Update: 7 December 2023 by Carolina Silva

Spain Establishes Billing Software Requirements

The long-awaited Royal Decree, establishing invoicing and billing software requirements to secure Spanish antifraud regulations, has been officially published by the Spanish Ministry of Finance.

The taxpayers and SIF developers, defined further below in this article, must be aware of several new official deadlines set forth by the Spanish tax authority in the Royal Decree:

• From 1 July 2025: Only ordinary SIF or Verifactu-approved billing systems may be used to prepare and submit invoices for the taxpayers under scope
• Billing software developers and sellers must offer their product fully adapted within a maximum period of nine months from the approval of the Ministerial Order that specifies all the technical details, which is still to be approved

Therefore, companies that fall within scope must ensure their computer systems are adapted to this regulation as of 1 July 2025.

Looking for more information on tax compliance in Spain? This page can help.

Update: 10 February 2023 by Carolina Silva

Understanding Spain’s Verifactu system

The Spanish government is pursuing various routes for digitizing tax controls, including introducing software requirements on the billing system.

In February 2022, Spain published a Draft Royal Decree establishing invoicing and billing software requirements to secure Spanish antifraud regulations.

The Draft Decree ensures billing software meet the legal requirements of integrity, conservation, accessibility, legibility, traceability and inalterability of billing records. It sets standards for systems known as SIF (Sistemas Informaticos de Facturación).

To comply with SIF standards, taxpayers may use a Verifactu system – a verifiable invoice issuance system which is further detailed later in this article.

Since publishing the Draft Decree and concluding its public consultation, the Spanish tax authority has released draft technical specifications for the Verifactu system and a list of modifications to be introduced to the Draft Decree. One is the estimated date of entry into force of the billing software requirements.

What is a Verifactu billing system?

Among the many SIF requirements established in the Draft Decree is the capability to generate a billing record in XML format for each sale of goods or provision of services. This needs to be sent to the tax authority simultaneously or immediately before the issuance of the invoice.

The Draft Decree establishes two alternative systems taxpayers can adopt to comply with the technical standards of the SIF: the ordinary SIF and the Verifactu system.

A Verifactu system is a verifiable invoice issuance system, and its adoption is voluntary under the Draft Decree. Taxpayers who use computer billing systems to comply with invoicing obligations may choose to continuously send all the billing records generated by their systems to the tax authority.

A Verifactu billing system complies with all the technical obligations imposed by the Draft Decree., Taxpayers use the system to effectively send all billing records electronically in a continuous, automatic, consecutive, instantaneous, and reliable manner.

Benefits of the Verifactu billing system

A taxpayer opts for a “verifiable invoice issuance system” by systematically initiating the transmission of billing records to the tax authority. If the systems are Verifactu, invoices must include a phrase stating so.

There are several benefits for taxpayers who decide to opt for a Verifactu system:

• As companies send the billing records to the tax authority, the formal acceptance response will automatically incorporate the information from such records into the taxpayer’s book of issued invoices.

Current deadlines

Taxpayers and SIF developers must be aware of several deadlines set forth by the Spanish tax authority. These are still part of the draft development of the SIF and official deadlines are outstanding:

• From 1 July 2024: Only ordinary SIF or Verifactu-approved billing systems may be used to prepare and submit invoices. The Draft Decree deadline was 1 January 2024, but the Spanish authority postponed it following a public consultation.
• Billing software developers and sellers must offer their product fully adapted within a maximum period of nine months from the regulation’s entry into force.
• Also within nine months, the Spanish tax authority must ensure that the service for receiving billing records for the Verifactu systems becomes available.

What’s next?

Although still in draft form, it’s expected there will be official publication of the Draft Royal Decree – along with a Ministerial Order detailing the technical and functional specifications of the billing systems. Official publication of the Verifactu technical specifications is to come.

The Draft Decree explicitly states that its implementation is compatible with an electronic invoicing mandate which is also underway in Spain. Therefore, taxpayers must ready themselves to comply.

For further information on the incoming changes to tax in Spain, speak with a member of our expert team.

Update: 24 February 2022 by Victor Duarte

The Spanish Ministry of Finance has published a draft resolution that will – once adopted – establish the requirements for software and systems that support the billing processes of businesses and professionals. This law will have a significant impact on the current invoice issuance processes. It will require implementing new invoice content requirements, including a QR code, and the generation of billing records by January 2024.

The regulation is also intended to adapt the Spanish business sector, especially SMEs, micro-enterprises, and the self-employed, to the demands of digitization. For this, it is considered necessary to standardise and modernise the computer programs that support the accounting, billing, and management of businesses and entrepreneurs.

Scope of the regulation

The regulation establishes the requirements that any system must meet to guarantee the integrity, conservation, accessibility, legibility, traceability and inalterability of the billing records without interpolations, omissions or alterations.

The new rules established in the regulation will apply to:

• Taxpayers subject to corporate tax (IS), except for exempt or partially exempt entities.
• Taxpayers subject to income tax for physical persons (IRPF) who obtain income from economic activities.
• Taxpayers subject to income tax for non-residents (IRNR) with a permanent establishment in Spain.
• Entities under the income allocation system carrying out economic activities.

Companies that do not fall within the above categories do not need to comply, but those who do must ensure their computer systems are adapted to this regulation as of 1 January 2024.

New invoice content requirements: ID and QR codes

Invoices generated by the computer systems or electronic systems and programs that support the billing processes of businesses and professionals must include an alphanumeric identification code and a QR code, generated per the technical and functional specifications established by the Ministry of Finance.

Billing system requirements

The computer systems that support billing processes must have the capability to:

• Generate a billing record for each delivery of goods or provision of services, simultaneously or immediately before the issuance of the invoice.
• The computer system must be able to send all the billing records generated to the State Tax Administration Agency (AEAT) in a continuous, secure, correct, complete, automatic, consecutive, instantaneous, and reliable manner.
• The system must be provided with traceability, verifying the sequence of data creation. It will create an event log that collects all the system operations and incidents during its use.
• The records created may not be altered by the user or any internal or external means.
• The systems must add a fingerprint or ‘hash’ to the billing records, according to the specifications and the electronic signature.

To achieve these ends, all computer systems must certify that they ensure the commitment to comply with all the requirements established in this regulation through a “responsible statement”. The Ministry of Finance will establish the minimum content of this statement later in a new resolution.

Billing record content and its optional transmission

The billing records must comply with several content requirements laid down by the regulation.

The taxpayers using computer systems to comply with their invoicing obligations may voluntarily send all its billing records generated by the computer systems to the AEAT automatically by electronic means. The response of a formal acceptance message from the AEAT will automatically mean that these records have been incorporated into the taxpayer’s sales and income ledgers.

Tax administration audits

The AEAT may appear in person where the computer system is located or used and may require full and immediate access to the data record, obtaining, where appropriate, the username, password and any other security key that is necessary for full access.

The AEAT may request a copy of the billing records, which companies may provide in electronic format through physical support or by electronic means.

Application to the B2B e-invoicing mandate

The regulation doesn’t include any specific rule for the B2B e-invoice mandate draft decree currently being discussed in Congress and waiting for approval. However, if the mandate is approved, all the B2B e-invoices issued under this draft decree will have to comply with all the new rules established in this regulation.

Next steps

While this new regulation does not seem to take Spain further down the continuous transaction control (CTC) route, the proposal has clear similarities with Portugal’s invoice requirements.

The draft resolution establishing these is currently open for public consultation until 11 March 2022. Once this resolution is approved, the Ministry of Finance will publish the technical and functional specifications needed to comply with the new requirements and the structure, content, detail, format, design and characteristics of the information that companies must include in the billing records.

