What can we expect from e-invoicing in 2023?
Almost every week, another country has announced it will introduce mandatory e-invoicing or e-reporting of invoice data. This is the clear direction of travel for indirect tax compliance globally. Alex Baulf, Senior Director of Global Indirect Tax at Avalara comments
All types of businesses - including ERPs and marketplaces - are now viewing e-invoicing as a business-critical issue requiring a strategic approach, and are looking for a single, scalable process and technology solution to help them make the leap, before they’re pushed.
The recent “VAT in the Digital Age” proposal from the European Commission is looking to remove the barriers holding back businesses and member states from adopting e-invoicing and will mandate cross-border e-invoicing and real-time digital reporting of invoice data across the EU from January 2028. But in the meantime, what can we expect to see from e-invoicing in the year ahead?
Alex Baulf, Senior Director, Global Indirect Tax, Avalara
1. The Rise of QR Codes
As e-invoicing prepares to take off in the very near future (countries to make it mandatory will be France, Poland, Spain and Belgium from July 2024), countries worldwide need to find new and innovative solutions to reduce tax gaps and improve tax compliance for the here and now.
We’re observing more and more tax authorities using QR codes (two-dimensional barcodes) on e-invoices to help authenticate that an invoice has been approved for issue and to assist with auditing an individual invoice or receipt.
The use of QR codes also elevates consumers to the role of key stakeholders in ensuring tax compliance, giving them both the visibility and comfort that tax is being charged and reported.
QR codes on invoices have already been rolled out in Saudi Arabia and Portugal, and will soon be in Spain. What’s interesting about this technology is that all business participants, even private individuals, will be part of the governance process since they’ll be able to scan a QR code to send relevant data directly to tax authorities. Switzerland has recently introduced QR codes to facilitate automated digital payments of invoices.
2. Government incentives for businesses to digitise and adopt e-invoicing
Many tax authorities are introducing mandatory e-invoicing to reduce the VAT gap, which is the amount of VAT missing from public finances due to the submission of erroneous, inaccurate VAT returns, and fraud. This is currently estimated to be €93 billion in the EU alone. As global economics battle with recessions, this amount of capital simply cannot be missing from government revenue and more needs to be done to catch it.
This year, we expect to see more countries offer cash grants and incentives for businesses to switch from paper and standard PDFs to e-invoicing.
Singapore will, for example, start offering enterprises grants of $30k to connect their ERP systems to the e-invoicing network and up to $40k to begin issuing and receiving e-invoices. Tax authorities and governments see the adoption of e-invoicing by larger enterprises as key to encouraging widespread adoption amongst SMEs. Spain has also launched grant funding for businesses to invest in digitalisation and adopt e-invoicing.
The move towards widespread e-invoicing adoption will essentially usher in a fundamental technological overhaul of the way we globally trade and do business. It is set to bring many benefits for governments and organisations alike - from digitising processes, allowing access to real-time granular data, and plugging the VAT gap by reducing fraud. But benefits aside, that doesn't mean it will be an easy change to make so it’s great to see governments offering incentives to get the ball rolling.
3. Data intelligent tax administration
As e-invoicing allows for an increased volume of insightful transactional data, businesses across the globe should spend this year getting ready for the technological overhaul of the way we approach indirect tax. As the digitisation of tax administration has led to increased transparency, data-driven tax administration has never been more important, particularly as it looks to bridge VAT tax gaps nations worldwide simply cannot afford during this time of economic uncertainty. Tax authorities will be able to continue to deploy new sophisticated data analytics leveraging machine learning and artificial intelligence to facilitate compliance and identify errors and fraud.
Through e-invoicing frameworks, the rise of QR codes, government assistance and data-driven tax administration, global economies and businesses can look to stabilise and benefit this year despite the looming recession. But with investment on hold due this economic uncertainty, there is a risk firms will not capitalise on the early mover advantage and will instead opt for a “sticking plaster” approach to solutions rather than making the right strategic investments long term.
It is essential businesses aren’t complacent and act early to ensure they are ready for the switch to avoid last minute panic as we see the proposed regulations begin to come into effect as early as 2024. Businesses need to act now and make the switch to e-invoicing, otherwise they risk being left behind.