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Checklist for Tax Compliance to Include in e-Invoicing RFP

e-Invoicing promises significant benefits. But, if you deal with suppliers or customers in countries that collect Value-Added Taxes (VAT) you must be certain that your e-invoicing solution enables you to easily comply with the varying country-specific e-invoicing regulations. Otherwise, you could be subject to sanctions, including fines and the possibility of having to repay already-deducted VAT amounts, which averages 20 percent of transaction values.

So, be sure to include the following five questions in your e-invoicing RFP to ensure you end up with a long-term, sustainable solution that meets your needs.

  1. Data Requirements – Does the solution support varying country-specific data requirements? If so, which ones, and how are they implemented?
    Countries vary in their requirements for the data content of electronic invoices. For example, a UK invoice is required to display the place of legal seat but not the legal form of the company, while a French invoice is required to display both. Australia requires little information about the company itself to be on the invoice, but requires transactional details such as item quantities, item prices, VAT rates, and VAT amounts. Mexico and Brazil require invoices to be dynamically registered in tax authority systems and information provided by these authorities must be included on invoices.
  2. Authenticity and Integrity – Does the solution support varying country-specific requirements for guaranteeing the authenticity and integrity of electronic invoices? If so, which ones, and how are they implemented?
    Different countries allow different methods for ensuring the authenticity and integrity of electronic invoices. These include digitally signed EDI invoices, digitally signed PDF invoices and non-signed EDI invoices.

    • When using digital signatures for signed EDI or signed PDFs in the European Union, some member states require software-based electronic signatures – called “advanced” electronic signatures– while others require one of a variety of hardware-based electronic signatures – called “qualified” electronic signatures.
    • In other member states, digital signatures are an option rather than mandatory, but your trading partner may still insist on their use. For example, in Spain it is a common business practice to digitally sign EDI invoices even though digital signatures are not mandated by law.
    • Most countries permit EDI invoices without the addition of digital signatures as described above as the official legal invoice for tax audit purposes. This is sometimes referred to as “non-signed” or “un-signed EDI.” Electronic data interchange (EDI) has been a popular method of exchanging electronic invoices for more than 20 years and, when the invoices are exchanged within a secure network, the authenticity of their origin and the integrity of the content is ensured. However, some countries may still require additional compliance documentation. For example, France requires a comprehensive trading partner list and a daily, automatically generated invoice summary report to be available during an audit in addition to the legal invoice. In many countries, tax auditors will also request human readable copies of your EDI invoices. Your e-invoicing solution must be able to provide such additional compliance documentation as required on a country-by-country basis.

    If your company deals with suppliers or customers in different EU Member States your solution must be able to automatically identify the appropriate rules to apply and support all the variations.

  3. Archiving – How does the solution provide invoice archiving?
    One of the major components of the country-by-country e-invoicing regulations is the requirement that both buyer and supplier archive the legal invoice—the digitally signed PDF, the digitally signed EDI document, or the non-signed EDI document.

    • In the case of digitally signed documents, the electronic-signature certificate proving the integrity of the invoice must be stored as well.
    • All archived invoices must be rendered in a human-readable format upon request of the tax auditor.
    • In the case of non-signed EDI, some countries such as France also require the archival of additional compliance documentation, such as the comprehensive trading partner list and daily invoice summary, including invoice number, amount due and an electronic audit trail to provide validation that an invoice was indeed processed and delivered without any modification.
    • All data must be stored in accordance with the local data protection laws.

    Many countries require the archival of digital invoices for extended time frames, which may be as long as 11 years. Furthermore, some regulate the location of the archive — within a country or a region. Your e-invoicing solution must allow for these data storage requirements in a secure environment, while providing an audit trail of all transactions.

  4. How does the solution speed compliance with auditor requests?
    Government authorities frequently conduct audits to ensure compliance with all necessary regulations. These audits can be extremely time-consuming and resource-intensive. Time spent gathering and providing information to the auditor is time that these resources are not working on their normal activities and projects. Furthermore, you must be able to provide the auditors with your legal invoices in human-readable format upon request. If your legal invoices are signed or non-signed EDI invoices, they must be quickly and easily converted as needed. Your solution should enable you and/or the tax auditor to easily search the electronic archive for any and all invoices in question with minimal effort.
  5. How does the solution keep up with frequently changing tax regulations?
    e-Invoicing regulations around the world are changing regularly. As these changes occur, they may require updates to your solution to ensure that it remains compliant with local laws and that it fulfils the requirements of local tax authorities. The e-invoicing solution should include a facility to ensure that the system is always updated to reflect the latest changes in the regulations.