The Ministry of Finance will also publish the specifications of the signature policy and the requirements that the fingerprint or ‘hash’ must meet. Once these details are published, it will be clearer whether Spain is going down the Portuguese route or carving out its own path.

South Korea has an up-and-running e-invoicing system that combines mandatory e-invoicing with a continuous transaction controls (CTC) reporting obligation. This mature and well-established system, launched over a decade ago, is seeing its first significant changes in years.

Presidential Decree No. 31445 (Decree) has recently amended certain provisions of the Enforcement Decree of the Value-Added Tax Act. Among other changes, the scope of e-invoicing has been expanded and a new timeline and threshold limits introduced. This means that more taxpayers in South Korea must comply with e-invoicing rules in accordance with the timelines.

What is the new timeline and threshold limits for e-invoicing?

In South Korea, e-invoicing has been mandatory for all corporate businesses since 2011. From 2012, individual businesses (entrepreneurs) have also been required to comply with e-invoicing obligations if they meet the threshold limits which have been updated a couple of times over the years. Currently, an individual business whose aggregate supply value (including transactions that are tax exempt) for the immediately preceding tax year is KRW 300,000,000 or more, is required to comply with the country’s e-invoicing rules.

After the recent amendments, the current threshold is now lowered to KRW 200,000,000 and the new threshold limit will be applicable from 1 July 2022. The tax authority has already communicated further adjustments, announcing that from 1 July 2023, the threshold will be reduced further to the limit of KRW 100,000,000. The Korean tax authority aims to enhance the transparency of tax sources by requiring more businesses to comply with the e-invoicing rules.

What´s next for e-invoicing requirements in South Korea?

The expansion of the scope of e-invoicing obligations does not come as a surprise. Like in many other CTC jurisdictions, transactional data collected from a larger number of taxpayers provides greater insight to the tax authority about VAT, market trends and more.

Due to its success and maturity, e-invoicing in South Korea continues to inspire other countries in the Asia Pacific region. The Philippines tax authority is in the process of launching an e-invoicing pilot for the country’s 100 largest taxpayers from 1 July 2022. When designing their e-invoicing system, the Philippines tax authority had several meetings with its South Korean counterparts to benefit from Korean expertise and experience. Therefore, the Philippines is introducing a relatively similar CTC system to the Korean one.

On 30 January 2022, the Zakat, Tax and Customs Authority (ZATCA) published an announcement on its official web page concerning penalties for violations of VAT rules, and it is currently only available in Arabic. As part of the announcement, the previous fines have been amended, ushering in a more cooperative and educational approach for penalizing taxpayers for their non-compliance with VAT rules than previously.

What’s the new approach?

If ZATCA officials detect a violation during a field visit, the taxpayer will first be given a warning about the violation without any penalty. The ZATCA aims to raise awareness instead of penalizing taxpayers for their first violation. Taxpayers will be granted three months to comply and make necessary changes in their processes.

If non-compliance continues after the first inspection, the taxpayer will be fined 1.000 Riyals, roughly 267 USD. The penalty charge will gradually increase if the taxpayer fails to comply with the rules and doesn’t make necessary changes within three months after the notice.

The fine for each additional repetition time will be as follows: 5.000 Riyals for the third time, 10.000 Riyals for the fourth time and 40.000 Riyals for the fifth time. If the same violation is repeated 12 months after its discovery, it is considered a new violation, and the process will begin with a warning without a fine.

What are the violations of e-invoicing?

According to the announcement, the violations of e-invoicing rules will be penalized per the new procedure described above. The instances that require a notice/fine are slightly different than the initial violations described previously and highlighted as follows:

• Not issuing and storing invoices electronically
• Not including a QR code
• Non-compliance with keeping electronic invoices and electronic notes in the form stipulated
• Not notifying the authority of any malfunction that hinders the issuance of electronic invoices
• Deleting or modifying electronic invoices after their issuance
• Including any of the prohibited functions in the e-invoicing solutions
• Violation of any other provision of electronic invoicing.

What´s next?

The ZATCA states that the new approach ensures proportionality between the violation and the penalty imposed on taxpayers while giving taxpayers a chance to comply within a specific time frame. Considering that the introduction of both VAT and mandatory e-invoicing is fairly recent in the country, there are certain aspects that are unclear for taxpayers. This approach will educate businesses and is expected to be welcomed by stakeholders.

Towards the end of 2021, the tax authority in Turkey published a draft communique that expands the scope of e-documents in Turkey. After minor revisions, the draft communique was enacted and published in the Official Gazette on 22 January 2022.

Let’s take a closer look at the changes in the scope of Turkish e-documents.

Scope of e-fatura expanded

• The gross sales revenue threshold will decreased reduce. The threshold limit has been lowered from TRY 5 million to TRY 4 million and above for the 2021 financial period. A lower threshold of TRY 3 million and above will apply for 2022 and subsequent fiscal periods.
• The use of the e-fatura is now mandatory for taxpayers in the e-commerce sector when exceeding a certain threshold. The communique introduced a gross sales revenue threshold of TRY 1 million and above for 2020 and 2021 financial periods; and TRY 500.000 for 2022 and all subsequent fiscal periods.
• Taxpayers who run a business in the real estate and/or motor vehicle sector by carrying out construction, manufacturing, purchase, sale, and rental transactions, as well as taxpayers who act as intermediaries in these transactions must use the e-fatura application if their gross sales revenue exceeds TRY 1 million and above for 2020 and 2021 financial periods; and TRY 500.000 for 2022 and all subsequent fiscal periods.
• Taxpayers who provide accommodation services by obtaining investment and/or operation certificates from the Ministry of Culture and Tourism and Municipalities must use the e-fatura application.

Taxpayers meeting these thresholds and criteria must start using the e-fatura application from the start of the year’s seventh month following the relevant accounting period.

In terms of accommodation service providers, if they provide services as of the publication date of this communique, they must start using the e-fatura application from 1 July 2022.

For any business activities that start after the publication date of the communique e-fatura must be used from the beginning of the fourth month following the month in which their business activities began.

E-arsiv invoice scope expanded

Taxpayers not in scope of e-arşiv invoices have been obliged to issue e-arşiv invoices if the total amount of the invoices to be issued exceeds TRY 30.000 including taxes (in terms of invoices issued to non-registered taxpayers, the total amount including taxes exceeds TRY 5.000) from 1 January 2020.

With the amended communique, the Turkish Revenue Administration (TRA) lowered the total amount of the invoice threshold to TRY 5.000, and thus more taxpayers will be required to use the e-arsiv application. The new e-arsiv invoice threshold applies from 1 March 2022.

E-delivery note scope expanded

Another change introduced by the communique was the expansion of the scope of e-delivery notes. The gross sales turnover threshold for mandatory e-delivery notes has been revised to TRY 10 million, effective from the 2021 accounting period. In addition, taxpayers who manufacture, import or export iron and steel (GTIP 72) and iron or steel goods (GTIP 73) are required to use the e-delivery note application. E-fatura application registration is not applicable to those taxpayers.

The Tax Bureaus of Shanghai, Guangdong Province and Inner Mongolia Autonomous Region have all issued announcements stating they intend to carry out a new pilot program for selected taxpayers based in some areas of the provinces. The pilot program will involve adopting a new e-invoice type, known as a fully digitized e-invoice.

Introduction of a new e-invoice type

Many regions in China are currently part of a pilot program that enables newly registered taxpayers operating in China to voluntarily issue VAT special electronic invoices to claim input VAT, mostly for B2B purposes.

The new fully digitized e-invoice is a simplified and upgraded version of current electronic invoices in China. The issuance and characteristics of the fully digitized invoice are different from other e-invoices previously used in the country.

