The clearance model: time to say goodbye to invoicing as we know it?

Not so long ago, entrepreneurs were getting ready to implement solutions allowing tax declarations to be filed in the Standard Audit File for Tax format. On 1 January 2019, Italy became the first country in Europe to make e-invoicing obligatory for all B2B and B2C transactions. A significant change happened on 18 April 2019, which was the definitive deadline for European public administration authorities to be prepared to receive structured e-invoices. The revolution is gaining momentum, are we ready?

Tax administration has never been so easy

VAT is a significant source of income in the budgets of European Union Member States. It is no surprise then, that tax authorities take actions intended to facilitate VAT administration. Their main goal is to tighten up the system in order to reduce the VAT gap, as a result of several factors, including VAT returns under false pretences – the biggest source of losses for European countries. On the one hand, legislation is being passed, while on the other hand, a major role is being played by the growing European tendency to replace paper invoices with their electronic equivalents, which gives countries more control over VAT paid by taxpayers.

In the past, enterprises were much ahead of tax authorities in terms of digitisation of processes and electronic exchange of documents. Over time, some countries have introduced the possibility of filing tax declarations online, while others have permitted their taxpayers to issue e-invoices. These decisions were usually motivated by the wish of simplifying procedures and making life easier for taxpayers. Since VAT is an important element of public sector revenue, we have been observing tendencies to promote the electronic exchange of documents with tax administration authorities for several years now. Thanks to technology, they can gather and analyse more data from taxpayers than ever before.

Digitisation of invoices

There are two global approaches to electronic invoices: the clearance model and post-audit. In the clearance model, invoices cannot be issued directly between the buyer and the seller, but first, they have to be presented to a tax authority (like it’s done in Brazil and Mexico) or sent to government servers (like it’s done in Italy and Turkey). This approach allows tax authorities to control transactions in real-time, which in practice means stricter control over tax collection and the possibility to respond rapidly if non-compliance is discovered in terms of tax reporting.

In Europe, the post-audit model is prevalent: invoices are exchanged directly between the seller and the buyer, and tax authorities verify transactions after their completion. In many EUMember States, the obligation to report data to tax authorities using SAF-T or a similar, domestic format is very popular. This solution was first adopted in Portugal and then spread to other countries, such as Luxembourg, France, Poland and Hungary. The solution proved to be very efficient, often allowing tax authorities to obtain information about transactions almost in real-time, but was not as effective as the clearance model, which puts the tax authority at the centre of the transaction.

Common standard for public trade in Europe

As previously mentioned, an important step towards e-invoicing took place on 18 April 2019 - the deadline for European tax administration authorities to be prepared to receive structured electronic invoices in accordance with Directive 2014/55/EU. Its purpose is to ensure a harmonised environment for e-invoicing across the EU. In response to these requirements, the OpenPEPPOL association came up with one of the largest initiatives in terms of e-invoicing in the world. Its purpose is to increase the competitiveness of suppliers, at the same time retaining a homogeneous environment across the EUthat would not create barriers for implementing e-invoicing on the European market.

An impulse for deeper changes

As the solutions developed by OpenPEPPOL are being implemented, some countries are drawing on experiences in Latin America, a region that has been successfully using the clearance model for years. These are primarily countries that are facing similar problems: tax evasion and VAT fraud resulting in massive losses of revenue. Italy is the EUMember State with the largest VAT gap. According to the Study and Reports on the VAT Gap in the EU – 28 Member States: 2018 Final Report in 2016, the difference between the expected revenue on account of the VAT and the actual result amounted to EUR 35 billion. It is no surprise then that it became the first EU Member State to follow the example of Latin America. Once Italy has decided to switch to e-invoicing not only in contacts with government administration, but also across the entire economy, obligatory e-invoicing has become a hot topic in Europe.

It seems that the intention to implement real-time tax controls is a real change in the European market. One could expect other countries to follow suit (the first signals in this respect are already coming from Greece).

In the age of a revolution, a solid partner is a must

More and more organisations operate internationally. This strategy requires the implementation of new solutions in terms of company management and it may also mean taking into account various government regulations. Today, legal compliance is a requirement that cannot be ignored, especially given the staggering pace of changes in regulations. On the eve of this digital revolution, it is important to choose a reliable partner capable of assisting global companies in implementing solutions correctly, and keeping them informed about upcoming changes in advance.

This editorial was first published in the B2B Payments and Fintech Guide 2019, which offers insights and analyses from thought leaders on key industry topics such as cross-border payments, instant payments, B2B commerce, payments infrastructure, e-invoicing, and many more.

About Adam Beldzik

Adam is a Director of the E-INVOICING Business Unit. He has more than 17 years of experience in the IT environment. He joined Comarch in 2005, connected with ERP and BI division. Since 2010, he has been managing B2B communication teams (ECM and EDI) in the fields of consulting, product management, R&D, service desk, development and implementation. Mr. Beldzik has supported and managed global projects for clients such as Auchan, T-Mobile, Valeant, BP, BIC, Technicolor, Carrefour and Rossmann.

About Comarch

Comarch E-Invoicing is one of the Comarch brand which provides cutting-edge technology, allowing the enterprises to automate the supply chain and invoicing processes. A comprehensive approach to both internal and external cloud-based collaboration with all partners including the exchange of product, merchandising, analitical, logistic and financial data, delivers the best results. Consequently, companies are provided with fast and secure access to reliable data, optimisation of processes with Robotic Process Automation, and lower document handling costs.