- Plans are afoot for the implementation of new EU legislation which will equalise the treatment of electronic and paper invoicing.
- At present, different rules apply to electronic invoicing in different jurisdictions and so any negotiation of e-invoicing contracts should be approached with particular caution.
In January 2009, Commissioner Kovacs (EU Commissioner for Taxation and Customs) announced the intention that paper and electronic invoices would receive identical treatment. He estimated this could save up to €18bn a year across the EU.
Current electronic invoicing rules are complicated, and are based on EU Directive 2001/115. The procedures are set out in detail on the HM Revenue & Customs website (www.hmrc.gov.uk), and are potentially difficult to apply in practice. According to HMRC, electronic invoicing offers many advantages over traditional paper invoicing including:
- Better security of data and documents
- Faster and easier access to invoices
- Improved audit tracking
- Less reliance on paper
- Savings in processing, handling and storage
- Fewer disagreements relating to invoices and payments
- Faster payment.
The key issue for HMRC is to ensure that the accuracy and authenticity of electronic invoices is equivalent to those on paper, which requires adequate checks on security and integrity. There are concerns that if invoices are not issued and are stored electronically in accordance with the Directive, suppliers or customers may not hold sufficient evidence to reclaim the VAT. Invoice data needs to be stored securely in a way that allows users to:
- Keep hold of invoice data
- Prevent data from being corrupted
- Reproduce original invoices at any time in a readable format
- Find invoices quickly and easily.
The trade association, ICC, has responded to the Commission's announcement with a paper "Applying ICC Information Compliance Principles to Current EU and Global Debates on E-Invoicing". The ICC contrasts VAT laws for paper invoicing with electronic invoicing practices, the latter of which tend to be prescribed by revenue authorities. This has led to different approaches to electronic invoicing being adopted in different territories. The ICC welcomes the Commission's proposals provided that technology neutrality is respected between different e-invoicing solutions. However, technology neutrality can lead to uncertainty. The ICC therefore proposes that tax authorities should be obliged to publish implementation-relevant information describing the technology and process choices that they will consider compliant, without discriminating amongst the available options. The ICC recommends that these regulations should have the force of law so that legal uncertainty is avoided.
Conclusion and practical steps
The ICC's report is a welcome contribution to the debate, emphasising clearly the respective roles and responsibilities of the private sector in developing e-invoicing solutions and of governments to prescribe which solutions are acceptable.
Negotiation of e-invoicing contracts will remain complicated until new EU legislation clarifies the currently inconsistent practices that are in place across Europe. Practical hints for negotiating contracts include:
- Ensuring that technology neutrality is respected in e-invoicing contracts
- Drafting agreements with sufficient flexibility to comply with the existing regulations, and future regulations
- Agreeing on the responsibility for legal compliance with e-invoicing (which primarily rests on the customer who uses the solution) and cost of change
- Incentives for suppliers to ensure that acceptable technical solutions are provided and, that these are warranted to be compliant with applicable law to avoid the risk for customers using e-invoicing solutions.
In recent years there has been a trend in international outsourcing and supply agreements for customers to include provisions requiring suppliers to adopt the customer's e-invoicing solutions. These clauses should still be treated with caution. There is an adequate opportunity for both parties to agree on an acceptable technical solution and for the costs to be properly allocated and understood between supplier and customer if and when the e-invoicing solution is actually required.
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