Understanding E-Invoicing and E-Reporting Models: A Comprehensive Overview

[Music] hello and welcome to avalara's webinar on e-invoicing and e-reporting models

explained i'm alex borth senior director of global injury attacks avalara and i'll be

presenting today so in terms of today's agenda i'll be setting the scene looking at the

global invoicing mandate timeline looking at the countries that have introduced the invoice in today's

and looking ahead over the next two to three years looking at the big mandates across the world

we're also going to set the scene looking at some key terminology and and how this can be quite a complex

area for e-invoicing i'll then be looking at the different models

that we typically see across the world including the post-audit model the clearance model

the clearance model involving governments physically issuing the invoice

we'll be looking at the concepts of embedding continuous transaction controls or ctcs

into these models and we'll be looking at peppal and the four corner model that's associated with it

and then finally i'll be looking at the future of e-invoicing and what models are we likely to see

adopted and what are the key trends first of all i just wanted to provide a

bit of background about avalara hopefully you know who we are already

um we've been disrupting the status quo of tax since our inception in 2004 we currently

have products and solutions that cover injury attacks across 193 different countries and we're trusted by over 30

000 companies globally avalara provides technology solutions across the entire

vat and global injury attacks life cycle so this is everything from the registrations

vat gst sales tax classifying your products for vat and customs duty vat determination and calculation getting

the right sales tax vat or gst at the point of sale through to

actually creating and sending receiving invoices as well as the preparation and

submission of vat gst and sales tax returns i'm now going to look

at the timeline looking back at the last 10 years there have been a lot of countries that have

introduced invoicing but as you'll see the majority of these

have been outside of europe particularly in latin america brazil was one of the first countries to

introduce invoicing on a mandatory basis about 10 years ago and ever since then other countries in

the region have followed italy was the trailblazer within europe

with its sdi invoicing mandate coming in in 2019 but then the majority of other

reporting requirements in europe haven't necessarily focused on the mandatory issue of the invoices

but have involved other forms of digital reporting this year in 2022 we've seen a raft of

new regulations and requirements including portugal mandating the use of qr codes on invoices but that equally

applies to paper invoices as well as invoices and we've seen a number of countries

launch pilots or voluntary regimes reinvoicing so a great example of that is poland with its kcf

invoicing platform that's initially available now on a voluntary basis

before it will become mandatory in 2024 looking ahead over the next two to three years we are going to see a

wave of new invoicing rules and mandates so from january next year serbia will mandate b2b invoicing under its effect

torah project and the kingdom of saudi arabia ksa will also move to phase two of its invoicing project

where invoicing solutions will need to connect direct to the saudi arabian tax authority we're also going to see the

spread of the invoicing further across the apac region with china's

efalpio mandate spreading

as well as pepe invoicing in australia new zealand japan and singapore but the real game changer is 2024

when we're going to see huge european economies mandate b2b invoicing for the first time so that's going to include

france from july 2024 so from that date over four million businesses will need to be in a position to receive

electronic invoices and the largest businesses in france will have to issue

all of their invoices in mandated digital formats we're going to see similar mandates in spain belgium

slovakia and romania that year and then looking ahead to 2025 26 most likely the rest of europe will

follow and we may even see that timeline sped up through reform from the european

commission and in november this year we will see the legislative proposals in relation to

invoicing and digital reporting so as well as talking about the common models that we see around the world free

invoicing i also wanted to use this webinar to tackle some of the complex terminology

because invoicing can be very technical it has its own language some from some very generic terms

that you'll see here on the screen to some very specific and tech driven terminology

some of these are unique to individual countries others relate to

specific formats or other technical specifications and hopefully at the end

of today's webinar you'll learn some of these phrases words and you'll feel more

comfortable so i'm now going to look at some of the common models

and to begin with i'm going to look at the post-audit model often known as the post-issue audit and this is really the

traditional the legacy approach how tax authorities currently order businesses how they get

access the data and documentation but also this is the most common business as

usual process for businesses how they physically issue and receive invoices today so under the post audit model it's

the supplier that sends the invoice to the customer direct where there's no specific mandates

this also includes paper invoices particularly within the european union a paper invoice any invoice have parity

