Finance & Procurement

October 2021: E-Invoicing & VAT compliance updates

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Introduction

Welcome to the October 2021 edition of OpenText’s E-Invoicing Regulation update.

In this edition, we are pleased to provide a timely reminder about imminent changes in Italy, as well as news about the upcoming B2B mandates in France, Poland, Spain, India, and Saudi Arabia. The USA rarely features in our compliance bulletins due to the lack of VAT but e-Invoicing is increasingly a hot topic so we are delighted to share some developments here as well.


Compliance news updates

Europe

France: e-Invoicing mandate pushed back 18 months, while the first release of technical specifications is made available

On September 16, the French Council of Ministers published a revision to the scheduled mandate for their national e-Invoicing and e-Reporting program.

Further clarification has been made regarding which companies are in scope of the regulations.  For e-Invoicing, any business that is established, domiciled, or “ordinarily resident” in France must comply.  The e-Reporting obligations also apply to non-resident/non-established companies who are with VAT registered in France.

As had already been established, companies in scope retain either the option of connecting directly to the public e-Invoicing portal (PPF / FR: portail public de facturation), or as an alternative may use a private e-Invoicing platform or operator who connects to PPF on their behalf.

The new calendar pushes back the dates by 18 months for large enterprises, and 12 months for small and medium companies, giving both the DGFiP (Directorate General of Public Finances) and also taxpayers, more time to prepare.

The revised schedule is as follows:

  • 1st July 2024 – At this point all companies in scope must be able to accept e-Invoices from their suppliers.  On the same date the largest enterprises (~300) must issue e-Invoices instead of paper.
  • 1st January 2025 – the obligation to issue e-Invoices will then apply to ~8,000 mid-sized companies  (Entreprises de taille intermédiaire”).
  • 1st January 2026 – all of the remaining medium and small companies (~4 million) must also issue e-Invoices.

On September 30th the first technical specifications have been made available allowing taxpayers and e-Invoicing vendors to begin the technical design process.

These specifications are not “full and final” and later clarification will be provided around specific invoicing use cases as well as around e-reporting.   Many elements still need to be established by decrees and updates to the official bulletin (BOFIP).

The technical specifications cover the following areas:

  • Roles and obligations of parties operating in the new scheme
  • The use cases and types of invoices in scope and syntax of formats – namely XML CII, XML UBL and Factur-X
  • Transmission methods and interoperability considerations
  • Addressing of messages and the central directory
  • Invoice lifecycle, statuses and controls – with an obligation for trading parties to document and report the full end to end lifecycle of each invoice including time of creation/issuance, when it was made available, received, and any rejection etc.
  • Payment statuses must be reported by suppliers also through either the public portal (PPF) or their e-Invoicing platform / operator.

Italy: Changes for cross-border invoices as of January 2022

Announced back in the Italian Law no 178 of 30 of December 2020, a significant change to cross-border invoicing is coming into effect as of January 1st 2022.

Italian companies with cross-border operations who transact invoices internationally, and who today use the periodic “Esterometro” report to share their cross-border sales and purchase invoices with the government, please take note.

The Esterometro report will be abolished as of January 1st 2022.  From this date, all cross-border invoices will need to be reported instead using the FatturaPA XML format and via transmission to the SdI portal.  This is the same flow as for domestic e-Invoices today.

Since foreign entities are not able to register on the SdI platform and receive FatturaPA XML invoices via that channel, companies trading cross-border electronically will have likely been using other e-Invoicing and compliance mechanisms such as EDI or signed PDF to send and receive these invoices.  These flows can and should continue, but from January you will need to ensure you have an additional flow created in parallel to support this change.

For outbound invoices, you will require a new flow to issue a copy of each cross-border invoice in FatturaPA XML format, and transmit this to the SdI platform. Again, remember this is in parallel to the existing flow transmitting the invoice directly to your foreign buyer, not a replacement thereof. 

For inbound invoices, companies will need to set up a new flow issuing a “self-invoice” in FatturaPA XML format and this must be transmitted to the SdI platform. Self-invoices must certify the application of the reverse charge mechanism.

For existing customers using Active Invoices with Compliance in Italy, if you have not already planned to set up these flows, please reach out to your delivery manager who can assist.

Poland: National e-Invoicing system postponed

In our last newsletter of June 2021, we discussed the draft bill which defined the proposed National e-Invoicing System (PL: Krajowy System e-Faktur – referred to as KSeF for short). 

The bill set out an expected timeline for availability on a purely voluntary basis in the first instance. The original timeline had suggested the system would be available this month – October 2021 – but this milestone has now been postponed until 1st of January 2022.

There will be a gradual transition to the use of the new system, but it remains to be seen how this will function in practice, since the new system will remain optional until 2023 at least. 

While there are many potential benefits to taxpayers from the use of the new system – such as a single form/format for all invoices, visibility for the supplier of receipt by the buyer, secure storage within KSeF itself, leading to a reduced audit burden and faster VAT refunds – many of these benefits will not be realized until all of an organization’s invoices are fully electronic.

Full technical specifications remain to be published but we continue to monitor the changing situation closely and will provide further updates in subsequent newsletters.

Spain: Draft law extending the current B2G mandate to specific B2B transactions open for public consultation

As part of their recovery and resilience plan – a response to the global pandemic funded with aid from the European Union – the Spanish Ministry of Economic Affairs and Digital Transformation has recently announced a draft Law designed to promote the creation and growth of companies in Spain.