Characteristics of the fully digitized e-invoice

• The fully digitized invoice is supervised by the local Taxation Bureaus as part of the pilot program
• The legal effect and basic purpose are the same as those of existing paper invoices
• Fully digitized invoices can be delivered in the form of data messages, which eliminates specific format requirements such as PDF or OFD
• The basic content includes dynamic QR code, invoice number, invoice date, buyer information, seller information, quantity, unit price, amount, tax rate, tax amount, total, total price, and tax
• After the pilot program taxpayer has passed a “real-name verification” they can immediately use the electronic invoice service platform to issue invoices without the need to use special equipment for tax control (e.g., UKey device)
• Pilot taxpayers can automatically deliver fully digitized invoices through the tax digital account of the electronic invoice service platform and can also deliver fully electronic invoices themselves via email or other means

Verification of fully digitized e-invoices

Relying on the national unified electronic invoice service platform, tax authorities will provide selected taxpayers for this pilot program with services such as issuance, delivery, and inspection of fully digitized e-invoices 24 hours a day. Taxpayers will be able to verify the information of all electronic invoices through the electronic invoice service platform or the national VAT invoice inspection platform.

What’s next for e-invoicing in China?

This new pilot program has been effective in Shanghai, Guangzhou, Foshan, Guangdong-Macao Intensive Cooperation Zone, and Hohhot since 1 December 2021. Despite the lack of an official timeline for implementation, it’s expected that the scope of this pilot program will be extended in 2022 to cover new taxpayers and regions in China, paving the way for nationwide adoption of the fully digitized e-invoice.

With the most significant VAT gap in the EU (34.9% in 2019), Romania has been moving towards introducing a continuous transaction control (CTC) regime to improve and strengthen VAT collection while combating tax evasion.

The main features of this new e-invoicing system, e-Factura, have been described in an earlier blog post. Today, we’ll take a closer look at the roll-out for B2B transactions and the definition of high-fiscal risk products, as well as the new e-transport system that was introduced through the Government Emergency Ordinance (GEO) no. 130/2021, published in the Official Gazette on 18 December.

For more information about e-invoicing in Romania in general refer to this overview or VAT Compliance in Romania.

What are high fiscal risk products?

According to GEO no. 120/2021 (the legislative act introducing the legal framework of e-Factura), the supplier and the recipient must both be registered with the e-Factura system. The recently published GEO no. 130/2021 establishes an exception for high fiscal risk products and ensures that taxpayers will use the e-Factura system regardless of whether the recipients are registered.

In line with the GEO no. 130/2021, the National Agency for Fiscal Administration has issued an order to clarify which products are considered high fiscal risk products.

The five product categories are as follows:

• Vegetables, fruits, roots and edible tubers, other edible plants
• Alcoholic beverages
• New constructions
• Mineral products (natural mineral water, sand and gravel)
• Clothing and footwear

High fiscal risk products are defined based on the nature of the products, marketing method, traceability of potential tax evasion and degree of taxation in those sectors. Detailed explanations, as well as product codes, can be found in the Annex of GEO no. 130/2021.

The enforcement timeline of this requirement means that businesses that supply these types of products must be ready to comply with the new Romanian e-Factura system as follows:

• From 1 April to 30 June 2022:  It will be voluntary to submit invoices in the Romanian e-Factura system
• From 1 July:  It will be mandatory to submit invoices in the Romanian e-Factura system

Looking ahead: introduction of an e-transport system in Romania

Another reform that shows the intention of the Romanian authorities to combat tax fraud and evasion is the introduction of an e-transport system.

Taxpayers will be required to declare the movement of goods from one location to another in advance. Once declared, the system will issue a unique number written on the transport documents. Authorities will then verify the declaration on the transport routes.

Moreover, it is stated in the justification letter that the e-transport system will interconnect with the Ministry of Finance’s current systems, Romanian e-invoice, and traffic control, much like similar initiatives in other countries, such as India, Turkey and Brazil.

The introduction of the e-transport system is still pending as the Ministry of Finance has not yet issued the order regarding the application procedure of the system. According to GEO 130/2021, the Ministry of Finance had 30 days to do so after GEO 130/2021 was published in the Official Gazette. However, the deadline expired on the 17 January, and no announcement has been made yet. Therefore, the details of the system are still unknown.

In a blog post earlier this year, we wrote about how several Eastern European countries have started implementing continuous transaction controls (CTC) to combat tax fraud and reduce the VAT gap. However, it’s been an eventful year with many new developments in the region, so let’s take a closer look at some of the changes on the horizon.

Latvia

Latvia has recently revealed its new CTC regime plans. The Latvian government approved a report prepared by the Ministry of Finance to implement an electronic invoicing system in the country. The concept described in the report envisages the introduction of electronic invoicing as mandatory for B2B and B2G transactions from 2025 under the PEPPOL framework. The details about the system, including the legislation and technical documentation, are expected in due course.

Serbia

Serbia is another country moving rapidly towards a CTC framework, and apparently, various stakeholders find this movement rather quick. The Ministry of Finance recently announced that upon the request for a transition period to adapt to the new system of e-invoices, they have decided to postpone the date for entry into force of CTC clearance for B2G transactions until the end of April 2022. It must be noted that there has been no delay concerning B2B transactions.

According to the revised calendar:

• From 1 May 2022: B2G e-invoicing through a CTC portal will become mandatory
• From 1 July 2022: All taxpayers will be obliged to receive and store e-invoices
• From 1 January 2023: All taxpayers will be obliged to issue B2B e-invoices through the CTC system.

Slovenia

Slovenia is also looking to introduce CTCs. In June 2021, the Ministry of Finance submitted a draft law to the Slovenian parliament, aimed at introducing mandatory B2B e-invoicing in the country. According to the draft regulation, all business entities would be obliged to exchange e-invoices exclusively in their mutual transactions (B2B). In the case of B2C transactions, consumers could opt to receive their invoices in electronic or paper form. However, the Ministry of Finance withdrew the draft law due to disagreement with various stakeholders but intends to review it by simplifying the process and reducing the administrative burden on businesses.

Discussions around the introduction of CTCs in the country continue among various stakeholders, e.g., the local Chamber of Commerce. However, seeing as national elections are expected in Slovenia in April 2022, the CTC reform is not expected to gain much traction until summer 2022 at the earliest.

Slovakia

Earlier this year, we reported that the Slovakian Ministry of Finance had prepared draft legislation to introduce a CTC scheme. The aim was to lower Slovakia’s VAT gap to the EU average and obtain real-time information about underlying business transactions. Public consultation for the draft law was completed in March 2021. However, no roll-out timeline was published at the time.

Over the past months, the Slovakian government has launched the CTC system and published new documentation. The CTC system is called Electronic Invoice Information Systems (IS EFA, Informačný systém elektronickej fakturácie) and is a unified process of electronic circulation of invoices and sending structured data from invoices to the financial administration. The timeline for the gradual roll-out of entry into force looks as follows:

• Phase 1: From January 2022, CTC e-invoicing will be introduced for B2G, G2G, and G2B transactions; and
• Phase 2: From January 2023, CTC e-invoicing will be introduced for B2B, B2C, and G2C transactions.

Poland

There have been serious developments regarding Poland’s CTC framework and system, the Krajowy System e-Faktur (KSeF). The CTC legislation was finally adopted and published in the Official Gazette on 18 November 2021. Starting from January 2022, KSeF goes live as a voluntary system, meaning there is no obligation to use this e-invoicing system in B2B transactions. It is expected that the system will be mandatory in 2023, but no date has been set yet for the mandate.

