In the early days of the digital transformation, businesses were generally ahead of tax administrations in their use of technology to carry out everyday tasks, including accounting and recordkeeping. Most obligations for indirect taxes remained heavily paper-based, with manual processes the norm in most countries. Only a few tax administrations permitted taxpayers to issue electronic invoices – and the authorities that did adopt this measure generally did so as a facilitation for the taxpayers that wanted to use them, instead of applying to everyone.
This has now changed drastically. The trend toward a “digital government” has shifted the emphasis away from optional to mandatory electronic tax compliance. All around the world, tax administrations are using technology more than ever before to collect and analyse more data from taxpayers, often in real time or near real time. Instead of being an optional “facility”, the use of e-invoicing is now a mandatory obligation in many countries, with severe penalties for non-compliance.
Why many countries worldwide are making e-invoicing mandatory
Especially, Latin American countries, such as Mexico and Chile have taken the initiative to make their own e-voicing regulations to close the so-called VAT gap. The VAT gap is the difference between the expected income from VAT and the actual amount collected. In this way, the Mexican government introduced the CFDI law (Comprobantes Fiscal Digital por Internet – Mexican regulation for e-invoicing) in 2014. From the perspective of the authorities, this had a very positive effect on the actual tax income. According to a study by the “Monterrey Institute of Technology and Higher Education”, the CFDI regulation increased the income tax revenue by 6.3% for legal persons and by 21% for natural persons. These impressive results lead to many other Latin American, but also European governments developing their own e-invoicing regulations and implementing them in accordance with the Mexican example.
According to the VAT Gap report of the European Commission from 2017, in 2015, Italy had a gap of 35 billion euros in tax revenue, which in turn corresponded to 23% of the overall European VAT gap. This meant that Italy was one of the first European countries to use the Latin American e-invoicing regulations as an example to close this large gap. There are currently strong signals that even more countries across the globe will follow suit with their own e-invoicing laws. In this way, in 2018, a total of 9 e-invoicing regulations had been introduced in Europe and Latin America. In concrete terms, the Greek government has also decided to introduce the mandatory use of electronic invoices for all B2B and B2C transactions from 1 January 2020. Our E-Invoicing Competence Centre in Genk, Belgium, has developed a long-term SAP strategy with standard SAP solutions for compliance with legal e-invoicing requirements worldwide and keeps an eye on all current and upcoming legal e-invoicing requirements worldwide to provide solutions for compliance.
E-invoicing is mandatory in Italy from 1 January 2019
The mandatory electronic invoice was introduced with the Italian SDI regulation (Sistema Di Interscambio – Italian regulation for e-invoicing) in real time. In effect, the SDI system of the Italian authorities acts as an invoice approval portal and ensures that all transactions, subject to taxation are checked by the Italian tax authorities. The legal regulation for B2B transactions has been optional since 2017, but the Italian government has recommended the voluntary use of SDI with several tax benefits. The deadline for the mandatory use of this provision is 1 January 2019. This means that all companies conducting business in Italy must conform to the SDI requirements from 1 January 2019. This is keeping many companies in Italy busy at the moment, but also many companies in other countries with branch offices in Italy.
What happens if you do not comply with the e-invoicing rules
The Italian government has announced that they will impose severe sanctions if an organisation does not comply with the new SDI law after 1 January 2019. Invoices which are not transferred via the SDI system for approval will lead to a penalty of 90% – 180% of the applicable VAT. Invoice reports which are not transmitted within the cross-border processing incur a fine of 2 euros for each invoice, up to a maximum amount of 1,000 euros per quarter.
SAP partner PIKON Benelux NV (part of the PIKON International Consulting Group) has a team which specialises in supporting customers with this issue.
Read our blog post on the Italian e-invoicing regulations to learn how to implement the new Italian SDI regulation in your own SAP ERP system.
How you can comply with the worldwide country-specific e-invoicing rules in your SAP system
If your organisation is active in one of the countries which is introducing an e-invoicing law, you must prepare your SAP ERP system in order to avoid a hefty fine or even worse. As CIO or CFO, responsible for the SAP system in your organisation, you should think about a regional/global long-term strategy to be able to comply with country-specific e-invoicing laws and to be able to guarantee flawless business processing in the future too.
With its SAP eDocument Framework, SAP has developed a standard solution to represent the worldwide country-specific e-invoicing regulations. With this SAP solution, you can transform transaction data (such as a billing document) within your SAP ERP system (either SAP ECC or SAP S/4HANA) into pre-defined exchange formats (SAP eDocument) and electronically transfer this to external platforms (such as the system of the local legal or tax authorities). Some countries require the companies to deliver these data in a specific pre-defined data format (such as FatturaPA for Italy). In most cases, this is an XML file with pre-defined structures and fields. With the SAP Application Interface Framework (SAP AIF), you can generate the country-specific XML file required by the local authorities from the SAP eDocument created in SAP ERP.
The SAP eDocument Framework is not just a technical conversion platform, but also a working platform for end-users in the accounting department. To allow you to manage the e-invoicing process, the SAP eDocument Framework includes the integrated SAP eDocument Cockpit. In this Cockpit, end-users can always keep an eye on the status of the e-invoices (approved/rejected), view the generated SAP eDocuments, transform these eDocuments into the required XML format and send these to the authorities.
It is important to know that there are various solution scenarios for the SAP eDocument Framework, as the process is different depending on the country-specific requirements and solution. To know which SAP eDocument Framework solution scenario best suits your invoicing process and your system landscape to comply with the relevant country-specific e-invoicing requirements, feel free to contact us. Our Competence Centre for E-Invoicing have developed a long-term SAP strategy for compliance with country-specific legal e-invoicing requirements all around the world and will investigate together with you which solution scenario fits your requirements best.
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