In its 2022 report on the issue of the value-added tax (VAT) gap, the European Commission found that EU member states were short an estimated €93bn in VAT revenues in 2020. A shade under the joint GDP of Latvia and Lithuania, the sum is as staggering as it is concerning.
With this figure overhead, governments across the continent have been quick to address the tax gap, recognising the tangible difference reducing it could make to the 451 million people living in the EU.
One way of doing this is by introducing standardised e-invoicing, says Alex Baulf, senior director of e-invoicing at Avalara. “Tightening up on e-invoicing ensures that tax authorities can see every transaction,” he explains. “Over 60 nations have now mandated e-invoicing. France, Poland and Spain are the latest countries in the EU to announce their plans to bring in mandatory B2B e-invoicing regulations next year.” Latin American countries such as Brazil and Argentina started this revolution a decade ago by introducing tax data collection at the point of billing, according to research published by Avalara.
“The pace and quantity of new mandates are unprecedented and are causing a huge headache for multinational businesses,” says Baulf. “Tax and finance functions now need to look at e-invoicing and live reporting of transactional data strategically. This is no longer a local compliance issue – it’s a critical global business issue.”
Digitising invoices brings greater visibility, transparency, accountability and governance to tax collection. But that’s just half of it. “The problem is that while tax authorities all over the world might see the inherent value in e-invoicing and tax digitalisation, compliance is never uniform,” says Baulf.
He continues: “Different tax authorities have different requirements, formats, models and platforms, which companies must be able to navigate seamlessly and accurately, or risk falling foul of individual tax authorities.”
But e-invoicing – the sending of digital documents with structured data, is not just about tax compliance. Indeed, it becomes a business-critical issue; how businesses exchange invoices between their trading partners. If a business is unable to issue or receive an e-invoice meeting the local requirements, it is unable to get paid and ultimately do business in that country.
Baulf argues that organisations now need to take a strategic look at e-invoicing to meet international standards, investing in a single global e-invoicing solution that can standardise processes at scale. One such solution is Avalara’s cloud-based global invoice and tax compliance platform, which helps companies comply with e-invoicing regulations in more than 60 countries.
“We designed our scalable e-invoicing solution with a single application programming interface (API) to connect businesses to a multitude of different e-invoicing systems, platforms and networks. This seamless accessibility enables them to meet local regulatory standards and the requirements of tax authorities, including those that require digital signatures and QR codes quickly, effectively and efficiently.”
If migrating to e-invoicing checks so many boxes, it begs the question: should companies with global reach be digitising their procurement processes regardless of regulation?
“Absolutely,” says Baulf. “From a regulatory perspective, it makes sense. But there’s also a business case for implementing an industry-leading e-invoicing platform. It streamlines processes, cuts costs and provides businesses with more granular data, giving procurement departments greater visibility over spending.” He explains: “Reducing the tax gap is one thing, but businesses should be harnessing the wider benefits that digitalisation and increased automation bring.”
This increasingly common realisation, shared by many forward-thinking businesses, tax authorities and countries, is quickly leading to a sweeping shift in the way invoices are processed and VAT is reported.
“E-invoicing is now the clear direction of travel for tax authorities. If a country does not have e-invoicing today, it will tomorrow,” Baulf concludes. So, while regulators establish a means for universal adoption, organisations should be primed for change.
For more information please visit avalara.com/eu