New EU proposal on electronic invoicing and archiving could mean savings of 18 billion euros

European Commission’s proposal is based on PwC recommendations

Brussels,13 February 2009.
The European Commission has an ambitious action plan for a 25% reduction by 2012 in much of the red tape faced by both large and small businesses. As part of this plan, on 28 January 2009, the Commission put forward a proposal to promote the use of e-invoicing and e-archiving by harmonising and simplifying the European VAT rules. Its proposal is primarily based on recommendations from PwC as well as a round of public consultation conducted in 2008 and the opinions of national tax authorities.

As part of an independent study carried out for the European Commission, PwC looked at the four most-important aspects of billing: the issuance of invoices, invoice particulars, electronic billing and electronic records. They also surveyed 121 businesspeople on the use of e-invoicing and e‑archiving in each of the member states. The results showed a significant rise in electronic billing compared with 2005. Businesses see the most important benefits as being efficiency and cost-savings. The main hurdles continue to be compatibility with customer and supplier IT systems and the want of uniform rules across Europe. As a consequence, businesses lack clarity as to the rules that apply locally.

However, a number of additional findings are of interest:

Electronic exchanges of invoices under current European rules are possible with the help of EDI (Electronic Data Interchange) or use of an electronic signature. The EU’s member states may also allow other means of communication provided the authenticity and integrity of the invoice are guaranteed. Although this latter option has not been taken up or developed in all member states (e.g. there is insufficient statutory provision to allow this in Belgium), it nonetheless appears to be a very popular invoicing method amongst businesses.
More than half of those businesses that send their invoices out electronically have a parallel hard-copy process because they are unsure that the electronic solution deployed accords with local legislation. For suppliers, this entails a risk that VAT liabilities could be due twice. And the cost-saving factor is also not achieved as a result. For customers, their VAT-deduction rights could be jeopardised. Ultimately, the customer could be jointly liable for paying the VAT that is due should the supplier fail to do so.

Ine Lejeune, a Partner at PwC Belgium and Leader of PwC’s Global Indirect Taxes Network, who headed up the study, sees a great deal of potential. “A full switch to electronic billing could deliver some 18 billion euros in savings for European businesses, merely as a consequence of simplifying the relevant processes. This mainly entails doing away with rules that in our view produce no great added value for the authorities and that present businesses with considerable difficulties. Acceptance of our recommendations would be especially good news for business: our annual Global CEO Survey revealed that 55% of CEOs are greatly concerned by over-regulation, especially in view of the precarious economic situation,” Lejeune concludes.

PwC drew up an inventory of what businesses see as their greatest difficulties in respect of the VAT rules on invoicing and of the needs of local VAT authorities, which want to be able to exercise efficient checks on compliance with the VAT legislation. PwC made recommendations for harmonising and simplifying the existing legislation in order to encourage a full switch to electronic invoicing.

Aligning electronic and paper invoices

In this context, PwC proposes that the playing field for electronic and paper invoices should be levelled. For instance, it is currently so that businesses have to enter into a prior agreement to receive invoices electronically. PwC proposes scrapping this requirement.

Alignment removes the need for a “parallel invoicing stream”, which leads to significant cost-savings. For sending electronic invoices, PwC proposes moving away from the three methods of electronic exchange but guaranteeing the authenticity and integrity of invoices by means of good documentation of the underlying processes; this could be based either on technological solutions or other acceptable internal controls. And it would be possible both by using the company’s own invoicing solutions or by outsourcing to a billing platform. The European Commission did not take up this proposal for documenting underlying processes to guarantee strict equality between electronic invoicing and paper invoicing, which does not require such documentation.

These measures, supplemented with further recommendations that PwC makes, could achieve a large portion of the administrative simplification goals that the European Commission has set.

The current VAT legislation must be unambiguous

The aim is to achieve harmonisation of local VAT laws. For cross-border transactions, it is the VAT legislation in the country where the supplier is established and from where the supply is effected that should apply. This for one removes a great deal of uncertainty. For a supplier from outside the EU, it is the legislation in the country where it is registered for VAT that would apply.

Electronic archiving in the country of choice

PwC also proposes leaving it up to businesses to keep their billing records and other relevant documents where they want. This also means it should be possible to contract everything to an outsourcer to process the entire records in the country of one’s choice. Nonetheless, the documentation would still have to be quickly accessible.

And there’s more ...

A proposal to harmonise the last date for issuing an invoice. PwC proposes that goods and services supplied should have to be billed by the 15th of the month following the service or delivery.
For supplies to private individuals, PwC finds that invoices should not be obligatory. The Commission did not take up this proposal but opted to introduce a simplified document (such as a payment demand), which is subject to less formality and thus saves costs.
A so-called summary invoice covering services or goods supplied on various dates must be subject to the same conditions as an ordinary VAT invoice. Currently, this is not the case, which again necessitates additional system configurations. Grouping together several services that are provided within a single month, for instance, reduces the number of invoices and thus the processing costs.
PwC proposes harmonising the length of time for which invoice records have to be held.

‘IDABC e-Invoicing and e-Ordering project’

Additionally, PwC is also assisting the European Commission’s pilot project for implementing e-invoicing and e-ordering for its procurement. A working prototype has been developed and the project will soon being entering the test phase with a number of Commission suppliers. The most important objective of the project is to collect experience and share it with the outside world in order to stimulate the use of e-invoicing. Extra attention is being paid in this respect to the re-use of specifications and further standardisation in the world of e-invoicing.

Download the "A Study on the Invoicing Directive (2001/115/EC) now incorporated into the VAT Directive (2006/112/EC)" Brochure

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PwC has a Global Indirect Taxes Network consisting of 2000 experts based in 130 countries.

Information for editors:

For further information or an interview with Ine Lejeune, please contact Elsie Van Linthout at Luna, on 02 658 02 70 or 02 658 02 95 or via pwc@luna.be.