the tax authority only receive data and documentation when they request it

that might be in person the traditional tax inspector coming out for a meeting for an audit

for an inspection and even then the amount of data or documentation they

view is normally quite small it's normally just on a sample basis yes they may

follow up to request more but this is after the fact

it could be a matter of weeks months and in some cases years before a tax authority actually has visibility

over an individual transaction so what does e-invoicing look like under the post-audit model what are the key

features well it's very similar to paper invoicing

but the difference is tax authorities may stipulate certain controls or requirements around the invoice that is

shared with the counterparty with the customer so where there's a mandate these tend to

be more formal more rigid but where a country allows the invoicing on a

voluntary basis there is generally more discretion around the business controls that can be

used so how are invoices shared direct well this is either direct peer-to-peer

so from one business to another perhaps machine to machine or it could be virus service provider so

a third party provider who takes an invoice in any format converts it to the relevant format and

then shares that either direct with the customer or

via the customer's invoicing solution one of the advantages of this is it allows for automated invoice processing

but of course under this model the government the tax authority doesn't see the data it goes direct

to the customer and again would only be visible and shared in the event of an

audit or an inspection so in terms of the general trend we're seeing it's

actually moving to a clearance model otherwise known as a pre-issue clearance this is the new and also future approach

to invoice issue that tax authorities are following and it's also changing

the nature style and emphasis of a tax authority orders so under this model the supplier

actually sends the invoice to the tax authority first so the tax authority sees the invoice

and the underlying transactional data before the customer does the tax authority

will clear the invoice for issue so in effect validate provide approval for that invoice to then be sent to the

customer that may involve the addition of a digital signature to show that it's been

approved it may have a unique invoice number allocated by the tax authority in terms of this clearance

the tax authority will run various checks on that invoice various semantic and logical checks that

could be on the structure on the format on the syntax the contents it could also involve checks on the

customer itself you know is the vat number that you've identified the customer has correct

so this provides the tax authority with full transactional data all the data from every single invoice

issued so they're now in a very powerful position

they don't really need to rely now on periodic audits they have a huge data set they can run

analytics exception reporting even ai on that data set to uncover any issues with it with the data quality

tax errors inconsistencies and even fraud

and trying to fight fraud is one of the big drivers of the invoicing and particularly this model

tax authorities are looking to reduce the vat gap in their respective country and maximize

the collection of vat so one slight variation on that clearance model is where the government

tax authority becomes the actual issuer of the invoice so

you know it can be said that they actually own the invoicing network a great example of this is italy

with its sdi platform and in italy is actually the sti platform run by the government that

physically issues the invoice to the customer so it's more than just providing

approval and okay to send they actually receive the data validate it and then the government is the party

that then shares the invoice with the customer with the counterparty

and the customer can only receive the invoice by accessing it from the government portal

i quickly wanted to explain what a digital signature is digital signature is a process of

encoding a digital document to prevent tampering and within it em voicing is used by governments and tax authorities

to ensure the authenticity of the sender the business that's raising and issuing that tax invoice in a in an e-format

um but it's also to ensure the integrity of the data to evidence that it hasn't been tampered

with it hasn't changed over the entire life cycle of that

invoice it can be known as an advanced or qualified electronic signature and individual governments can mandate

or create and define their own requirements for that signature

but validation is typically performed by trusted certificate authorities as well as third-party trusted service

providers i'm now going to talk about the pekkal network

what is peppel pepple seems to be the buzzword at the moment everyone's talking about it but what is it well

people stands for the pan-european public procurement online and it's not called that by accident it's called that

because it was actually set up to create a common standard for public procurement across the eu so b2g business to

government and peppel is both a delivery network how an invoice is issued and shared and

received by different parties but it also

encompasses a set of standard specifications for invoicing to ensure interoperability

between different parties different systems and within europe different countries the

people standards actually meet the main european invoicing standard which is en 16931

and you connect to the people network via access points

typically run by certified pepper providers is managed by the open peckle

association and the pebble standard is acceptable across the eu for public procurement so

the 27 eu member states but we've also seen pepper start to expand outside of europe across asia pacific

