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Four steps to take now to meet the evolving e-invoicing regulations

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Complexities are arising from the different e-invoicing requirements and timings worldwide.


In brief

  • E-invoicing is set to transform the way businesses interact with tax authorities.
  • Multinational businesses need a joined-up, cross-border approach to meet evolving regulations worldwide.
  • Companies have an opportunity to streamline compliance and make the right technology choices.

E-invoicing is high on the agenda for tax administrations around the world. Several countries have already introduced some form of e-invoicing in the past few years, and by the end of the decade, much more are expected to follow.

The European Commission’s VAT in the Digital Age proposal (ViDA), which includes measures to modernize the Value Added Tax system, includes e-invoicing and digital reporting, which should give e-invoicing greater momentum.

One of the biggest challenges for multinational enterprises is coping with a range of local e-invoicing requirements. To make matters more complicated, the goalposts are constantly moving, with national authorities, such as France, Germany and Poland, delaying the introduction. Other countries are pushing ahead with their plans, such as Romania, where e-invoicing came into force in January 2024 and Malaysia, where the go-live date for e-invoicing of August 2024 is fast-approaching, with companies furiously striving to get ready. 

Even in countries that have had e-invoicing for several years, such as Brazil, Mexico, Italy and Saudi Arabia, regulations continue to evolve over time. 

It is crucial for organizations managing multiple entities in multiple jurisdictions, to develop a broader multinational strategy that works across the enterprise, while taking local regulations into account.

Adopting a multinational perspective

This mosaic of differing requirements and timescales presents a compliance challenge for global companies with multi-country operations. Critically, companies headquartered in geographies where e-invoicing is not yet on the horizon (most notably in the US), will still be affected if they do business in areas where it’s already in place.

 

“It is crucial for organizations managing multiple entities in multiple jurisdictions, to develop a broader multinational strategy that works across the enterprise, while taking local regulations into account,” says Gino Dossche, EY Americas VAT Compliance and US Consumption Tax Leader. “Dealing with the changes on a country-by-country basis is likely to become unsustainable and costly.” 

 

In Mexico, e-invoicing has been in place for over a decade, with several updates during this period calling for costly and time-consuming changes to systems to meet the new requirements. Keeping track of these changes, while also monitoring  e-invoicing launches in new countries, puts heavy demands on companies’ resources.

 

“Delays to enforcing e-invoicing requirements can put the brakes on momentum. Companies that have worked hard to prepare for the reforms may be frustrated and could be thinking of halting their preparations. However, they have the opportunity to use this time to adopt a more strategic, global approach to e-invoicing, and improve the tax control framework in the business, especially as the data collected will be subject to intense tax authority scrutiny,” says Gwenaëlle Bernier, Tax Technology and Transformation Leader at Ernst & Young Société d'Avocats – France. 

 

Compliance threat or standardization opportunity

Whether e-invoicing is already in operation, or imminent in a company’s home country or that of its subsidiaries, it presents an opportunity to standardize the approach worldwide, potentially creating seamless, automatic tax reporting, leading to the reduction of processing costs and better-quality management intelligence.  

 

“E-invoicing is not just an accounting and tax project,” Bernier says. “It’s a global transformation project with significant implications for supply chain, legal, operations and finance, affecting contracts, payments and the cash needed to run the business.”

 

E-invoicing calls for a review of the IT infrastructure to accommodate integrated tax systems and digital reporting tools. Companies need to carefully consider the right – preferably integrated – technology solution that can adapt to constant regulatory change and work across all the countries in which they do business.

Delays to enforcing e-invoicing requirements can put the brakes on momentum. Companies that have worked hard to prepare for the reforms may be frustrated and could be thinking of halting their preparations.

Four ways companies should respond now

The introduction of e-invoicing is potentially transformative, with an impact on procurement and supplier relationships, cash collection and accounts payable, working capital, tax reporting, and wider digital transformation efforts. Companies need a well-defined implementation plan to comply with tax regulations on a daily basis. Here are some steps companies can take now to be ready for e-invoicing:

1. Define global tax policy and governance – and assign responsibilities

E-invoicing is evolving at different speeds in different countries. Businesses faced with a multitude of tax developments should develop an overall global tax policy that sets direction for the global and local tax functions. A task force of senior, multi-function representatives, backed with C-suite sponsorship, can agree tax policy and governance to meet evolving requirements.

