Businesses in the EU face an increasingly complicated tax-compliance environment, especially when it comes to the way they manage invoices. Many of the most confusing changes revolve around an emerging standard called “invoice clearance,” which requires businesses to issue invoices in a machine-readable format and have them validated by tax administrators or outsourced providers, before sending them on to customers.
The requirements for complying with mandatory e-invoicing vary by jurisdiction, and businesses with cross-border operations need to determine how to address this patchwork of obligations effectively. It can seem like an overwhelming task.
With that in mind, I want to clarify some basic features of the landscape, including how an invoice clearance model operates, how e-invoicing formats differ across Europe, and what changes businesses should expect from different EU countries over the next few years.
The Invoice Clearance Model
An invoice clearance model provides tax authorities with visibility into a transaction nearly as soon as it occurs and before the invoice is issued to the recipient. It is more efficient than traditional periodic tax reporting obligations, which transfer data to the tax administration on a monthly or quarterly basis. This delay—between transaction and reporting—makes it hard for tax authorities to detect suspicious transactions or tax under-reporting in a timely manner.
There are two main types of invoice clearance models.
The first, called centralized clearance, validates and exchanges data through a central platform deployed by the tax administration. Italy was the first EU country to implement this model when it launched the Sistema di Interscambio in 2019.
In the second, called decentralized clearance, the tax administration outsources the clearance process to accredited service providers who validate invoice data and communicate it back to the tax authorities. No country in the EU has instituted this model yet, but France is on track to be the first. In July 2024, France will begin mandating that businesses use a plateforme de dématérialisation partenaire (PDP) for invoicing. A PDP can be an external service provider or an internal solution that has been certified by the French tax administration to collect and report invoice data.
Many Ways to Comply
EU countries use a range of e-invoicing formats: PEPPOL BIS, OIOUBL, Facturae, Factur-X, XRechnung, ZUGFeRD, Svefaktura, and many others. But while these take many forms, they all need to comply with the European standard for e-invoicing (EN 16931) developed by the European Committee for Standardization.
The European standard is a semantic (abstract) data model listing the essential elements that an e-invoice needs to have to be legally and tax compliant. A semantic data model is technology neutral. As it is described in natural language, it cannot be directly used to transfer data. Semantic models must be translated into a machine-readable language to be used for practical purposes. EN 16931 can be implemented using two XML formats (syntaxes): OASIS Universal Business Language (UBL) 2.1 and UN/CEFACT Cross Industry Invoice (CII) 16B.
Both UBL and CII specify the structure of the XML file that encodes the electronic invoice: They are a kind of minimum standard for complying with EN 16931. Many countries (or trading parties) go beyond them by publishing Core Invoice Usage Specifications (CIUS) that prescribe more detailed rules for invoice content. National e-invoicing formats developed by the EU member states are examples of an EN 16931 compliant CIUS specification.
To implement an invoice clearance model, countries need first to obtain authorization from the European Commission. Italy, France, and Poland are the only three countries to have received it so far. Italy has been applying mandatory e-invoicing since 2019; France is planning to roll out its e-invoicing mandate in July 2024; and Poland will implement it a year earlier, in April 2023.
Several countries (Belgium, Latvia, Romania, Spain, Slovenia, and Slovakia) have started the legislative procedure to implement the invoice clearance model but have not yet applied for EU authorization.
In a policy note published in October 2021, the Belgian Minister of Finance confirmed the intention for a phased introduction of mandatory e-invoicing in business-to-business (B2B) transactions. Although there is still no implementation timeline, it is likely that Belgium will implement e-invoicing gradually, starting with mandates for the largest companies as early as 2023 and extending them to smaller companies later.
In October 2021, the Latvian Cabinet of Ministers reviewed and endorsed a report on a system for electronic transfer of documents prepared by the Ministry of Finance. This report anticipates the introduction of mandatory B2B e-invoicing beginning in 2025.
In Romania, companies that sell “high-risk” products to other businesses will have to issue electronic invoices via the country’s RO e-Factura system beginning in July 2022. High-risk products include those that are often used in tax fraud schemes, such as alcohol, mineral products, fruit, and vegetables.
In November 2021, the Spanish Council of Ministers approved a law that includes a requirement for businesses to issue electronic invoices for all B2B transactions. A phased roll-out is planned: Companies with a turnover above 8 million euros ($8.65 million) will need to comply by 2024, and all other taxpayers as from 2026.
Slovakia intends to oblige all businesses to send invoice data to tax authorities via the central system Informačný Systém Elektronickej Fakturácie (IS EFA) by January 2023. In Slovenia, the Ministry of Finance prepared draft legislation on mandatory B2B e-invoicing in June 2021. The draft law is currently under consideration by the Slovenian Parliament, and it is not clear when it will be approved.
More Growth Ahead
The number of EU countries announcing their intention to introduce mandatory e-invoicing in B2B transactions is likely to grow. Bulgaria, Ireland, and Sweden are currently holding public consultations on digital value-added tax reporting, and e-invoicing is one of the compliance options under consideration. The German government has also described plans to introduce an electronic reporting system for the creation, verification, and forwarding of invoices.
Although decentralized clearance may be more beneficial to taxpayers as it may allow them to use their current invoice formats—provided that the required data can be reliably extracted and electronically reported by certified service providers—the centralized clearance model seems to be more popular among EU countries so far.
It will be interesting to see how the e-invoicing mandates will interact with other tax filing obligations. In many countries that are considering implementing mandatory e-invoicing, businesses have to submit a detailed overview of all their transactions to the tax administration (for example, Spain’s SII and Slovakia’s kontrolný výkaz). If the tax authorities start receiving invoice data in real time, periodic transactional reporting should become limited to transactions not covered by the e-invoicing obligation (like intra-community acquisitions).
The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.
This column does not necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners.
Aleksandra Bal is indirect tax technology & operation lead at Stripe.