Value-added taxes: Do electronic and paper invoices become equal?

Value-added tax is currently a big barrier within the EU for the introduction of electronic invoices. But with the council directive 2010/45/EU of 13 July 2010 amending Directive 2006/112/EC on the common system of value-added taxes, it will bring further simplifications. By the 1 January 2013, electronic and paper invoices need to be treated equal.

Among the different problem domains, valued-added taxes play an important role, as only invoices that have been received and archived according to the law will allow a tax deduction. Thus, this can lead to a high tax burden. Nevertheless, electronic invoices have a high potential to reduce operational costs and help in automating the overall bookkeeping process.

Therefore, I can just repeat myself, when I say that electronic invoices should be part of every IT strategy for the years 2012 and 2013.

Council directive 2010/45/EU

The council directive 2010/45/EU of 13 July 2010, which needs to be implemented by the local governments by 31 December 2012, will bring major simplifications.

“Since the use of electronic invoicing can help businesses to reduce costs and be more competitive, current VAT requirements on electronic invoicing should be revised to remove existing burdens and barriers to uptake. Paper invoices and electronic invoices should be treated equally and the administrative burden on paper invoicing should not increase.” 2010/45/EU of 13 July 2010

As pointed out in this blog, the authenticity of the origin and the integrity of the content need to be guaranteed from the point of time of issue until the end of the period of storage of the invoice. This will not change with the new directive, but what has changed is that, according to Article 233 MwSt-Rl, the way to ensure the authenticity of the origin, the integrity of the content and the legibility of the invoice can be determine by each person. Furthermore, it is stated that this can be achieved by any business control that creates a reliable audit trail between an invoice and a supply of goods or services. Nevertheless, advanced electronic signatures on a qualified certificate and EDI should still be useable.

Definition of electronic invoices

According to the explanatory notes, the type of electronic format of the invoice is not important,  only that the invoice is in an electronic format when it is issued and received. Therefore, a paper invoice that is scanned, sent and received via e-mail can also be an electronic invoice.

Ensuring the authenticity of origin, integrity of content and legibility

According to the directive, the supplier and the customer are free to choose how to ensure the required elements. This can be done, e.g., by business controls creating a reliable audit trail, advanced electronic signatures and EDI. Guidelines by governments should only be treated (according to the directive) as guidelines and should not restrict the choice of the taxable person (explanatory notes on article 233 (1), second subparagraph).

Business controls especially may lead to a further simplification. According to the explanatory notes, business controls is a wide concept that defines a process which provides reasonable assurance on financial, accounting and regulatory reporting and the compliance with legal requirements. The business controls should be appropriate to the size, activity and type of the taxable person (explanatory notes on article 233 (1), second subparagraph). Furthermore, a reliable audit trail is required. The explanatory notes describe a reliable audit trail as a documented flow of a transaction from initiation—the source document, such as a purchase order—to completion, such as the final recording in the annual accounts and vice versa, that provides links between the various documents in the process (explanatory notes on article 233(1), second subparagraph).

Implementation of the directive 2010/45/EU in Germany

Germany, for example, has already implemented the council directive 2010/45/EU. Since 1 July 2011, the submission of electronic invoices has been simplified. A great source for how the changes can be interpreted in Germany is the “Fragen und Antworten zur Vereinfachung der elektronischen Rechnungsstellung zum 1. Juli 2011, BMF v. 18.04.2011 – IV D 2 – S 7287 a/09/10004). According to these interpretations by the German minister of finance, no specific method for the submission of electronic invoices has been defined. As required, the issuer of the invoice is free to choose a suitable method. In case there is no advanced signature in place, business controls with a reliable audit trail need to be set in place. But the notes state that it doesn’t mean that a technical and highly complex system has to be set in place. A small company can build up business controls for the electronic invoicing process by, e.g., checking the purchase orders and invoices.

I’m looking forward to see how Austria will implement the council directive 2010/45/EU.

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