EU Directive and other
Invoices have been exchanged electronically between trading partners for nearly 30 years, although traditionally, it has only been large organisations receiving invoices from their suppliers that could afford the setup and on-going operational costs.
EDI (Electronic Data Interchange) was recognised relatively early by the regulatory authorities as a valid means of exchanging invoices electronically, and in fact it has been specifically mentioned in legislation as an approved method of sending and receiving invoices. EDI has been most successful in the food retail supply chain and the automotive industry, but its high cost and complex setup have
prevented its wider adoption outside of a small number of industries.
As technology has evolved, new methods of exchanging invoices have been developed. However, not all of these methods meet the standards required by regulatory authorities in terms of security, authentication and inspection. A standard of ‘non-repudiation’ is required for electronic invoices, just as it applies to traditional paper invoices. This means that the regulatory authorities must be able to retrieve any invoice and be satisfied that it is genuine.
The legislation governing the use of electronic invoicing within the EU has been defined at an EU level and it has then been interpreted in the regulations of member countries. The focus of the legislation has been on the VAT treatment of invoices and previous legislation has led to a scenario where there were differences in how electronic invoices had to be processed between member countries. This situation has been resolved in the most recent EU legislation Directive 2010/45/EU which has to be implemented by all EU member states by the 1st January 2013.
The European Union
The European Commission has identified economic savings of over €240bn annually to governments and private companies if electronic invoicing was to be adopted throughout the EU. The Commission has been active in promoting e-invoicing and it is likely that the European Parliament will pass legislation requiring the governments of all member states to receive invoices electronically by 2016.
The key piece of legislation at an EU level is: Directive 2010/45/EU
This Directive sets out the VAT rules as regards e-invoicing and removes the obstacles to the uptake of e-invoicing by creating equal treatment between paper and e-invoices, while also ensuring that no additional requirements are imposed on electronic invoices.
The key elements of this Directive as they apply to electronic invoicing are:
1. Place of Supply Rule
Invoices must comply with VAT rules specified in the place of supply, which means that an
e-invoice generated for goods sent out from an office in Ireland, must comply with Irish law,
even if the organisation is registered in another country.
2. Standard Rate of VAT
Each member state must apply a standard rate of VAT and may also apply two
lower rates of VAT.
3. Contents of an Invoice
The items that must appear on an invoice have been agreed at an EU level. These are:
- Date invoice issued
- Unique sequential number
- VAT number
- Customer VAT number for supply across national borders (national states may also choose to require a customer VAT number to appear on domestic invoices)
- Full name and address of the customer
- Quantity and nature of goods or services supplied
- Date on which the supply of goods or services was made if it differs from the invoice date
- Unit price for the goods or services exclusive of VAT
- VAT rate applied
- VAT payable
4. Electronic Transmission of an Invoice
Chapter 3, Section 5 of the Directive contains specific provisions for electronic invoicing. Consent to receive invoices electronically is required from invoice recipient.
The authenticity of origin and the integrity of content need to be guaranteed by one of the following methods:
- Advanced Electronic Signature
- EDI (Electronic Data Interchange)
- By any other electronic means subject to acceptance by the member states in whose territories the transaction takes place
5. Invoice Storage
Provided that full on-line access is provided, electronic invoices do not have to be stored within the territory of the member state to which they relate. This is different to paper invoices which do have to be stored within the territory of the member state to which they relate. This applies to invoices issued to customers as well as to invoices received from suppliers.
There are some specific provisions relating to the storage of invoices that must be guaranteed throughout the storage period of the invoices:
- Authenticity of the origin of the invoices
- Integrity of the content
- Data within the invoices must not be altered
- They must be legible at all times
Each member state of the EU can decide on the period for which invoices must be stored and it ranges from 6 years in Ireland and the UK to 12 years in Spain and Italy.
Member states may require invoices to be stored in the original form in which they were sent or made available.
As this is an EU Directive that has been adopted by member states, invoice data may be stored
electronically within the EU. However, there are limits on the storage of invoices outside
of the EU, so it would be advisable to ensure that invoices are stored within the EU.
6. Access by Regulatory Authorities
Regulatory authorities have the right to access electronic invoices stored on behalf of a ‘taxable person’ irrespective of where the invoices are physically stored. Furthermore, the regulatory authorities have the right to download invoices subject to the limits set by the rules of the member state in which the ‘taxable person’ is located.