For more information see this overview about e-invoicing in Poland or VAT Compliance in Poland.

Romania

With the largest VAT gap in the EU (34.9% in 2019), Romania has also been moving towards introducing a CTC regime to streamline the collection of taxes to improve and strengthen VAT collection while combating tax evasion. In October 2021, Government Emergency Ordinance (GEO) no. 120/2021 introduced the legal framework for implementing e-Factura, regulating the structure of the Romanian e-invoice process and creating the framework for basic technical specifications of the CTC e-invoicing system. While the Romanian e-Factura went live as a voluntary system on 6 November 2021, no timeline has yet been published for a mandate. Suppliers in both B2B and B2G transactions may opt to use this new e-invoicing system and issue their e-invoices in the Romanian structured format through the new system.

For more information see this overview about e-invoicing in Romania or VAT Compliance in Romania.

Electronic invoicing is rapidly becoming a standard business process. Governments are pushing for the adoption of B2G invoicing to optimize the public procurement process and also to provide a boost to the adoption of e-invoicing between businesses.

Apart from countries that have introduced general e-invoicing mandates to improve fiscal controls – most of which have so far been in Latin America – countries in Europe and some in Asia are looking towards the PEPPOL framework to generate both business process and fiscal benefits through standardization.

PEPPOL was established to simplify interoperability, initially for public procurement transactions, but it is being built upon to encompass fiscal reporting or invoicing ‘clearance’ concepts as well.

B2G e-invoicing in Europe with PEPPOL

As part of harmonizing and digitizing public procurement processes within the EU, governments and other public bodies under Directive 2014/55/EU are required to be able to send and receive electronic invoices in accordance with the European Standard EN-16931.

All EU Member States’ public administrations had to be able to receive e-invoices at least for public procurement transactions either by November 2018 or by April 2019, with the possibility for Member States to extend the deadline by one extra year for sub-central authorities.

Several countries have taken the opportunity to generally mandate B2G electronic invoicing when implementing the Directive 2014/55/EU, so that both the public sector and private sector supplier will be obliged to send invoices electronically in B2G transactions.

Examples of countries that have introduced B2G mandatory e-invoicing are Sweden, Croatia, Estonia, Lithuania and Slovenia, and there is an upcoming mandate in Portugal that will come into force for all companies by January 2022. Finland is aiming for the same effect through a buyer-initiated mandate for the supplier to send e-invoices.

 What is PEPPOL?

The PEPPOL project was initiated in 2008. One of its main objectives was standardization of the public procurement process in European governments. PEPPOL is a set of artifacts and specifications created to enable cross-border e-procurement, supported by a multi-lateral agreement structure which is owned and maintained by the OpenPEPPOL association.

PEPPOL aims to remove complexity around interoperability, as all parties that use PEPPOL will adhere to the same regulations and technical standards to exchange e-documents. Through the PEPPOL network, companies can exchange electronic procurement documents including e-Orders, e-Advance Shipping Notes, e-Invoices and e-Catalogues via access points based on what is known as a four-corner model – meaning that suppliers and buyers are represented by service providers that process data on their behalf.

While PEPPOL is known to have its initial focus in Europe, it is expanding beyond the EU to Asia and recently has also received more attention in the Americas. Singapore was the first country in Asia and the first outside Europe to establish a PEPPOL Authority, facilitating the framework on a national level, but was soon followed by other countries.

Currently, there are OpenPeppol members in 31 countries. In addition to countries in Europe, these include Australia, Canada, China, Japan, Mexico, New Zealand, Singapore and USA, with Japan being the newest addition.

Recent developments in B2G e-invoicing

As explained above, several EU Member States took the opportunity when transposing the Directive 2014/55/EU to make B2G e-invoicing mandatory.

More countries are now following that path:

• Cyprus recently launched a Public Consultation on the bill which will make electronic invoicing mandatory for Public Procurement transactions as from 1 January 2022.
• Latvia has plans to make electronic invoicing mandatory for B2G transactions from 2025 in accordance with the PEPPOL framework.
• In Australia, all Commonwealth Government agencies are mandated to adopt e-invoicing by 1 July 2022 with the PEPPOL framework. The New South Wales government agencies are obliged to adopt e-invoicing for goods and services up to the value of AUD 1 million already from 1 January 2022, leading efforts to see e-invoicing adopted across Australia by making this change six months ahead of the mandate. There is no requirement in the pipeline to mandate businesses to send e-invoices to the government entities.

What is next?

Developments in B2G e-invoicing can no longer be considered separate from B2B e-invoicing. After all, many companies supply goods or services to public authorities, and investments in complying with government customer requirements under schemes like PEPPOL will drive the use of these same standards and rules in the business-to-business sector.

This also means that initiatives towards business-to-business electronic invoicing as a way for tax administrations to receive VAT-relevant data in real-time or near-real-time are increasingly influenced by concepts from the public procurement world.

This spillover goes well beyond conceptual inspiration. In Italy, for example, support for mandatory e-invoicing for VAT control purposes in 2019 was built on a massive data processing platform that was initially designed to facilitate public procurement. France and Poland are far down the path of similar architectures for their continuous transaction controls plans.

As PEPPOL becomes more popular as a standard to make country-specific public procurement methodologies more easily accessible for suppliers abroad, its concepts will increasingly penetrate the broader worlds of electronic invoicing, electronic trade and fiscal compliance.

Update: 25 June 2024 by Dilara İnal

Ministry Publishes Draft Guideline on B2B E-Invoicing

The German Ministry of Finance (MoF) released a draft guideline on 13 June 2024, detailing the upcoming B2B e-invoicing mandate which will roll out on 1 January 2025.

Although the current law only obliges taxpayers to issue and receive e-invoices for domestic B2B transactions, the MoF plans to introduce an e-reporting system for invoice details at a later stage, with no set date.

The highlights from the guidelines are:

• E-invoicing exemptions include tax-free services, invoices under EUR 250, and travel tickets.
• E-invoices must comply with EN 16931 syntaxes or a mutually agreed format that meets the requirements. XRechnung, ZUGFeRD (from version 2.0.1), Italy’s FatturaPA and France’s Factur-X are mentioned as compliant formats.
• E-invoices can be structured or hybrid with a human-readable part. If discrepancies occur, the electronic data takes precedence.
• E-invoices can be sent via email, electronic interfaces or portals, but not on USB sticks.
• Corrections must be in electronic form.
• Issuers can rely on recipient-provided domestic entrepreneur status unless there’s contrary information.
• Recipients who cannot accept e-invoices cannot demand alternatives, and issuers fulfil their VAT obligations if they make documented efforts to send e-invoices. Recipients must ensure e-invoicing compliance. Non-compliant invoices, such as PDFs or paper, are not valid for tax deductions.

The final version of the guideline is expected by Q4 2024.

Update: 26 March 2024 by Dilara İnal

German Parliament Passes the B2B e-Invoicing Mandate

The German parliament passed the Growth Opportunities Act (Wachstumschancengesetz – the Act) concerning various tax matters on 22 March 2024, including a nationwide B2B electronic invoicing mandate.

The Act was originally scheduled for a vote at the end of 2023, with enforcement planned for January 2024. However, the lack of consensus between the Bundestag and Bundesrat – lower and upper houses of the parliament, respectively – in various provisions of the Act delayed its finalisation.

The Mediation Committee of the Bundestag and Bundesrat concluded its negotiations about the Act on 21 February 2024, and the Bundestag approved the amended text on 23 February. The Bundesrat’s vote on 22 March completed the parliamentary process.