You can find the draft law here in Spanish language.

This proposal pushes digitization as a means of improving commercial operations and encouraging entrepreneurship in Spain. As an incentive, the government launched a “Digitalization plan” program which will provide financial aid to companies in their business digitization programs.  This focuses heavily on the SME sector and seeks to modernize their business processes such that they become more resilient to potential crises.  Areas of focus include cloud services and e-commerce.

More information on this plan can be found here, also in Spanish.

One key target of the law is to extend the existing B2G / public procurement obligation (now active since 2015) to include the issuance and exchange of B2B electronic invoices as well.

At a high level, the new electronic invoicing system will require companies and freelancers/contractors to exchange invoices electronically and provide their buyers with the ability to electronically access, read, copy, download, and print the electronic invoice, and consult them for at least 4 years (the current invoice retention period in Spain).  Sanctions will be imposed on companies that fail to meet the new obligations.

As we have seen in other regions, implementation will be phased to allow for businesses to transition smoothly, with larger companies (turnover above €8 million per annum) provided a year’s grace period, and all smaller companies below the threshold having three years to transition.

Full legal and technical detail is still to follow, and we will keep you updated in forthcoming newsletters.

The Americas

USA: eInvoice Exchange Market Pilot – Federal Reserve and Business Payments Coalition

As one of the few remaining non-VAT regimes globally, e-Invoicing has been widely used in the United States for many years without any complications around compliance. However, the piecemeal approach and lack of standardization have still hampered adoption and limited the potential benefits that might be achieved.

The Federal Reserve FedPayments Improvement organization has teamed with the Business Payments Coalition – a voluntary group of organizations working to promote adoption of electronic B2B invoices, remittance, and payments, to build a working group exploring the feasibility of developing and implementing a standard ubiquitous B2B electronic invoice processing platform similar to the clearance platforms widely used in other countries.

As a leading provider of B2B e-Invoicing in the USA and globally, OpenText are proud to be one of the member organizations driving this pilot initiative.

Results of the initial proof of concept for an electronic e-Invoice exchange framework have already been published.

More information about this initiative can be found here and organizations interested can still get involved using this form to register their interest.

Asia-Pacific and Rest of World

India: B2G and self-billing no longer in scope for e-Invoicing

In June 2021 the Indian government announced that their mandate for e-Invoicing will explicitly exclude/exempt B2G transactions. This has no effect on businesses trading with private companies rather than government agencies. Self-billed invoices under the reverse charge mechanism are also out of scope. 

Those categories of taxpayer whose core business is exempt from VAT are still required to comply with the new obligations for all other supplies where a regular tax invoice must be issued.

Saudi Arabia: “Fatoorah” e-Invoicing project launch

In August 2021, the Zakat, Tax and Customs Authority (ZATCA) formally inaugurated their electronic invoicing project (Fatoorah), highlighting the importance to the national economy of the proposed e-invoicing system, including the potential impact on the “shadow economy” which costs the Kingdom of Saudi Arabia (KSA) over SR400 billion ($100 billion) each year.   By digitizing the exchange of invoices, it is expected that fraudulent transactions and commercial concealment activities will be significantly reduced.

Phase 1 is set to go live in December 2021, and delays are not currently anticipated.  Phase 1 does not mandate a specific electronic format BUT requires businesses to generate e-Invoices and associated documents in a structured electronic form, so PDF and word processing documents like MS Word or other formats are not acceptable as e-Invoices.  PDF/A-3 format invoices which include embedded XML may be accepted.  As well as being in a structured data format invoices must contain all of the mandatory data, including a consistent sequential numbering scheme (multiple invoice sequences are not permitted).  B2C e-Invoices are required to include a QR code. Invoices and audit trails must be unmodifiable with controlled access.

Phase 2 was moved back from June 2022 to 1st January 2023. In Phase 2, as well as delivering e-Invoices to their buyers, suppliers must also transmit a copy of e-Invoices to the ZATCA in a mandated UBL XML format.  B2B e-Invoices must be transmitted in near-real-time as in other clearance regimes. B2C e-Invoices must be reported within 24 hours of issuance. In phase 2, invoices must include a Universally Unique Identifier (UUID) in addition to the sequential invoice number.  E-Invoices must include a cryptographic stamp and hash, as well as a QR code.

ZATCA has now published an indicative list of e-invoicing solution providers who have met the qualification requirements – but they have been keen to highlight that taxpayers may choose any e-invoicing solution provider as long as it is compliant with the e-invoicing requirements.


Disclaimer: This newsletter is intended to reflect the direction the industry is moving and does not a reflection a commitment for the OpenText Active Invoices with Compliance (AIC) product development roadmap to meet any particular stated regulations.
LEGAL Disclaimer: The information contained in this newsletter is for general guidance on matters of interest only.  The authors are not herein rendering legal, accounting, tax or other professional advice and the content should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.  While we make every attempt to ensure the accuracy of the information contained within is from reliable sources, OpenText is not responsible for any errors or omissions, or for any results obtained from the use of this information. All information is provided “as is” with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance and fitness for purpose.  In no event will OpenText or its agents or employees be liable to you or anyone else for any decision made or action taken in reliance on the information in this Site or for any consequential, special or similar damages.

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