and there are now people associations and people networks to share invoices not just for b2g

but also b2b on a voluntary basis at the moment in australia new zealand singapore and shortly japan

the latest common standards for people on which the main requirements are built is

called pebble biz 3 or pebble biz billing 3.0 and this is the compliant implementation

of the european invoice and standard and this pepper model is built on the idea of having four corners

so what do we mean by four corners well under the four corner model and

pepper is a great example of that there are four corners underpinning the issue

the exchange and the receipt of the so c1 is the center of the invoice

it sends the invoice to c2 which is the service provider that it has

that service provider will convert the document into the relevant format and then send that to the service

provider of your customer in turn that service provider will then

send the invoice direct to the main receiver of the invoice again your customer

there is choice in terms of you know which provider c1 or c4 pick it's ultimately a commercial

decision service providers convert that data to standard specifications

and each sender and receiver only need to have one service provider they have complete free choice

and actually you're not locked in to a contract you know you can

change providers in the future you don't have to select one and be stuck with that same

provider for life there are no fees charged between service providers

but service providers tend to charge on a per document basis to their own customers their clients who

use the service under this model you typically require a dynamic discovery

of your customer say for example an online directory to identify who's on the network and how you send

that invoice to them i'm going to briefly talk about continuous transaction control

or ctcs so this is quite a generic term used to describe a number of different

digital control mechanisms which are increasingly being used by tax authorities across the globe to monitor

the management of indirect tax looking to control compare triangulate data received through

invoicing clearance models as well as as well as other forms of digital reporting

ctcs are often embedded within a four corner model but it does this by bolting on two

additional corners so one corner being the tax authority

and another being whatever portal or system that it's using to

receive that data it's even been suggested that europe the european commission is looking

at the ctc model as one of the most favored models to recommend to tax authorities across

the eu to implement and it appears that a number of eu member states and tax authorities are

looking at this you know could we very soon see european member states

scale their own people invoicing systems that they currently use to b2g

but scale that for b2b across the entire country another buzzword or acronym that is

often used for invoicing is esper so esper is the european invoice service provider association

this was actually an initiative set up by the private sector creating a pan-european trade

association for the invoice service providers so this is generally

run and made up of e-invoicing software providers

it also includes diverse stakeholders including network business outsourcing finance financial

technology and edi service companies avalara is a member and esper is working to improve

interoperability looking to promote best practice and helping align all the service

providers together and actually you know we've recently seen esper announced they're gonna

move forward with an alliance with open people so starting to work closer together

on the same leadership positions helping to promote interoperability across the entire of europe

so i've talked about different models and within the invoice and we also have different formats

some of those formats are very much designed for machine to machine xml language

that can be centered to another system to a technology platform

and can be read by a machine and posted automatically but i think it's quite important to look

at the legibility requirements within the invoicing because ultimately tax authorities

as well as the business themselves the customer the ap function order says

other key stakeholders will need to be able to read an invoice understand it approve it

so i wanted to quickly talk about something called factoryx so this is one of the acceptable formats

in france from 2024 it is a hybrid pdf that is actually a normal human readable

pdf with embedded xml this is also identical to the german standard

and this is a collaboration between the germans and the french

and i think you know a great example of where we may see invoicing move in the future

this hybrid model looking at something that can be read and interpreted equally by a

machine and a human and it's probably as close to business as usual as you can get

i wanted to quickly provide an overview of avalara's invoicing solution so this is a scalable single solution

that's been designed to meet ian voicing requirements in over 60 jurisdictions

this involves invoice data conversion converting to and from various different invoicing formats as mandated across the

world including pepper that we mentioned and factory x

as well as other traditional formats such as xml and pdf this can also involve

required encryption of invoice data as well as the addition of any mandated

digital signatures the solution will transmit the invoice data to the relevant party so depending

on the model that could be direct to your trading partner to your customer

or it could be direct to a mandated platform to a government entity

where that will then come back to avalara and sent on to the customer or in some instances you know like we

mentioned italy the government will then send the invoice direct to your customer

and this has been designed for a seamless integration so connecting direct

to your web platform your erp or other billing platforms and on the screen now you'll see a very

