E-Invoicing’s Status and the Future of Real-Time Compliance

In recent years, e-invoicing for tax compliance has become prevalent around the world—especially across Europe, Latin America, and parts of Asia. In fact, there are more than 60 countries that mandate some form of e-invoicing requirements.

In each country, e-invoicing policies mandate the digital submission of certain documents in specific instances, but beyond that, they are different. There are several varying components to e-invoicing depending on the country, including who can submit an invoice, who can approve an invoice, requirements for record-keeping, and more. And while e-invoicing hasn’t made its way into the US tax system, US businesses participating in our global economy inevitably will be impacted.

What to Know About E-Invoicing Today

The e-invoice isn’t new—it’s been around for decades as a form of electronic billing between a supplier and buyer. However, governments mandating the use of e-invoicing for companies doing business in their jurisdiction are relatively new and continue to evolve.

Today, there are two e-invoicing approaches used by governments: the clearance approach and the post-audit approach. While each has its similarities, there remains one key difference between the two approaches.

With the clearance approach, invoices flow between the supplier, the tax administrator, and the buyer and are subject to real-time audit by tax authorities. With this process, the tax authority reviews every invoice submitted by the supplier and has the ability to reject them if anything is incorrect, resulting in paused or stopped transactions. Variations of this approach are favored by nations in the Americas but can be found elsewhere in other countries like India and Italy.

Mexico is an example of a country that uses the clearance approach. Under Mexico’s rule, a government-certified agent must approve an invoice before it can go to the buyer. If an invoice is approved, the tax authority adds a digital signature and passes the signed invoice back to the supplier, who can then send it to the customer.

Conversely, tax authorities taking a post-audit approach aren’t directly involved in the transaction and don’t need to approve an invoice in order for it to be passed to the customer. Spain, for example, uses a post-audit approach. Under Suministro Inmediato de Información, businesses with more than 6 million euros in annual revenue must report transactional data to the Agencia Estatal de Administración Tributaria—Spain’s tax administration agency—within four days after issuing or receiving an invoice.

Under either approach, businesses can be impacted by having their transactions stopped or audited. And because e-invoicing creates an added layer of verification, getting the tax incorrect can result in delayed transactions and poor customer experiences. Ultimately, regardless of the approach used, standards for e-invoicing vary widely and introduce additional complexity for businesses that must be compliant in multiple jurisdictions.

What to Know About Future Real-Time Compliance

Looking beyond the e-invoicing mandates of today, there’s another wave of tax digitization that US businesses should be prepared for: real-time compliance. While likely years away, the concept combines the concept of e-invoicing and live reporting not only to move the transactional details in real-time but also to bring the exchange of actual tax funds up to real time.

Today, several nations—including Brazil, Chile, and Mexico—have stringent tax reporting requirements. In Italy, for example, all resident businesses must submit live invoices for B2B transactions, domestic B2C transactions, and B2G transactions to the Italian e-invoicing platform.

The tax implications associated with the future of real-time compliance go far beyond the impacts of the most stringent regimes today. Not only will invoice details have to be sent automatically for approval, but businesses, payment processors, and others involved at the time of transaction also will have to digitally send the tax owed to the tax authority once the invoice has been approved.

As the time between a transaction and tax remittance shrinks with real-time compliance, the need for technology at the heart of tax transactions will only grow.

The future of tax compliance globally is digital first. US businesses, while unlikely to encounter these mandates domestically for the time being, will need to be prepared if they want to succeed in the international economy. Likewise, as we inch closer to a world driven by real-time compliance, we can expect businesses, governments, and payment solutions to invest in technology that will enable the exchange of invoice data and tax funds at the time of transaction.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Liz Armbruester is senior vice president of global compliance operations at Avalara.

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