E-archiving for VAT: Compliance in a Digital World

Filippa Jörnstedt
May 5, 2020

Compliant archiving of original invoices and similar tax-relevant documents has long been overlooked. As companies gradually made the move to digitize existing paper processes, invoicing became a prime area for transformation into e-invoicing. However, requirements for long-term electronic archiving in traditional tax law were not always adapted in time to reflect the specific challenges of the digital age. Where such modernization was nonetheless attempted, tax administrations often lacked the experience to provide detailed best practice guidance. These circumstances led taxpayers in many countries to – without much prior thought – gradually begin exchanging binders of original paper invoices for a generic type of electronic storage, without necessarily investing in strong safeguards fit for tax audit purposes. As companies continued to digitize their commercial workflows and trading partner communications, tax administrations feared the emergence of an auditability deficit that would allow an already-considerable VAT gap to grow to unmanageable proportions.

Digital transformation of tax gathers pace

Partly in response to this fear, the digital transformation by tax authorities across the globe shows no sign of slowing as governments continue their quest to reduce fraud and tax evasion to close VAT gaps. Inspired by successes in Latin America and other pioneering countries, tax authorities around the world act independently to enforce their own specific technology-based Continuous Transaction Controls (CTC) frameworks. As a result of this global revolution towards the transactional enforcement of consumption taxes, many companies with a multinational footprint are finding themselves under growing pressure to make sure their invoicing and reporting processes are integrated with diverse tax administrations in each and every country in which they do business.

Archiving – more than just storage

It’s understandable, against this backdrop, that the electronic archiving of invoices has not received as much attention as real-time or near-real-time data integration. To many companies, the compliant archiving of invoices and similar original tax documents has remained little more than a simple box-ticking exercise. And yet, the introduction of CTCs coupled with the digital transformation of business is fundamentally changing the nature and importance of archiving. Archiving and maintaining excellent evidence of business transactions will soon become crucial to ensure that businesses can substantiate their version of the truth in case of inconsistencies between their records and the ledgers that tax administrations constitute on the basis of CTC data. Excellent evidence management, however, needs to consider the increasing fragmentation of business transaction management over multiple cloud-based vendors and platforms.

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Author

Filippa Jörnstedt

Filippa Jörnstedt is a Regulatory Counsel at Sovos TrustWeaver. Based in Stockholm, Filippa’s background is in international e-invoicing compliance and global regulatory developments. Fluent in English, Italian, French, Romanian and her native tongue Swedish, Filippa earned her degree in Law from Lund University in Sweden.
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