The implementation timeline for this mandate has been confirmed as follows:

• 1 Jan 2025: Mandatory receipt and voluntary issuance of e-invoices

Mandatory receipt of e-invoices for domestic B2B transactions will be required for all businesses. Additionally, businesses will have the option to issue e-invoices that are compliant with the approved syntaxes based on CEN 16931 voluntarily, without the Buyer’s consent.

• 1 Jan 2027: Mandatory issuance of e-invoices will be implemented for businesses (large taxpayers) with an annual turnover of at least EUR 800,000.
• 1 Jan 2028: Mandatory issuance of e-invoices will be extended to include all remaining businesses (small taxpayers)

Following this parliamentary approval, the Act will be signed by the President and subsequently published in the official gazette.

Acceptable invoice formats to issue in following years:

Is your organization unprepared for the upcoming mandate? Our expert team can help.

Update: 6 November 2023 by Dilara İnal

Additional Information Released for Germany’s B2B E-Invoicing Plans

In October 2023, The Federal Ministry of Finance (MoF) released additional information regarding electronic invoicing, one of the proposed tax measures included in the Growth Opportunities Act.

If the MoF’s proposal, with the details provided in the preceding updates, becomes law, the following will be applicable:

• Invoices following the well-established XRechnung and ZUGFeRD formats from version 2.0.1 onwards must comply with the EN-based format requirements.
• Efforts are underway to ensure the continued use of EDI (Electronic Data Interchange) procedures within the forthcoming legal framework, albeit with some necessary technical adjustments.
• It is important to highlight that the government draft outlines a phased transition, though all taxpayers will be obliged to be able to receive electronic invoices as of 1 January 2025.

Besides MoF clarifications, the upper house of the German Federal Parliament, Bundesrat, addressed the Act during its session on 20 October. While the Bundesrat supports the introduction of mandatory e-invoicing, it has proposed a two-year delay so the mandatory receipt of electronic invoices commences on 1 January 2027.

In the next steps of the process, the lower house of the Parliament, Bundestag, is expected to vote on the Growth Opportunities Act in mid-November. The upper house’s vote should take place in mid-December.

Looking for more information on the global adoption of e-invoicing? Read our definitive E-invoicing guide.

Update: 20 September 2023 by Dilara İnal:

Federal Government Approves Mandatory B2B E-Invoicing and Extends Voluntary Phase

On 30 August, the German Federal Government approved the draft act known as the “Growth Opportunities Act,”. The act consists of several provisions on different tax matters, including the introduction of a nationwide B2B e-invoicing mandate.

Key dates for implementation of the mandate include:

• From 1 January 2025: Issuing e-invoices will be allowed without the buyer’s consent if the e-invoice is fully compliant with the e-invoicing standard set forth by the European Committee for Standardization (CEN), EN 16931. Paper invoices will still be permitted throughout 2025.
• From 1 January 2026: Scheduled commencement of mandatory implementation of B2B e-invoicing.

The draft bill approved by the government does not change the previously communicated framework, however it extends the voluntary phase by one year. The voluntary phase will last until January 2027 for small companies with annual turnover of 800,000 EUR or less in 2025.

Next steps for the e-invoicing mandate

The Federal Parliament and the Federal Council are expected to give their approval to this reform by the end of 2023.

Looking for additional guidance on invoicing in Germany? Speak with our team of experts.

Update: 4 August 2023 by Dilara İnal

German Regulatory Changes For Mandatory E-invoicing

The German Federal Ministry of Finance (the Ministry) shared the draft “Growth Opportunities Act” with significant German business associations on 14 July 2023. This act introduces amendments to VAT law to implement mandatory e-invoicing, along with other national and international tax-related proposals.

Currently, issuing an electronic invoice requires the buyer’s consent. Proposed amendments will change this, with invoices for transactions between German resident taxpayers – known as domestic B2B transactions – required to be electronic.

The act also introduces a new definition for e-invoices. An electronic invoice is defined as an invoice issued, transmitted and received in a structured electronic format that enables electronic processing. An e-invoice must also comply with the eInvoicing standard of the European Committee for Standardization (CEN), EN 16931.

The Ministry previously shared its plan to roll out mandatory e-invoicing as of January 2025. This date remains the same in the amendment proposals, with transitional measures giving taxpayers some time and flexibility to comply with the new requirements:

• Paper invoices will be accepted until the end of 2025. Also, electronic invoices that do not comply with the CEN standard can be issued if the buyer’s consent is obtained. However, electronic invoices based on the CEN standard can be issued without the buyer’s consent.
• E-invoices do not have to meet the CEN standard until the end of 2027, if transaction parties agree and exchange invoices via electronic data interchange (EDI).

Even though this act does not include any provisions for a transaction-based reporting system, it notes that such a reporting system for B2B sales will be introduced later.

European Council issues derogation decision

The European Council authorised Germany to introduce special measures regarding mandatory electronic invoicing with its decision dated 25 July 2023.

Germany received the derogation from the VAT Directive from 1 January 2025 to 31 December 2027 or, if an EU directive is adopted earlier than planned, until the national transposition of the VAT in the Digital Age (ViDA) directive into German law.

Looking for additional guidance on invoicing in Germany? Speak with our team of experts.

Update: 21 April 2023 by Anna Norden

Germany Takes Another Step Towards CTC by Proposing an E-Invoicing Mandate

The German Federal Ministry of Finance sent a discussion proposal for the introduction of mandatory B2B e-invoicing in Germany on 17 April to significant German business associations.

The business associations are requested to provide their opinion on matters such as the following by 8 May:

• The timeline: The Ministry suggests a phased introduction of mandatory e-invoices for domestic B2B supplies starting from 1 January 2025. The associations are asked to consider this timeline as well as organisation size, exemptions and more
• A new e-invoice definition: Based on VAT in the Digital Age (ViDA) using structured data and the European Norm
• A definition of “other invoices”: For those that do not fall under the new e-invoice definition, which includes paper or PDF invoices

The proposed e-invoicing mandate is a step toward implementing a real-time transaction-based reporting system for creating, verifying and forwarding e-invoices. This system is not part of the current proposal, but – as this is directly related to an e-invoice mandate – the ideas for such a system are laid out at a high level by the Ministry of Finance.

The final aims to provide a uniform electronic transaction-based reporting system for national and cross-border B2B transactions. The invoice exchange would be done via a central or private platform.

No verification of the full invoice content would be performed or interruption of forwarding of the invoice – however, the issuer’s platform would check (“Plausibilitätsprüfungen”) that all mandatory fields are present, whether structure and syntax are EN-compliant and so on.

The reporting of the invoice would be in real-time at the same time as the invoice is sent so that the supplier would not have to initiate two transactions.

The Ministry of Finance states the aim is for the new system to be aligned with ViDA but that Germany counts on having to use a derogation from the provisions of the VAT Directive to introduce the e-invoice mandate, should ViDA not be adopted in time.

While many have speculated around Germany going down the path of the Italian e-invoicing system, the message from the Ministry of Finance seems rather to be that the cues are taken from the French system, with the use of a centralised platform complemented with private service providers who serve to channel the invoices.

Need to discuss how Germany’s proposal to introduce continuous transaction controls could affect your business? Speak to our tax experts.

Update: 3 November 2021 by Joanna Hysi

Germany Steps Closer to Introducing Continuous Transaction Controls

There’s been increased discussion among different institutions about the introduction of continuous transaction controls (CTCs) in Germany to combat tax fraud and boost the competitiveness of the German market in Europe.

Supporters of a CTC reform

Proponents of the introduction of CTCs in Germany include, among others: the parliamentary group of the business-friendly Free Democratic Party (FDP), the German Association for Electronic Invoicing (VeR) and an independent judiciary body, the German Bundesrechnungshof (Federal Audit Office).

