The legal background to E Invoicing

Electronic Invoicing is on the agenda for governments, particularly in Europe, Latin America, and the United States. With austerity driven by the impact of paying for COVID-19 measures will be a driving factor and by implementing e-Invoicing, their public sector entities can achieve back-office savings rather than make cuts to frontline services. For others, the grey and green economy is a driver, and strict government controlled e-Invoicing programs are designed to increase tax collection and reduce waste.
  • Under the new simplified rules individual member states can no longer impose conditions in relation to the use of electronic invoices. Instead, it is for an individual business to determine the method used and the only condition imposed is that the customer must agree to the use of electronic invoicing. In this sense, paper and electronic invoices are now treated equally – the same process for paper invoices can be applied for e-invoices.
  • An emphasis on business controls. Business controls create a reliable audit trail between the invoice and the supply and are used to ensure the authenticity of origin, integrity of content and legibility for all invoices, whether paper or electronic. As the EC states business controls is a wide concept. It is the process created, implemented and kept up to date by those responsible (management, personnel and owners) for providing reasonable assurance on financial, accounting and regulatory reporting and that legal requirements are complied with. Other than business controls, advanced electronic signatures based on a qualified certificate and created by a secure signature creation device or electronic data interchange (EDI) are examples of how the authenticity of the origin and integrity of the content of electronic invoices can be ensured through specific technologies. Each method provides a guarantee for businesses to ensure that the authenticity of the origin and the integrity of the content are met, and as such provide legal certainty. But while the rules and processes around digital signatures and EDI are clear, business controls lack certainty. As an example there is much discussion around sending e- Invoices (PDF) via email as a compliant business control process, but how exactly authenticity and integrity are achieved is not clear.
  • The e-Invoicing process must still ensure authenticity and integrity “Authenticity of the origin” means the assurance of the identity of the supplier or the issuer of the invoice and “Integrity of content” means that the required invoice content has not been altered. Other than by way of the type of business controls, the European Commission provides two examples of technologies that ensure the authenticity of the origin and the integrity of the content of an electronic invoice: An advanced electronic signature within the meaning of point (2) of Article 2 of Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures*, based on a qualified certificate and created by a secure signature creation device, within the meaning of points (6) and (10) of Article 2 of Directive 1999/93/EcoElectric data interchange (EDI), as defined in Article 2 of Commission Recommendation 1994/820/EC of 19 October 1994 relating to the legal aspects of electronic data interchange, where the agreement relating to the exchange provides for the use of procedures guaranteeing the authenticity of the origin and integrity of the data.
  • Storage of invoices Simply, a paper invoice must be archived in its original format and consequently e-Invoices must also be stored in their original format. If the original e-Invoice is an integrated machine format, such as Edifact, Tradacoms or XML it must be presented in a legible (human-readable) format. If software renders an integrated machine format as a legible e-Invoice in real- time during an audit it should be possible to check the information between the original electronic file and the readable document presented has not changed. Each Member State can determine the period throughout which the storage of e-Invoices within its territory and can ask for translation into their official languages. But in contradiction, Member States may not impose a general requirement that invoices be translated.
  • For audit purposes, all supporting documents must be stored with the invoice Where invoices are stored by electronic means Member States can require that the data guaranteeing the authenticity of the origin, the integrity of the content and legibility of the invoice is also stored by electronic means. If an advanced electronic signature or EDI is used, the data guaranteeing the authenticity of origin and integrity of content, will be that associated with those technologies. If business controls are used, which creates a reliable audit trail between the invoice and the supply of goods or services, the data referred to is that of any supporting documents.
Compliance drives e-Invoicing adoption. There is little doubt that it is only a matter of time before EU Member States start mandating the use of e-Invoicing for suppliers to their public sectors. In fact, this is already happening with some Member States and other countries worldwide. For example:
  • Latin American countries such as Brazil and Mexico have mandated the use of e-Invoicing through government-controlled systems, with more expected to follow
  • Most European countries including the UK and Nordic countries, such as Norway and Denmark, mandated suppliers to their public sector bodies to use electronic invoices. Some countries such as Italy have gone further, insisting on pre-posting checks for tax compliance be made.
  • The U. S. Department of Treasury is ordering all its bureaus to implement electronic invoicing
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