Place of storage: No conditions for the place of storage other than that the invoice must be available without undue delay. The invoice should no longer be online available when held outside the Member State of the supplier or customer.
- Notification of the place of storage: Notification is no longer required.
- Date of supply of an Intra-community transaction = date of chargeability of tax, date when the tax is due to Treasury. The invoice should no longer contain the date of supply but instead the date when the tax is due.
- The invoice has to be issued before the 15th of the month following the date of supply.
The requirements imposed on the authenticity of origin and integrity of content of the invoice are changed by this proposal. The Dutch government adopted the proposal in less than a few weeks after announcement. Just in time for us to tell the Dutch Tax Authorities that we were not going to implement the advanced digital signature for the project Electronic Ordering and Invoicing with the Dutch Tax Authorities which went live in July of 2008.
Going for a technology-neutral solution is the fastest path to adoption of electronic invoicing in Europe. The last year several organizations raised seriously questions on the usage of advanced digital signatures as implemented by most European countries.
1) The Fiscal Committee of the European Tax Advisers - Confédération Fiscale Européenne (CFE) - expressed themselves clearly about the requirement of sophisticated encryption methods for both electronic invoicing and archiving. In their Opinion Statement on VAT formalities from 26 September 2008 - Review of the existing legislation regarding invoicing - they replied on the European Commission's online consultation to ascertain the view of businesses on the existing legislation on VAT invoicing.
“The CFE expresses its major concern about the requirement of sophisticated encryption methods such as for example advanced electronic signatures, for both the electronic invoicing and electronic archiving. There is no evidence that such encryption procedures are necessary.
Complex national encryption requirements imposed on the issuers of invoices are totally useless when the VAT is due from the customer, rather than the supplier, which is the position with many international or intra-community supplies.”
2) The European Association of Craft, Small and Medium-Sized Enterprises aisbl (UEAPME), the European SME umbrella organization, incorporates 83 member organizations from 36 countries consisting of national cross-sectorial SME federations, European branch federations and other associate members, which support the SME family.
The UEAPME replied on the European Electronic Invoicing (EEI) Final Report, the findings of the European Expert Group on E-Invoicing, with the following statement: “There is no need for onerous security measures when it comes to the authenticity and integrity of e-invoicing, particularly when businesses can prove that proper internal control processes are in place. Therefore, equal treatment of paper invoices and einvoices relates foremost to authenticity and integrity. As the experience in practice shows, e-invoicing is used most in those countries which treat paper and e-invoices the same when it comes to integrity and authenticity.”
See document Taskforce reply to EEI Draft Recommendations from 22 September 2008.
Internal business controls, if properly implemented, should be a sufficient reassurance to tax. Although an electronic signature is a method to prove authenticity of origin and integrity of content, the issuance of e-invoices should not trigger the obligation of an electronic signature if authenticity of origin and integrity of content can also be proved by other means.
3) The Expert Group on E-Invoicing advised to eliminate the usage of the advanced digital signature:
“The Expert Group envisages a ‘Model Contract for secure Data Exchange’ as the ‘legal solution’ capable of promoting wider use of e-invoicing by SMEs (in addition to a standard cross-industry ‘basic’ e-invoice and a major role of banks). The ‘Model Contract‘ would not prescribe digital signature but define other ‘simpler’ methods of ensuring an ‘acceptable’ level of authenticity and integrity of the documents exchanged.”
The Communication from the Council to the Commission on the technological developments states: “There is at present no single business-friendly technology to support e-invoicing throughout the EU that satisfies both large and small businesses and has full support of all tax authorities. Moreover, there is no clear prospect of a suitable technology-based solution encompassing the needs of all parties in the next few years. Thus technology should not be relied upon to improve the take up of e-invoicing. “
The Expert Group on E-Invoicing set up by Commission Decision states in an open letter to the Commission: “Any solution to e-invoicing should be technology-neutral as a matter of principle.”
Finally, one cannot formulate it better than done by the Finish Information Society in 2005: “It is all about Trust and Confidence. The first difference of the opinion usually springs from the very attitude towards trust and confidence. In Finland, generally speaking, the initial attitude is trust and confidence with the parties being dealt with, unless otherwise proven. In a number of countries, on the other hand, the starting point is that the opposing parties are all crooked – or at least subject to justified suspicion – therefore security and auditing systems must be on fail proof level. This difference in opinions creates really major differences in demands also for electronic invoices.”
Bo Harald, Chairman EU Commission Expert Group on E-Invoicing, says in his video-statement “there are 238 billions reasons - to begin with ... but we are highjacked by technology companies”. See the e-Business News Channel for the video-statement of Bo Harald.
WE ARE HIGHJACKED BY TECHNOLOGY COMPANIES.
Electronic Invoicing - 238 bilion reasons - to begin with...
Bo Harald
Lesson learned from examinations and investigation of the legal and fiscal regulations and evolution over the past months is that there is no way back from here. The fastest path for adoption of electronic invoicing is a technology-neutral solution where at current there is no place for continuation of the advanced digital signature.
When more countries adopt this proposal towards the 1st of January 2013 the issues of authenticity of origin and integrity of content will have to be embedded in financial systems, procedures and reconciliation of cross-country tax reporting / declarations. Business Control will become the keyword and it is up to us to deal with it.
Tags: electronic data interchange, Government, e-Invoicing
Last update: 26-11-2011