high level overview of how we integrate how the avalara

invoice and cloud connects to different tax authorities and meets relevant

required formats mandates specifications and standards so regardless

of the invoicing model that the government has mandated or whether the country itself just

allows invoicing on a voluntary basis subject to local rules and requirements avalara has you covered

we can meet those requirements so finally i just wanted to discuss

you know is there going to be the potential to harmonize invoice and models across the world

and what are we seeing what are the key trends well

i see future people expansion i've already discussed about other countries

across apac already jumping on the people train australia new zealand singapore japan

we'll most likely see more countries across europe outside of the eu but also across apac

start to introduce people we may see some change from the european commission so the vat and the digital age report

has recently been released and there'll be legislative proposals coming out in mid

november this may actually remove some of the barriers the european countries introducing invoicing so

potentially replacing the need to obtain a derogation and replace that with a simple

notification we may see the european commission also really push and promote

the eu's own invoicing standard and you know while this most likely won't stop

individual countries introducing their own invoicing systems and platforms and

rules for example france spain poland romania slovakia belgium you know

will continue to move ahead at the same speed and scale it may be the european commission

recommends that individual countries simply allow the european standard to be used

i think we'll also see the increased use of qr codes so switzerland has recently mandated the

use of qr codes for payment data portugal has mandated the use of qr codes on all invoices

and saudi arabia is doing the same and if you look at the draft requirements for spain's ui invoicing

rules in 2024 it looks like spain will also adopt the qr code and i think ultimately every single tax

authority will want to be involved in every transaction in the world so we'll we will see mandatory invoicing

spread it's not a question of if a country will introduce e-invoicing

but really when and it's most likely that this will be a pre-clearance model

that is the trend and i think we'll see more and more countries adopt that in the next three to four years

will we see harmonization well people's latest standard the pins which

is the pepper international document model should provide the opportunity for greater global interoperability

and it's almost the 80 20 rule so we may have 80 percent complete harmonization and then providing a bit of discretion

for countries either on an individual on a regional basis or even for specific industries

start to add some additional data fields that may be required and another trend as well as the

invoicing i think we're going to see the continued spread heavy reporting

so e-reporting is where there isn't necessarily a mandate to issue a document electronically to the customer

this might be b2c transactions it may be cross-border invoicing

but instead the data from that invoice or receipt is reported to the tax authority

normally using the same invoicing platform but it ultimately means the tax

authority have that data so they have the same visibility and they can run after the fact audits

on that data so that is the end of the formal presentation

i hope you found this useful i now wanted to see if we've got time to answer a couple of questions i know

they've been coming in so thank you for that um

one question here what model has the uk adopted in relation to invoicing

what is making tax digital well the uk hasn't mandated

invoicing and making tax digits was merely the way the the vat return is submitted

to hmrc the tax authority so very much the the poster boy

of the typical post order model the only exception to that is you know if you

provide goods or services to the nhs the national health service the nhs has actually mandated the use of

people invoicing so that's been mandated over the last 18 months so

you know if you do have the nhs as a customer you know do double check the requirement are you able to connect to

the pebble network and issue compliance invoices to the nhs another question that's just come in you

talk about pepper and the need to connect via a certified pepper provider

is avalara certified um we'll shall answer yes we are a certified pepper provider in europe and

also in australia i think we might have time for one more question

um i got it again it's actually australia you mentioned australia

has joined people does the australian tax office receive the invoice data

and apply ctcs so actually a very good question um in australia the

pepper authority is the tax authority of the ato but they don't receive

or validate or approve any of the data um you know within

that invoice that's been issued by the people network they merely verify the standard the

format under people they don't look at the tax they don't verify the tax they don't

collect the tax that may change you know we know what the direction of travel is

and you know as i said before you know my prediction is it is a matter of when not if

countries will mandate e-invoicing and start embedding clearance and continuous transaction

controls so thank you very much for listening i hope you found this useful and

insightful please do feel free to reach out to me direct

my email address is on the screen now please follow me on linkedin you can read our blogs

download our ebooks or webinars on demand at avalora.com and we hope to see you in the future on

other avalara webinars thank you very much and have a great day