Trends in E-Invoicing Compliance: Real-Time Tax Clearance and Transaction Automation

As technological tools advance, business leaders are continuing to implement new methods to monitor regulatory compliance at their companies and with their business partners.

Every aspect of business is affected by digital updates, such as companies that have worked to streamline their expense reporting methods through automation or e-invoicing.

E-invoicing methods are used to produce and oversee transactional documents used between business partners and to ensure that the terms of their trading agreements are complied with.

Recently, Sovos TrustWeaver released the 10th edition of its paper analyzing the trends that are currently affecting global e-invoicing compliance. The new edition outlines a global trend toward real-time tax clearance of invoices and how it affects daily businesses’ operations and business-to-business transaction automation strategies.

“This 2018 edition of the Sovos TrustWeaver white paper on global e-invoicing is a treasure-trove of analysis and facts about the digital tax tsunami that few experts would disagree is now a solid global trend,” Bruno Koch of Billentis writes in a foreword to the new paper.

The paper also summarizes the regulatory status for more than 70 countries, as well as an in-depth analysis of the ways in which tax authorities worldwide are making use of e-invoicing abilities to boost their collection rates.

Koch wrote that those at Billentis, a company offering analysis of the electronic invoice market, and others who have invested in the past 15 years to provide thought leadership regarding e-invoicing, have been “alarmed at the lack of attention that international businesses were paying to the major paradigm shift in transaction tax enforcement.”

During the last year or so, Koch says, many corporations have begun seeking efficient methods to halt tax regulation from undermining their digital transformation agendas.

Sovos TrustWeaver offers cloud-based compliance services for e-invoicing and other legally critical documents for more than 60 countries. According to its website, Sovos TrustWeaver aims to help customers by ensuring they comply with evolving international regulations that are pertinent in B2B processing, in addition to assisting governments as they work to implement “a unified process for e-governance.”

According to Sovos TrustWeaver, the trend toward the required transaction-oriented integration of e-business systems with public authorities has accelerated since the company’s most recent white paper on the topic.

“The growing consensus among e-invoicing and VAT professionals is that indirect tax controls are quickly evolving towards real-time, whereby tax administrations essentially become a ‘third trading partner’ in the exchange of sales and purchasing data between suppliers and buyers,” the company stated.

The new white paper offers tools for companies to create strategies that prepare for developments in digital tax and plan for such developments to better support digital transformation strategies, Koch explained.

Sovos TrustWeaver defines electronic invoicing as “the sending, receipt and storage of invoices in electronic format without the use of paper invoices for tax compliance or evidence purposes.”

Methods that involve scanning incoming paper invoices, or exchanging electronic invoice messages with paper-based originals are not considered in line with electronic invoicing from a legal perspective, the paper explained.

According to the white paper, the majority of multinational corporations aim to streamline their invoicing processes and IT systems, and tend to consider paper-based systems and processes as a red flag.

An additional benefit of using automated invoicing initiatives is that doing so can reduce processing cost reductions by as much as 90 percent, the study said.

“Many corporations increasingly seek to dematerialize their diverse invoice flows by taking advantage of modern cloud-based business networks for procure-to-pay and order-to-cash solutions,” the paper states. “Electronic invoicing is often a key enabler for unlocking the larger benefits of such end-to-end business process automation.”

Business leaders are also urged to consider the trend among tax administrations to regulate and monitor business transactions for value-added tax (VAT) enforcement using electronic methods. Sovos TrustWeaver notes that governments are taking steps toward increased control regarding invoicing processes, as well as providing a framework for business strategies to ensure that government controls do not conflict with digital transformation goals that are considered necessary for companies’ competitiveness as digital methods continue to evolve.

The paper explains that the principle behind VAT is that the government receives a portion of the value added at each step of an economic chain, concluding with the consumption of the goods or services by an individual.

Although all parties involved in the economic chain pay VAT, only businesses can deduct their input tax. This means that VAT requirements regarding invoices typically apply to interactions between businesses.

Many governments use invoices as documentation for determining the “indirect” taxes that corporations may owe them. Sovos TrustWeaver explains that VAT is the most significant indirect tax for the vast majority of  trading nations throughout the world, contributing more than 30% of all public revenue.

“VAT as a tax method essentially turns private companies into tax collectors,” the paper states. “The role of the taxpayer in assessing the tax is critical, which is why these taxes are sometimes referred to as ‘self-assessment taxes.’ ”