The Rise of The Clearance Model
Worldwide, approximately 80 eInvoicing mandates have been declared. Africa lags behind, but, on every other continent some form of eInvoicing is now a requirement for businesses issuing invoices to other businesses or governments (B2B or B2G). And that is not all – Business to Consumer invoicing is on the rise as governments seek to digitise trade. In addition, cross border transactions are becoming subject to eInvoicing mandates, so if you sell to overseas customers, there is a strong chance that you will be affected in the coming 1-3 years. Why are governments so keen to make invoicing electronic? In a word, tax.
There is a growing recognition that electronic invoicing can be used to keep a record of trade transactions that can be used for tax audit purposes – to give governments visibility of financial exchanges and to help them enforce conformance with tax regulations. In recent years, the Continuous Transaction Clearance (CTC) model has won favour. This model gives tax authorities near real time visibility and record of transactions as invoices must be either pre-approved by the tax authority and stamped with a reference code, or sent simultaneously to the tax authority when they are sent to the customer. Governments stand to gain financially from these new systems but businesses must bear the cost of compliance and connectivity with the systems and networks on which they operate.
Digitise to Monetise
The clearance or CTC model is an economic instrument being deployed by governments in an effort to close the VAT gap. In some countries up to 24% of the VAT due has remained uncollected. This equates to billions of pounds, euros, dollars etc., and is money few governments can afford to let slip. Electronic invoicing through secure networks is seen as the means to improve transparency between businesses and tax authorities and help revenue collectors close the tax gap.
Given the financial impact on governments worldwide of the COVID 19 pandemic, and the forthcoming cost of meeting climate change targets, it is fair to assume that more countries will move in the direction of the CTC model to clamp down on tax evasion and hold businesses to account with less effort on the part of the tax authorities. Every new mandate, however, places a new set of technical requirements on businesses that trade in the area covered. There is no standard format for electronic invoicing – there are some popular standards, but even these are modified. Additional fields or variations on UBL and XML persisit – the invoice formats vary widely – here are some that we deal with:
- OASIS UBL 2.x
- ISO/IEC 19845:2015
- PEPPOL BIS 3.
- ISO 19005-3
- CEN/PC 434
- CEN/PC 440
Bearing The Cost
As more mandates are introduced, the effected businesses will need to add further EDI connections and make adjustments to their invoicing software in order to output the invoice structured data format required for the country in question. A proliferation of invoice mandates means that multi-national businesses will be particularly impacted financially and technically by changes. This is a daunting task and one that businesses seek our advice on. Businesses can manage one or two EDI connections but as the demands on their organisations escalate, the problem becomes one of scale. In addition to the technical challenge there is also a burden on businesses to keep track of regulatory changes and plan ahead to meet deadlines. For these reasons, more and more organisations are turning to us to act as a one-stop-shop and advisor in maintaining an economical and technically compliant solution for their global customer base.
A Partner You Can Trust
We fight the battle of keeping up to date with compliance changes for many customers. Why go it alone and risk making costly mistakes when you can benefit from the experience and technical capability we have from supporting other businesses to maintain compliance and connectivity for eInvoicing. We are always pleased to discuss your challenges and advise on solutions with us, or with others, that can work for you in the short to medium term and see you through the inevitable raft of changes that is coming in the next 1-3 years.
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For more information on the VAT gap and the number of eInvoice mandates in play, either for the post-audit model (businesses submit reports on demand to tax authorities),