New EU Rules Promote "Equal Treatment" of E-Invoicing

Back in July, 2010, an EU directive was produced to set out how invoicing in both paper and electronic formats could be improved and how the electronic alternative might help business.

There is a deadline for a rule change in January, 2013, so that VAT rules for invoicing in both formats will be revised to create a level playing field, for ease of use and common understanding.

At least, that is the aim.  Laudable though it is, the European Commission’s drive to simplify the issue has too often ended up by complicating it.

The aim is to simplify invoicing rules by removing existing burdens and barriers to that paper and electronic invoices are to be treated equally.  There should be according to the Directive no increase in the administrative burdens implicit in paper invoicing; e-invoicing will be promoted simply through being available as a free and equal choice.

Once again, these changes are framed as a suggestion.  It will be up to national administrations to interpret and apply them, and inform their tax base accordingly.  The new directive will be accompanied by explanatory notes which suggest the changes be implemented in a uniform way, but are offered only as guidance. Clarity in the guidance will be important. Take for example the requirement for a paper invoice to be issued in order to create a tax point for VAT purposes. What constitutes the issue of an invoice has been the subject of much litigation over the years - generally around the time of a VAT rate change. Any ambiguity in the guidance for electronic invoicing could lead to similar litigation and it will be interesting to see how the precedents already set for paper invoicing apply going forward.

The problem with this approach remains as before – that with VAT invoicing based on a directive, each member state is responsible for translating its provisions into law and applying them correctly within its jurisdiction.

So what can we expect to see adopted by the states?  Initially, we suspect, little will change.  However, there are a number of factors to bear in mind, especially if invoicing electronically:

- Paper and electronic invoices will have equality of status and treatment.

- Invoices must reflect that goods or services have actually been supplied.

- The term “e-invoice” has been re-defined to mean one issued and received electronically, with all the information required by the directive.

- The legitimacy of the invoice depends on the customer being able to receive it.  This in turn means that the decision to invoice electronically must be jointly taken by the trading parties, with the capacity to receive, read, agree and process the invoice fundamental to acceptance.

- Both parties will need to know and accept as authentic the origin of the invoice, its purpose and the identities of the supplier and customer, as stated.

- In the same way, there needs to be shared trust in invoice content, which will come from safeguards that due process has been followed and signed off, and any controls relating to data transmission properly implemented.

No dramatic changes are envisaged at this stage.  The directive is designed to make life easier for business, provide some legal certainty over obligations and tell business people which member state rules applies where when invoicing.

So much for the aims.  What it will certainly do is highlight, once more, the crucial importance of the tax invoice – whether in paper or electronic form – to EU trade.  For any business operating in or between EU jurisdictions, it will always pay to ensure invoices are correct in every detail and compliant with the latest rules.

If you would like to discuss the issue covered in this article in more depth, please contact Ellen Main-Jeffrey.