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

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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