Recently, we’ve seen this topic included in tax policy negotiations of the coalition partners that emerged from the recent German government elections (the Social Democratic Party (SPD), FDP, and the Green Party).

While the discussions remain at a conceptual level, the new potential coalition parties display political will for reform in this area.

Proposals on CTC reform

Specifically, the German Bundesrechnungshof proposed to the Ministry of Finance a real-time reporting system leveraging blockchain technology as an efficient system to combat VAT fraud. However, their proposal wasn’t accepted on the grounds that a cost-benefit analysis is required before such measures are proposed and implemented.

As part of a parliamentary process the FDP called  for “an electronic reporting system comparable to the Italian SDI to be introduced nationwide as quickly as possible, for the creation and testing and forwarding of invoices”. The leading German industry association, the VeR, welcomed this proposal recognising its numerous advantages to companies and the German economy.

A VeR study on whether the Italian model can be used as a blueprint for Europe explains that although it doesn’t seem to have contributed significantly to reducing Italy’s VAT gap, the advantages of e-invoicing to companies and the Italian economy are convincing. It concludes that the Italian clearance system can serve as a model for the digitization of VAT in Germany, if not in Europe. In addition, the VeR experts offer their knowledge to develop such a CTC system in Germany.

Conclusion: Will Germany be the next EU country to introduce CTCs?

It seems that the idea of introducing a CTC system in Germany – following in the footsteps of fellow Member States like Italy, France and Poland – is gaining traction and might not be far from becoming reality if the coalition partners indeed manage to reach a coalition agreement to succeed the currently ruling party.

Take Action

To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.

The Zakat, Tax and Customs Authority (ZATCA) announced the finalised rules for the Saudi Arabia e-invoicing system earlier this year, announcing plans for two main phases for the new e-invoicing system.

The first phase of the Saudi Arabia e-invoicing system is set to go live from 4 December 2021.

With the mandate just around the corner, we’ve highlighted the latest news on a reform that is still evolving.

The Detailed Guidelines

The latest documentation communicated on the requirements was the Detailed Guidelines, published in August 2021. The Detailed Guidelines provided clarity on the following topics:

• Even though tax invoices must be generated electronically, they can be shared by sellers to buyers in an agreed format. For the first phase, the agreed format to exchange invoices may be electronic, human readable format, or a paper format. However, in the second phase, only XML format or PDF/A-3 with an embedded XML can be used to exchange e-invoices. In case the human readable format is used, it must be in Arabic (in addition to any other language) and Arabic or Hindi numerals can be used.
• A printed copy of the simplified tax invoice must be provided to the buyers, however, and based on mutual agreement between the seller and buyer, the invoice can be shared electronically or through any other way where the buyer can read it.
• The e-invoices generated by a third party will contain an electronic mark indicating this fact. This marker will be generated automatically and will not be visible on the human readable version of the e-invoice. The human readable format of the invoice must contain a statement declaring that the invoice is a third-party billing invoice.
• For the second phase, specific integration requirements will be published in the future.

Overview of readiness for the first phase

The first phase requirements are not as complex as the second phase requirements that will be enforced from 1 January 2023.

The ZATCA has been successful in providing taxpayers with the necessary information. The go live date is set to go ahead as planned and a delay is not currently expected.

Back in 2019, Portugal passed a mini e-invoicing reform consolidating the country’s framework around SAF-T reporting and certified billing software.

Since then, a lot has happened: non-resident companies were brought into the scope of e-invoicing requirements, deadlines have been postponed due to Covid, and new regulations were published. This blog summarises the latest and upcoming changes.

QR Code

Introduced in 2019, the de facto implementation of the QR code requirement was delayed, and is now expected to be fully implemented by taxpayers in January 2022. A QR code should be included in all invoices. Technical specifications about the content and placement of the code in the invoice are available on the tax authority’s website.

ATCUD – Unique ID and validation codes

The ATCUD is a unique ID number to be included in invoices and is part of the content of the QR code. The ATCUD is a number with the following format ‘ATCUD:Validation Code-Sequential number’.

To obtain the first part of the ATCUD – the so-called ‘validation code’ -, taxpayers must communicate the document series to the tax authority along with information such as type of document, first document number of the series, etc.

In return, the tax authority will deliver a validation code. The validation code will be valid for the whole document series for at least a fiscal year. The second part of the ATCUD – the ‘sequential number’ – is a sequential number within the document series.

This month, the Portuguese tax authority published technical specifications for obtaining the validation code, creating a new web service. To access this web service, a specific certificate obtained from the tax authority is required and can be assigned to taxpayers or software service providers.

In addition, the tax authority has created a standard list of document classes and types, enabling the communication of document types in a structured format.

An ATCUD will be required in all invoices from January 2022. To be ready for the deadline, taxpayers must get the series’ validation codes during the last half of 2021 to apply in invoices issued in the beginning of 2022.

Obligations for non-resident companies

In April this year, Portugal clarified that non-resident companies with a Portuguese VAT registration should comply with domestic VAT rules. This includes the use of certified billing software for invoice creation, among others. These companies must also ensure integrity and authenticity of e-invoices. In Portugal, integrity and authenticity of invoices are presumed with the use of a qualified electronic signature or seal, or use of EDI with contracted security measures.

Consequently, since 1 July 2021, non-established but VAT registered companies must adopt certified billing software to comply with the Portuguese law as required by Law-Decree 28/2019, Decision 404/2020-XXII, and Circular 30234/2021.

E-invoices in B2G scenarios

The Portuguese e-invoicing mandate for business-to-government transactions includes a format requirement attached to specific transmission methods. In other words, invoices to the public administration must be issued electronically in the CIUS-PT format and transmitted through one of the web services made available by the public administration.

Initially, a phased roll-out started in January 2021, obliging large companies to issue e-invoices to public buyers. In July, the subjective scope was enlarged to include small and medium-sized businesses. The last step is to include microenterprises by January 2022.

Due to the Covid pandemic, Portugal established a grace period that has been renewed several times, whereby PDF invoices would be accepted by the public administration. Currently, the grace period runs until 31 December 2021, meaning that, in practice, all suppliers of the public administration, regardless of their size, should comply with the e-invoicing rules in public procurement by 1 January 2022.

Progress has been made in the roll-out of the Polish CTC (continuous transaction control) system, Krajowy System of e-Faktur. Earlier this year, the Ministry of Finance published a draft act, which is still awaiting adoption by parliament to become law. Draft e-invoice specifications have been released and there has been a public consultation on the CTC system.

In June, the Ministry of Finance announced it had reviewed all comments submitted by the public and Polish ministers on the CTC system and decided to take the following actions:

• Make the CTC system available for testing in October 2021 to prepare for the go-live date in 2022.The pilot will be available for all taxpayers.
• Adopt and publish legislation in October 2021.
• Make available two e-invoice schemas, one in Polish and one in English.
• Roll-out the CTC system on a voluntary basis in January 2022, after 3 months of testing (October – December 2021).
• Make the CTC system mandatory in 2023.

In the announcement, the Minister outlined the benefits of adopting the CTC system for taxpayers. These include: quicker VAT refunds; security of the stored invoice in the tax authority’s database until the end of the mandatory storage period; certainty about the invoice delivery to the recipient through the CTC platform and therefore quicker invoice payments; automation of the invoice processing and exchange due to the adoption of a standardized e-invoice format.

In addition, as a result of the new e-invoicing rules upcoming changes in the SLIM VAT 2 package will trigger further relief measures, e.g. around the handling of duplicates and corrective invoices.

