With entry into the clearance model, the government is acting as a catalyst for the adoption of e-invoicing.
Whereas the adoption of e-invoicing was initially driven from the corporate sector, the government is playing an increasing role. That role the government has adopted not only through the entry of the so-called Continuous Transaction Controls (CTC), of which the clearance model is the best known. In 2014, the European Commission found that many different standards for e-invoices exist in Member States of the European Union, which are not interchangeable. This leads to complexity, legal uncertainty and overhead.
Therefore, agreements have been made in Europe about electronic invoicing. Those agreements are laid down in the European directive on electronic invoicing in public procurement. The Dutch government has incorporated the European directive into the Dutch Public Procurement Act. All Dutch governments, government organizations and other contracting authorities have been required to be able to receive and process e-invoices from their suppliers since April 18, 2019. These e-invoices must comply with the Dutch derivative of the European standard for e-invoices, NLCIUS (Dutch Core Invoice Usage Specification).
In addition to standardization, National governments plan to close the VAT gap. In 2019, EU member states are estimated to have lost €134 billion in VAT revenue. By comparison, the EU budget that year was just under €166 billion. The VAT gap, or the difference between the VAT that governments should collect, based on business transactions taking place in their countries and what they actually collect, has a number of causes: VAT fraud and evasion, bankruptcies and financial insolvency, as well as miscalculations and administrative errors.
National governments hope to close the gap by entering Continuous Transaction Controls (CTC). The best-known model is the so-called clearance model, in which invoices are not sent directly from supplier to customer, but the invoice will first have to be validated and registered by the government. For such a large-scale operation, standardized e-invoicing is a must. In 2019, Italy was the first EU country to implement this model with the introduction of the Sistema di Interscambio.
The post-audit model is the standard model used by European and Commonwealth countries. It requires e-invoices to be stored and made available for audit after the invoice has been issued. This includes ensuring the "authenticity and data integrity" of invoices.
Post-audit models give companies a lot of freedom in how they conduct transactions and how they send and receive invoices, as long as they make sure the invoices are properly stored for audit.
The clearance model has been in use for some time in Latin America and the Asia Pacific region, and are emerging in Europe. Before an invoice is sent to a customer, it must first be registered with the National Government. Unlike the post-audit model, the clearance model comes with regulations and technical specifications on how invoices should be exchanged.
The clearance model has several versions. The orange arrows in the image shown are above all symbolic. For example, a government can suggest that an invoice intended for a customer be sent first to the government and given an authorization code, after which the invoice can be sent by suppliers to a customer.
Governments may also choose to outsource validation and registration of invoices to accredited service providers. France is on track to become the first European country to require companies to report invoices to a plateforme de dématérialisation partenaire (PDP). In the French model, the invoice is sent directly from supplier to customer, but both parties will have to register the transaction with an accredited service provider. Tecnically, therefore, it does not involve "clearance," but does fall under CTC.
The EU lags behind many Latin American countries, where countries like Chile, Mexico and Uruguay, where the VAT gap was significantly larger than in Europe, have greatly reduced the VAT gap.
The graph shows Europe and Latin American countries plotted on 1) tax revenue as a percentage of GDP and 2) tax collection (0 = fully collected, 100 = nothing collected). Source: Economic Commission for Latin America and the Caribbean (ECLAC), Fiscal Panorama of Latin America and the Caribbean 2020 (LC/PUB.2020/6-P), Santiago, 2020.
To implement a clearance model, countries must first receive approval from the European Commission. Italy, France and Poland are the only three countries that have received it to date. Italy has been implementing mandatory e-invoicing since 2019. France plans to roll out its e-invoicing mandate in July 2024 and Poland will implement it a year earlier.
Several countries (Belgium, Latvia, Romania, Spain, Slovenia and Slovakia) have begun the legislative process to implement the clearance model, but have not yet applied for EU authorization.
The requirements to comply with mandatory e-invoicing vary by jurisdiction. In addition, a jumble of e-invoice formats and standards still exists. Several e-invoicing formats are currently used in the EU: PEPPOL BIS, OIOUBL, Facturae, Factur-X, XRechnung, ZUGFeRD, Svefaktura and many others, all of which comply with the European standard for e-invoicing (EN 16931). This standard is technology neutral and can be implemented using two XML formats: OASIS Universal Business Language (UBL) 2.1 and UN/CEFACT Cross Industry Invoice (CII) 16B.
Companies with international operations must decide for themselves how to effectively address this patchwork of standards and obligations. Ensuring compliance can be challenging for internationally operating companies. Where they currently manage this decentrally with local tax staff, with the increasing role of government, a global approach will become necessary.
For enterprises, a move to e-invoicing is inevitable. They can do this entirely on their own, but it pays to connect to an e-invoicing network. This allows enterprises to switch to e-invoicing immediately, even if suppliers will not and do not have to do so for the time being.
Connection to an e-invoicing network transfers invoices in various forms and standards into a standardized e-invoice (XML file), which complies with national and international standards.
An additional advantage is that the fatuur can be processed directly with invoice processing software. So the move to e-invoicing also has economic benefits. Invoice receipt and recognition becomes cheaper, faster and more transparent with e-invoicing.
