In the last years, the importance of E-Invoicing has increased significantly both from a business benefit and from a fiscal control perspective, as Italy currently is imposing with its SDI regulation.
On the one hand, E-Invoicing enables your organisation to automate your invoice processing. As a result, your buyers, suppliers and other managers gain many operational and strategic benefits. In addition to cost savings, the ability to automate your invoicing process and integrate with other business systems provides business efficiency and revenue generating opportunities.
On the other hand, quite a few governments that are in need for a stricter fiscal control impose organisations that do business in their countries to do E-Invoicing and use this as a weapon to fight tax evasion. Because of that, global organisations are facing many challenges to be compliant with different country-specific legal regulations.
Why Italy made E-Invoicing mandatory for tax control
The VAT GAP is the overall difference between the expected VAT revenue and the amount actually collected. According to the 2015 VAT GAP Report of the European Commission, Italy created a VAT gap of 35 billion euros, which is around 23% of the total European VAT gap.
In order to reduce this gap, Italy used the Latin American E-Invoicing regulations as a model. The Mexican government, for instance, introduced the CFDI regulation in 2014. This has become very successful for the collection of taxes. Following a study of the Monterrey Institute of Technology and Higher Education, the CFDI regulation has created an income tax increase of 6,6% for juridical persons and 21,3% for natural persons. These impressive results made Mexico the country where E-Invoicing has caused the largest impact from a tax control perspective. Because of that, many other Latin American, but also European governments have started to develop their own E-Invoicing regulations and have taken the Mexican situation as a model.
In Europe, Italy is currently one of the most developed countries in introducing its own E-Invoicing regulation. It is also the first EU-state to impose real-time tax control. In 2015, the Italian government has introduced their own E-Invoicing regulation, called “Sistema di Interscambio (SDI)”. With this system, organisations that do business in Italy need to transfer their electronic sales invoices with the Faturra PA invoice type to the Italian tax administration, Agenzia delle entrate.
SDI introduces mandatory real-time electronic sales invoice issuance and reporting while it effectively acts as an invoice approval portal, ensuring that all taxable transactions are live verified by the Italian tax authorities. Since 2017 the requirement has been optional for B2B transactions, but the government has stimulated the voluntary use of SDI with multiple tax benefits. The deadline for the obligatory use of this requirement for the private sector is the 1st of January 2019. This means that all companies that do business in Italy need to comply with the SDI regulations as from 1st of January 2019, excluded the cross-border transactions, the small tax payers and those using the flat-rate VAT schemes within the ‘regime di vantaggio’ and ‘regime forgettario’.
How your SAP ERP system helps you comply with the Italian E-Invoicing requirements
The Italian government has announced that severe sanctions will be imposed if an organisation does not comply with the new SDI regulations after the deadline of 1st of January 2019. As such, invoices that are not submitted for approval through the SDI system will lead to penalties of 90% – 180% of the indebted VAT.
Therefore, if you are also doing/ planning to do business in Italy and using SAP ERP as a digital backbone for the automation of your business processes, I strongly recommend adapting your SAP system accordingly to comply with the SDI regulation.
Fortunately, these SAP adaptions will also bring advantages to streamline your invoicing processes and automate them to a great extent:
- Your invoicing process is fully integrated and will run more automatically, which decreases the risk of human errors
- Thanks to this automation, the data will become more reliable
- The order-to-pay process is extremely simplified
- Documents are digitalized and therefore integrated in your SAP ERP system. Thanks to this, making the SAP adaptions can fit into your digital transformation strategy.
Challenges of implementing the SDI requirements in your SAP ERP system
In order to make your SAP ERP system compliant with the SDI regulations, you need to change elements of your current billing process. This brings along the following challenges:
- Company-specific data needs to be collected and mapped into the documents that are required by the Italian government
- Tax rules are constantly changing and being updated. I recommend making sure that your system is adapted accordingly in order to fulfil the most current regulations
- Implementing E-Invoicing in your organization also means that your business processes and the tasks/responsibilities of your people need to be reviewed
- When implementing E-Invoicing in SAP ERP I recommend doing this to the greatest extent possible in order to eliminate human errors
- In order to get their acceptance and commitment, I advise involving and training your employees on the new invoicing processes and procedures
How the SAP eDocument Framework helps you manage your E-Invoicing process flow
In order to manage electronic documents that have legal compliance aspects, SAP provides its SAP eDocument Framework. This framework facilitates the creation and processing of inbound and outbound documents that are created in SAP ERP. The eDocument Framework is very user-friendly, supports several country-specific standards (such as Italy, Spain, Peru, Slovenia, etc.) and has an integrated cockpit to manage the process.
A typical Italian invoicing process is implemented in the SAP eDocument Framework as follows:
- A document, such as a sales invoice or a credit note, is created in SAP
- For this document, a corresponding eDocument will automatically be generated in the SAP eDocument Framework.
- Once this eDocument is generated, it will be converted into a XML-file and automatically sent to the responsible middleware system.
- In the SAP eDocument Framework Cockpit, it is possible to monitor the status and possible issues that arise during the eDocument processing.
- The documents are sent in an XML-format to and processed by the Italian tax authorities (Agenzia delle entrate) and will there be checked for validation. Once they are approved, these documents receive an approval signature.
- Approved documents will be sent back to the customer by the government.
How PIKON helps you adapt your SAP ERP system to comply with the Italian SDI legal requirements
Based on long-term project experiences and our E-Invoicing expertise, we recommend performing the following steps to make your SAP ERP system compliant with the most current SDI regulations:
- Analysis of your current billing process
- Based on your requirements, we make recommendations and determine in close coordination with you to which extent the automation of your E-Invoicing process needs to take place
- Conceptual design
- Implementation to make your SAP ERP system compliant with SDI:
- We will implement the necessary OSS notes;
- We will provide the mapping of inbound and outbound e-invoices, so the Italian government will receive the E-invoice in the FatturaPA V1.2 format;
- If desired, we will add customer-specific fields to the e-invoice;
- We will take care of all the required customizing steps.
- User Acceptance Tests
- User Training
What I recommend if you are doing/ planning to do business in Italy
If you are doing/ planning to do business in Italy and are using SAP as an ERP system, I strongly recommend you adapt your SAP system to meet the SDI requirements as soon as possible. It does not only make sure you avoid the high penalties that are imposed by the Italian government as from 1st of January 2019, but also streamlines and automates your invoicing process and therefore decreases human errors drastically. It will also save you time performing these tasks manually. Moreover, implementing an E-Invoicing process also fits into today’s digital transformation strategies.