Changes Ahead for Travel and Expense Management in a World of Real-Time Tax Controls?

Christiaan Van Der Valk
September 6, 2017

Anyone who travels for work knows the pain of sorting through weeks’ or months’ worth of receipts and completing clumsy spreadsheets. If you work in a company’s financial administration and are on the receiving end of these messy expense reports, you’re not much better off. It should not be a surprise that the market for ‘travel and expense’ (T&E) software to alleviate these pains is estimated to be worth more than 3 billion USD by 2020. Despite this encouraging adoption rate, this growth may not come without mounting challenges for travel and expense management due to rapid changes in tax law and practice.

Tighter controls for validating employee professional expenses

In many countries, tax administrations have historically shown remarkable tolerance for the tax deduction of employees’ professional expenses on the basis of flimsy consumer receipts rather than the full-blown invoices that are typically required for that privilege. With tax administrations rapidly implementing real-time controls for B2B and B2C transactions, this grey zone between non-deductible consumer purchase and deductible business expense will disappear in large parts of the world. And with that, T&E vendors will have to get used to a new, stricter way of validating expenses on behalf of their customers.

Judging from practices in countries that have introduced real-time ‘clearance’ systems for e-invoices, the future normal case will be that an individual who buys goods or services for professional purposes, but outside his employer’s existing procurement process, must ask the supplier for a proper – read: electronically ‘cleared’– B2B invoice which identifies the employer as the buyer. Since the original invoice in this case will then normally also have to be communicated to the recipient in electronic format, the consumer will likely need to specify a dedicated email address from his employer’s travel and expense management SaaS vendor. This invoice flow will be outside of any established corporate accounts receivable processes that may already be set up to seamlessly validate inbound invoices with clearance platforms in such countries; therefore, it is a legitimate expectation from the receiving enterprise that the T&E application perform such buyer validation on its behalf.

“Voluntary” receipt validation

In some countries, it may be possible to continue to present consumer bills as deductible expenses. These cases, however, will be equally affected by the trend towards real-time clearance. We are seeing a lot of countries experimenting with real or virtual ‘secure cash registers’ which permanently communicate with a tax administration server. Since consumer receipts are ordinarily not deductible from any kind of tax, these systems are not set up with an obligation on the buyer to validate the receipt – but ‘voluntary’ receipt validation against the clearance platform is often possible. It is our expectation that a T&E vendor would be expected to perform such validation if the receipt is to be accepted as a deductible expense for its customer.

Travel and Expense Management: Preparing for changes ahead

While some may claim that clearer rules for deductibility of expenses strengthens predictability in corporate tax management, the e-invoice or e-receipt validation capabilities that T&E platforms will gradually have to onboard are not trivial: countries are developing mandatory ‘clearance’ processes for suppliers and buyers using a variety of different authentication and digital signing mechanisms, file and communication standards, and ‘clearance’ transaction types. Leading T&E vendors are already charting out plans to support these changes and use them for competitive advantage. It will be interesting to see how the rest of the market will adapt.

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Christiaan Van Der Valk

Christiaan Van Der Valk is vice president, strategy. Elected a World Economic Forum Global Leader for Tomorrow in 2000, Christiaan is an internationally recognized voice on e-business strategy, law, policy, best practice and commercial issues. Formerly co-founder and president of Trustweaver (acquired by Sovos), Christiaan also holds long-standing leadership roles at the International Chamber of Commerce (ICC) and the European E-invoicing Service Providers Association (EESPA). Over the past 20 years, he has presented at and authored key papers for international meetings at the Organisation for Economic Cooperation and Development (OECD), the Asia Europe Meeting, World Trade Organization and several other UN agencies. Christiaan earned his Master of Laws degree from Erasmus Universiteit Rotterdam.
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