The Polish authorities are making good progress in the implementation of the Krajowy System e-Faktur. It is positive to see that the public consultation has proven useful in defining next steps and the authorities’ intent for transparency and timely documentation will hopefully continue throughout the entire CTC roll-out.

Moving goods from one place to another is a quintessential part of business. Manufacturers, wholesalers, transporters, retailers and consumers all need to carefully orchestrate the shipping and handling of raw materials, parts, equipment, finished goods and other products to keep business flowing. This supply chain harmony is what makes production and trade possible in society.

In Canada, the United States and most European countries, tax administrations don’t intervene much in these trade processes. Until recently, the same could be said about most countries of Latin America. But, with the rise and expansion of electronic invoicing mandates in the region, this is rapidly changing.

Most governments with mature e-invoicing mandates are now recognizing that these mechanisms and government platforms can be used as vehicles to understand where, what, how and when goods are being moved. The traditional electronic invoice, is no longer enough – and tax authorities are requiring businesses to report goods movements in real-time.

The implications are serious too. Goods moved on public roads without those documents are very likely to be seized by the authorities, and the owners and transporters will be subject to fines and other sanctions.

Brazil and Mexico lead the way

The country with the most sophisticated system in place is arguably Brazil. The MDF-e (or Manifesto Eletrônico de Documentos Fiscais) is a mandatory document required by the tax administration in order to audit the movement of goods in Brazil.

This purely digital document combines the information of an electronic invoice (NF-e) and the electronic documents that hauling companies issue to their clients (CT-e). This system became mandatory in 2014 and has since been expanded and modernized with a vast grid of electronic sensors and transponders placed in the public highways of Brazil, intended to ensure that every truck moving goods already has the corresponding MDF-e, NF-e and CT-e. In most cases, the authorities don’t need to stop the trucks to verify the existence of the document.

Mexico recently issued a new resolution requiring taxpayers delivering goods, or simply redistributing them, to have the corresponding authorization from the tax administration (SAT). Products delivered by road, rail, air or waterways need to have what is known as the CFDI with the Supplement of Carta Porte.

CFDI is the acronym for an electronic invoice in Mexico. That supplement of Carta Porte is a new attachment to the electronic invoice of transfer (Traslado) issued by the owners delivering products or to the CFDI of Income (Ingresos) issued by the hauling companies. Carta Porte will provide all the details about the goods being transported, the truck or other means being used, the time of delivery, route, destination, purchaser, transporter and other information. This new mandate will become effective on 30 September 2021. As is in Brazil, noncompliance with this mandate will result in hefty penalties.

E-transport elsewhere in LatAm

Chile also has a mandate requiring the delivery of goods to be pre-authorized by the tax administration. These tax authorized documents are locally known as Guias de Despacho (or dispatch guides) and since January 2020 they can only be issued in an electronic format.

There are some exceptions where the dispatch guide can be issued temporarily on a paper format by certain taxpayers. Also, in cases of contingency, taxpayers may be authorized to issue paper versions of the guide; however, that will not exempt the issuer of regularizing the process once the contingency is complete.

The content of the dispatch guide will vary depending on who issues it and the purpose of the delivery (sales, consignment, returns, exports, internal transfers etc.) but in general, delivery of goods in Chile without the authorized dispatch guide will be subject to penalties from the tax administration (SII).

Argentina has a federal level VAT and a provincial level gross revenue tax. To control tax evasion, both levels of governments exercise certain levels of control in the process of dispatching goods within their jurisdictions.

The tax authority’s system for controlling the flow of goods in public ways is not as encompassing as in Brazil, Chile and Mexico, but it is getting closer. Only the provinces of Buenos Aires, Santa Fe and Mendoza, plus the City of Buenos Aires, require authorization from the fiscal authority to move goods that originated in, or are destined to, their jurisdictions. For that, they require the COT (or Transport Operations Code) where all the data related to the products, means of transport and other information is included once the authorization is provided. The provinces of Salta, Rio Negro and Entre Rios are working on similar regulations.

At federal level, the AFIP (Federal tax administration) only requires pre-authorization for the delivery of certain products such as meat and cereals. But at this level too, the regulatory environment is changing.

The AFIP, along with the Ministry of Agriculture and the Ministry of Transportation have issued a joint resolution 5017/2021 that mandates the use of a digital bill of lading (Carta Porte Electronica) whenever there is a transfer of agricultural products on public roads in Argentina. This change will become effective on 1 November 2021. In 2022, this federal requirement may expand to other products.

LatAm sets the scene for electronic invoicing trends

The requirement of authorization for moving goods in LatAm is not limited to the largest economies of the region. Smaller countries with electronic invoicing systems have expanded, or are in the process of expanding their mandates to require taxpayers to inform the tax authority, before goods are moved as result of a sale or any other internal distribution.

For instance, Peru requires the Guias de Remision from taxpayers before they start the delivery of their products. This electronic document should be informed to and authorized by the tax administration (SUNAT) using the digital format established for that purpose and will include all the information about the product delivered, issuer, recipient, means of transport, dates and more.

Uruguay has the ‘e-Remitos’ which is an electronic document authorized by the tax administration (DGI). It is required for any physical movement of goods in Uruguay. As in other countries, this document will provide all the information about the goods being transported, the means used, the issuer, the recipient and additional data. It is electronically delivered and authorized by the tax administration using the XML schemas established for that purpose.

Lastly, in Ecuador the tax administration (SRI) requires the ‘Guias de Remision’ (Delivery Guide) for any goods to be transported legally inside the country. As the infrastructure to support the electronic invoice is not fully developed in Ecuador, in some cases the tax administration allows the taxpayer to comply with this part of the mandate by having the electronic invoice issued by the retailer delivering the goods to his clients. Even though Colombia and Costa Rica do not require a separate electronic document to authorize the transport of goods, it is expected that in the future, this requirement will come into effect, mirroring what has happened in many other countries of the region.

The common element of all these mandates in Latin America, is that all of them are closely knitted to the electronic invoicing system imposed in each country. They are basically seen as another module of the electronic invoice system where information regarding goods being transported by public roads, waterways, by rail or air should be submitted to the tax administration, via the XML schemas established for that purpose.

Tax administrations in the region are actively enhancing their systems to ensure that movements of goods are properly controlled in real time. In some cases, tax administrations have provided online solutions aimed at taxpayers with small numbers of deliveries. But for all other taxpayers, a self-deployed solution is required.

Enforcement of the mandate is made not only by the tax administration, but also by the police and the public roads authorities, both of which routinely seize goods for non- compliance. Since these mandates have proven to be successful to control tax avoidance and smuggling, it’s safe to say that the Remitos, Dispatch Guides, Carta Porte or COTs are here to stay for good and taxpayers doing business in Latin America have no option but to comply with this new regulatory requirement.

More than 170 countries throughout the world have implemented a VAT system, and some of the most recent adopters are the Gulf countries. In a bid to diversify economic resources, the Gulf countries have spent the past decade investigating other ways to finance its public services.

As a result, in 2016 the GCC (Gulf Cooperation Council), consisting of Saudi Arabia, UAE, Bahrain, Kuwait, Qatar and Oman, signed the Common VAT Agreement to introduce a VAT system at a rate of 5%.

The first step: VAT adoption across the GCC

Following the VAT agreement, Saudi Arabia and UAE implemented VAT in 2018. Bahrain followed with a VAT regime in 2019. Most recently Oman enforced a 5% VAT from April 2021, and looking ahead both Qatar and Kuwait are expected to enact VAT laws within the next year.

The second step: VAT digitization

After the implementation of VAT and the increase of VAT rate from 5% to 15%, Saudi Arabia has taken the next step to digitize the control mechanisms for VAT compliance.

