Member states in the European Union are losing billions of euros in value-added tax (VAT) revenues because of tax fraud and inadequate tax collection systems. The EU VAT Gap (difference between expected VAT revenues and VAT actually collected) is massive – has been for a few years now, actually. In 2016, the EU estimated the gap to be 147 billion euros (about 160 billion USD). Generally speaking, Southern European countries are more likely to have low tax morality.
However, this is expected to change drastically. One reason for that is the EU directive 2014/55, which member states have a duty to implement. The directive’s focus is the regulation of electronic invoices regarding public services and public institutions; the so-called B2G (business to government) sector. Consequently, more than 300,000 public administrations in EU member states must prepare their systems and processes for e-invoicing.
Increasing tax revenue as motivation
Since the EU directive has been established, member states have been trying to implement it – with more or less success. Italy, Hungary and Spain are the frontrunners. Greece and Romania are not up to par yet, but they are on their best way to actually implement the e-invoicing directive. The motivation behind it? Closing tax gaps and consequently increasing state revenue.
Since January 1, 2019, it is mandatory in Italy to issue all domestic invoices in a defined electronic format and transfer them via a state-run e-invoicing platform. This pertains to all invoices with Italian issuers or recipients; meaning all national invoices as well as invoices from other countries to Italy and vice versa. Same goes for Hungary, where there will be a state-run e-invoicing platform in the near future.
If companies do not comply with the mandate requirements in Italy or Hungary, it may result in significant penalties.
It’s important to note that image-based invoices do not constitute electronic invoices according to EU 2014/55. This means that incoming invoices as PDF present a challenge to electronic invoice processing because the e-invoicing information is not structured. However, structured electronic e-invoicing information is a prerequisite of digitalization.
B2G and B2T support e-invoicing
One way or another, companies have to deal with e-invoicing eventually; especially since many internationally acting corporations work for public administrations. They therefore have to issue their invoices to public institutions in a standardized, electronic and structured way. Ignoring or avoiding e-invoicing is just not an option anymore.
However, implementing a system or a new process is not enough. Regarding formats, transfers and legal requirements (contents, audits, retention periods and more), there are different regulations in every country that companies have to take into consideration. Furthermore, legislation can change at any moment, making it necessary to be prepared to quickly react to such changes.
For companies who already have to implement e-invoicing because they are working with public institutions, it’s reasonable to consider electronic invoices for all B2B partners. From this perspective, e-invoicing can be seen as starting point of digital transformation.
E-invoicing is a sustainable way to accelerate digitalization in general. One important reason for that are cost reductions thanks to automation. According to recent studies, traditional or manual processing of incoming paper or PDF invoices costs 11 euros on average. Electronically processing invoices and e-invoicing solutions reduce that number to about 80 or 90 cents.
Global e-invoicing needs expertise
Integrated e-invoicing has grown over time to become its own discipline with numerous solutions ideally covering various processes, integrating different components or functionalities, and working independently of existing ERP systems.
E-invoicing solutions should be able to tackle a wide array of challenges. For example, they should be able to process different formats of incoming invoices and prepare them for subsequent processes, for example by converting, adding master or order data from ERP systems, as well as creating and transferring data records to ERP systems like SAP. Furthermore, electronic invoicing solutions have to be able to evaluate, release, protocol and archive invoices for clarity and reliability or due to legal regulations. Additionally, sustainable e-invoicing solutions should offer broad workflow features.
Sophisticated integrated e-invoicing solutions (especially cloud ones) do not only cater to the need of major corporations on the international stage, but also consider the requirements and demands of mid-sized local businesses. While being capable of doing both, Seeburger’s cloud e-invoicing solutions with pre-defined country-specific functionalities are used more by big corporations.
Hybrid models are also a viable solution if they are able to combine cloud functionalities for receiving, converting and controlling invoices with on-prem processing, posting and archiving. This is especially true for centralized SAP systems.
However, the most important aspect is and will always be that companies are able to use new technologies or trends as well as changes in the market to their advantage, be it on the national or international stage.
Customers who opt for an international e-invoicing service provider are at an advantage here. Acting globally, said service provider would naturally always know about recent trends and new developments concerning e-invoicing, consequently being able to support customers with a powerful solution and recommendations for process changes or how to react quickly to changes in the market.