E-invoicing compliance and auditability
B2B automation is leaving kindergarten
Growing up requires a move from engine room to board room
Not just obey public rules, integrate them
Incomplete liberalization is treacherous• Imagine:
– No speed limits– No traffic lights– No road signs– No seatbelts– No fines for mobile phone
use…
• …you can only be fined for “irresponsible behaviour”…as defined by whomever’s on duty.
Mentality change
• Whom does auditability benefit most?• Form requirement mindset kills responsible
thinking, has created reticence to audit facilitation.– This hurts you more than the taxman.– Remember: the tax administration is always right.
The burden of proof is in principle yours (not all countries have abbb).
Current strategies on both sides of the equation
• Businesses:– Piecemeal– Ad hoc– Stop gap– Expensive & unsustainable
• Governments– Ill-informed– Badly coordinated (national and international)– Expensive & unsustainable
• Neither side is showing much vision to get to a working model• This will increasingly hamper innovation and e-business growth• Acceleration of real optimization models e.g. cloud computing is putting
incredible strain on the old polarized public policy model
Describe good business measures for e-invoicing
Ask an informed business person (or tax consultant):
Describe good business measures for e-invoicing
Ask tax administrations:
• The challenge to businesses is knowing what’s truly in the red zones so they can be sure to implement something at an acceptable risk level.
• Evidence management/auditability not yet very intuitive for businesses
• Years of work have gone into defining good joint best practices
• Will the law follow?
Functional requirements Form/method requirements
Typical multinational invoice setup
5-25% cross-border,
Mostly multi-domestic
Often 20-60% intercompany
Adjacent legal areas
Always a mix of two fundamentally different ways of providing evidence, at opposite ends of the spectrum.
The evidence dimension: control options
historian/ detective
Corroborate, substantiate claims: documentation, audit trails, e-discovery….
mathematician
1+1=2
Process-driven Technology-driven
EDI/other E-signatures
BuyerSupplier
AES
SSL
m.a. SSL
AS2
Dat
a-le
vel
Proc
ess-
leve
l (po
int-
to-p
oint
)
Evidence space
In house systemsSystems management outsourcing – several contracts/legal persons, low degree of changeSimple hosting – few contracts/legal persons, usually stable
Application management outsourcing – several contracts/legal persons, low degree of changeASP/process management outsourcing – many contracts/legal persons, significant turnover
The Cloud – innumerable contracts/legal persons, high turnover/ad hoc relationships, loosely coupled components
On Demand evidence management
Single thin layer across diverse systems, processes, contractsSingle evidence concept based on modern trust technologiesBinds evidence in process, contract and data level mix covering whole life cycleSingle audit view, anytime and anywhereDesigned for modern dynamic multiparty environments with low process cohesiveness/audit trails
Regulators and law enforcement are closing in on - but not necessarily understanding - you
Do you understand them?
Business automationConsolidation
ComplianceScattering & multiplying
$
Build it in
But keep it out
Focus of VAT law in relation to e-invoicing
Global e-invoicing compliance
Processmanagement
Record retention Audit facilitation
The importance of VAT
Approximately 30% of all taxes, which represent over 30% of GDP in OECD countries
Cost of invoicing compliance in the EU
25%
5%20%15%
35%
Base auditability, functional requirements
Form requirements high level e.g. Directive
Country-level form requirements
Adjustment from paper to electronic compliance
Non-explicit requirements per country
Value stack
Base controls using good
electronic signatures
AESQES
Loca
lizati
on Long-term auditable formats,
audit page,Compliance Map
Punchout to process
policies, third party
certifications
Supply side, assuming volumes +200,000/year
No demonstrable control: administrativefines & VAT risk for buyer
(Process alternatives: documentation, audit trails, reproducible matching)
No compliance with Directive option for MS QES: administrative fines & Potentially VAT risk for buyer
No compliance with explicit local form requirements: administrative fines & potentially VAT risk for buyer (Could be undone in court,ECJ in final instance)
Impact of evidence position on audit time: Cut back on audit process &VAT expert time spentStrengthen internal controlsSpeed up rolloutProvide excellent service to trading partners
The score1=very expensive for business – 5=reasonably inexpensive
Archiving: multiple but often similar national standards