The E-invoicing Regulation enacted in December 2020 sets out an obligation for all resident taxable persons to generate and store invoices electronically. This requirement will be enforced from 4 December 2021.

Saudi Arabia has made considerable progress since it first introduced VAT in 2018. The Saudi E-invoicing Regulation is expected to not only encourage digitization and automation for businesses, but also to achieve efficiency in VAT controls and better macro-economic data for its tax authority, a development which will likely be replicated by other GCC countries soon.

Considering the efforts involved in the digitization of government processes and the VAT implementation timeline, the next candidate for similar e-invoicing adoption would likely be the UAE. While there are currently no plans for a mandatory framework, the UAE has announced bold plans for general digitization. According to the UAE government website, “In 2021, Dubai Smart government will go completely paper-free, eliminating more than 1 billion pieces of paper used for government transactions every year, saving time, resources and the environment.”

The spread of VAT digitization is typically the second reform following VAT adoption. As Bahrain and Oman also have VAT systems in place, introduction of mandatory e-invoicing in the next a few years in these countries would not come as a surprise. The adoption of e-invoicing in Qatar and Kuwait would depend on the success of VAT implementation, therefore it is not easy to estimate when their VAT digitization journey will begin but there is no doubt that it will happen at some stage.

The next step for VAT adoption across the GCC

After the adoption of e-invoicing, the Gulf countries may continue to digitize other VAT processes, including VAT returns. Pre-population of VAT returns using the data collected through e-invoicing systems is another trend that the countries are moving towards.

Regardless of the shape and form of digitization, there will be many moving parts in terms of VAT and its execution. Businesses operating in the region should be prepared to invest in their VAT compliance processes to avoid unnecessary fines and reputational risk for non-compliance.

A current mega-trend in VAT is continuous transaction controls (CTCs), whereby tax administrations increasingly request business transaction data in real-time, often pre-authorising data before a business can progress to the next step in the sales or purchase workflow.

When a tax authority introduces CTCs, companies tend to view this as an additional set of requirements to be implemented inside ERP or transaction automation software by IT experts. This kneejerk reaction is understandable as implementation timelines tend to be short and potential sanctions for non-compliance significant.

But businesses would do better to approach these changes as part of an ongoing journey to avoid inefficiencies and other risks. From a tax authority perspective, CTCs are not a standalone exercise but part of a wider digital transformation strategy where all data that can be legally accessed for audit purposes is transmitted to them electronically.

It’s all about the data

In many tax authorities’ vision of digitization, each category of data is received at ‘organic’ intervals that follow the natural cadence of data processing by the businesses and data needs of governments.

Tax administrations use digitization to access data more conveniently, on a more granular level, and more frequently.

A business that doesn’t consider this continuum from the old world of reporting and audit to the new world of automated data exchange risks over-focusing on the ‘how’ – the orchestration of messages to and from a CTC platform – rather than keeping a close eye on the ‘why’ – transparency of business operations.

Data received quicker and in a structured, machine-exploitable format is infinitely more valuable for tax administrations as it gives them an opportunity to perform deeper analysis of both varying taxpayer and third-party sources of data.

If your business data is incomplete or faulty, you are likely exposing yourself to increased audits, as your bad data is under scrutiny and more transparent to the taxman.

Put differently, in a digitized world of tax, garbage-in will translate to garbage-out.

How to prepare for CTCS – automation is key

Many companies already have the magic formula to fix these data issues at their fingertips. Start by preparing for this wave of VAT digitization with a project to analyse internal data issues and work with upstream internal and external stakeholders – including suppliers – to fix them.

Tools designed to introduce automated controls for VAT filing processes can help achieve better insight into the upstream data issues that need ironing out. These same tools can also help you through the CTC journey by re-using data extraction and integration methods set up for VAT reporting for CTC transmission, thereby creating better data governance and keeping a connection between these two naturally linked processes.

A lot of bad data stems from residual paper-based processes such as paper or PDF supplier invoices or customer purchase orders. Taking measures now to switch to automated processes based on structured, fully machine-readable alternatives will make a big difference.

Improving invoice data is not the only challenge. With the inevitable broadening of document types to be submitted under CTC rules (from invoice to buy-side approval messages, to transport documents and payment status data) tax administrations will cross-check more and more of your data, as well as trading partners’ and third parties’ data — think financial institutions, customs, and other available data points.

Tax administrations are unlikely to stop their digitization efforts at indirect tax. Mandates to introduce The Standard Audit File for Tax (SAF-T ) and similar e-accounting requirements show how quickly countries are moving away from the old world of tax and onsite audits.

All this data, from multiple sources with strong authentication, will paint an increasingly detailed and undeniable picture of your business operations. It is just a matter of time before corporate income tax returns will be pre-filled by tax administrations who expect little to no legitimate changes from your side.

‘Substance over form’ is a popular aphorism in the world of tax. As more business applications and data streams become readily accessible by tax administrations, you need to start considering data quality and consistency as a first step towards thriving in the world of digitized tax enforcement.

Aim for more, not less, insight into your business than the taxman

In the end, tax administrations want to understand your business. They don’t just want data, they want meaningful information on what you do, why you do it, how you trade, with whom and when. This is also exactly what your owners and management want.

So the ultimate goals are the same between businesses and tax administrations – it’s just that businesses will often prioritise operational efficiency and financial objectives whereas tax administrations focus on getting the best, most objective information possible.

Tax administrations introducing CTCs as an objective may be a blessing in disguise, and there are benefits of introducing better analytics to your business to comply with tax administration requirements.

The real value lies in real-time insight into business operations and financial indicators such as cash management or supply chain weaknesses. This level of instant insight into your own business also enables you to always be one step ahead, leaving you in control of the picture your data is providing to governments.

CTCs are the natural next step on a journey to a brave new world of business transparency.

Turkey’s e-transformation journey, which started in 2010, became more systematic in 2012. This process first launched with the introduction of e-ledgers on 1 Jan 2012 and has since reached a much wider scope for e-documents.

The Turkish Revenue Administration (TRA), the leader of the e-transformation process, has played an important role in encouraging companies to embrace the digitalization of tax and created a successful model for following tax-related procedures.

You can read more about Turkey’s e-transformation in our e-book Navigating Turkey’s Evolving Tax Landscape.

The process was further accelerated with new requirements for e-documents.

Latest developments and expectations in Turkey’s e-transformation

The TRA continues to widen the scope of e-documents and the types of e-documents in use are:

• Expense E-Note: This application helps you create electronic expense notes in accordance with TRA standards, retain electronic and hard copies of these notes, submit them to relevant parties and prepare reports.</
• E-Bank Receipt: With this application, you can create electronic bank receipts in accordance with TRA standards, keep copies of receipts or submit these copies to relevant parties and prepare reports.
• E-Foreign Exchange Receipt: This allows you to convert forex trading documents into electronic documents via relevant institutions and banks.</
• E-Insurance Commission Expense Letter: This is an expense note which is created by insurance brokers in an electronic format according to the legislation.
• E-Insurance Policy: This document is the electronic version of insurance policies issued by insurance, pension and reinsurance brokers.
• E-Tab: This document shows the list of orders placed by customers in restaurants and cafés.

The digitization journey of e-documents

Many taxpayers have voluntarily adopted the new system since the TRA launched this whole process and TRA’s latest updates for e-documents are critically important to monitor for tax-related procedures.

As e-documents become more popular, any income loss arising from tax procedures will reduce. E-documents offer additional advantages for public institutions and private businesses, such as saving time, minimising costs and improving productivity. It’s certain that the scope of e-documents in Turkey will keep expanding in the future, which will affect taxpayers and tax procedures.