Sanjeev Fernandez, EY Global E-invoicing and E-reporting Product Leader, emphasizes that it’s a whole business project. “It’s vital to engage stakeholders from the start and get them around the table, including IT and technology, finance, tax, legal, procurement, supply chain, sales and marketing, and general commercial,” he says. “There should ideally be a full-time project manager responsible for roll-out, to achieve compliance from day one of launch of e-invoicing in each country.”

The involvement of the finance department is critical to ensure smooth integration of e-invoicing into business operations, so that the funds flow aligns with the accounting reporting. Similarly, the additional technology and data requirements from e-invoicing will affect IT development projects, resources and budgets.

2. Assess readiness and start early

“Tax regulations and deadlines are changing continuously – in countries where e-invoicing has been around for a while, as well as those where it’s on its way,” says Amarjeet Singh, EY ASEAN Tax Leader. “So, it’s important to run current-state assessments of readiness of people, processes and systems for each country, highlight any gaps and develop plans in line with anticipated regulatory changes.” 

Once the team knows how e-invoicing affects the current invoicing system, they can bring in appropriate professionals to manage the change with limited business disruption. This allows them to onboard customers and suppliers seamlessly so that payments continue to flow in and out at the normal pace. 

Adopting e-invoicing is a major undertaking that can take as long as nine months, so businesses should start as early as possible. By continually monitoring regulatory developments, the project team can increase its chances of success and take a more holistic, longer-term view, to determine the implications for the business globally.

3. Strive for data quality and availability

“E-invoicing is a huge transformational journey. The key is to get the data right. By focusing on master data and tax determination, reviewing regularly, and automating as much as possible, everything else becomes easier.” says Dublin-based Deirdre Hogan, Partner, Head of Specialty Taxes, Ernst & Young Business Advisors.

Any transactional and accounting data sent to tax authorities should be accurate and complete to avoid penalties. Data quality and integrity is therefore a high priority, requiring strong data governance. E-invoicing is typically being introduced on a national level and each tax authority has different data requirements in terms of fields and formats. Once a go-live date has been announced, companies should carry out a gap analysis to determine whether they have access to the appropriate data and that the quality is reliable. Ideally, the process should be as automated as possible, with minimal or zero manual interventions. 

It’s vital to engage stakeholders from the start and get them around the table, including IT and technology, finance, tax, legal, procurement, supply chain, sales and marketing, and general commercial

4. Choose the most suitable technology solution

Businesses have some big decisions to make regarding technology as they consider how to embed e-invoicing. According to Sanjeev Fernandez, EY Global E-invoicing and E-reporting Product Leader, “When it comes to technology for e-invoicing and e-reporting, companies need to be as strategic as possible. They need to elevate this initiative internally to handle a global footprint consistently. That way they can future-proof their operations, benefit from synergies and economies of scale, and avoid duplication of efforts and costs at a global level." 

The aim should be to have a global solution that can adapt to new markets and constant regulatory changes, and also to give central visibility over global transactions. However, the number of technology solutions can be overwhelming. 

The three options are to:

  • Buy, either from global or local technology providers with the preference to implement and run it in-house
  • Outsource to an external technology provider to implement and run it
  • Build, which relies on internal resource to create, implement and manage end-to-end

Most companies choose a blend of buying and outsourcing. Then, it’s a question of what kind of technology partner to select. The first option is to work with global Enterprise Resource Planning (ERP) vendors to integrate e-invoicing into existing ERP to create a single, global system that can create invoices in different markets. The second alternative is to work with specialized, global middleware vendors to acquire middleware and software that links to a tax authority portal and can integrate smoothly into existing systems. The final option is to reach out to local middleware vendors, which is a good option for introducing e-invoicing into a single market and typically cheaper than a global vendor.

Summary

E-invoicing is likely to affect every company, but multinational enterprises face more complex challenges, as they need to be ready for different requirements in different countries at different times, as well as cope with unexpected postponements. The answer is a strategic, joined-up approach across international trading borders. Get it right, and they have an opportunity to overhaul indirect tax reporting to streamline compliance, prevent errors, detect fraud and improve cash management. 

E-invoicing requires a collaborative effort across many functions, calling for effective change management and education of relevant internal and external stakeholders.

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