Bringing adoption of the new VAT directives to the next level requires a mind shift of Tax Authorities, internal and external Tax Auditors, Businesses and Solution / Service Providers. They all need to consider and establish a new "Compliant e-Business (e-Invoicing) approach" with less focus on the processes and technologies used (technologically neutral) but more on the end-to-end-trade process.

1. The new approach for bringing adoption of e-Invoicing by SMEs to the next level !
The European Commission on 28 January 2009 adopted a proposal to change the VAT
Directive 2006/112/EC (from 28 November 2006) with respect to invoicing rules. The
main objectives are to reduce burden on business, increase the use of e-Invoicing, support
small and medium sized enterprises (SMEs) and help member states tackle fraud.
Regulatory requirements for Electronic Invoicing will change with the advent of the
measures aimed at further simplifying, modernising and harmonising the VAT invoicing
rules. The foundation of the proposal is based on "equal treatment of paper and electronic
invoices" in a technologically neutral way by removing the conditions for an Advanced
Electronic Signature (AES) and Electronic Data Interchange (EDI).
While in the world of electronic agreements and contracts the need for electronic
signatures is apparent the reasoning is that e-Invoicing is part of a larger process where
every process step contributes to authenticity and integrity of the trade transaction.
Nevertheless many Member States will continue to believe these guarantees can only be
provided by electronically signed e-invoices.
Therefore removing the requirement to guarantee the authenticity of origin and integrity
of content by means of pre-defined technological solutions, such as EDI and Electronic
Signatures, is the most challenging from a political and governmental perspective. It
requires a "paradigm shift" in thinking about audit management processes and strategies
by Tax Authorities.
Apart from that increasing the use of e-Invoicing requires more than simplification of
VAT invoicing rules. Although standardisation efforts in Europe are huge the progress of
standards bodies is slow with respect to data exchange standards. In response new
initiatives emerge from humble beginnings, underpinned by new technologies, with
potential to grow into creatures of substance and significance. The a priori standard for e-
Invoicing, UN/CEFACT, starts loosing ground due to the growing need for inclusion of
all types of companies, the rigidity and slowness of development, and the increased
adoption of the Universal Business Language (UBL) as the European data exchange
standard.
Although everyone is entitled to their own opinion creating the next wave of e-Invoicing
requires re-alignment of views and goals. Hence there are two fundamental questions to
answer:
- What is understood by the term "Compliant e-Invoicing"?
- What do SME's and large companies need to jump on the bandwagon of e-Invoicing?
What is Compliant e-Invoicing ?
One such definition comes from the CEN/ISSS and Fiscalis e-Invoicing Compliance
Guidelines as expressed in the section "e-Invoicing Basics Introduction". Compliant e-
Invoicing is about auditability of invoicing processes, verification whether VAT

2. obligations are met and whether the invoice is an accurate reflection of sales and
purchases.
Many people believe that e-Invoicing is the first step towards full automation of the end-
to-end-trade process. Talking about "Compliant e-Business (Electronic Business)" is
more appropriate in view of drafting the rules for the near future.
What do SME's need to adopt e-Invoicing ? It should be clear that e-Invoicing for
SME's and for large companies requires more than simplification of VAT invoicing rules.
There is a need for a multi-purpose exchange standard that enables companies to
participate regardless whether they are able to process the invoice data automatically in
their financial system.
Such a multi-purpose exchange standard should incorporate a readable image and
processable data in one packaged container.
Bringing adoption of the new VAT directives to the next level
The CEN/ISSS e-Invoicing Workgroup Phase II Task Group 2 on Compliance recently
presented their e-Invoicing Compliance Guidelines. The CEN/ISSS Task Group 2 and the
Fiscalis e-Audit Project Group are paving the way for harmonisation of VAT - Compliant
e-Invoicing processes.
The principles in "the Guidelines" stimulate the use of a single coherent Business Control
Framework (BCF) - Tax Control Framework (TCF) - across Europe. The aim is to attain
a sufficient degree of auditability and legal compliance of e-Invoicing from a Tax
perspective and to provide a solid foundation for performing tax audits in situations
where e-Invoicing solutions are used.
The Guidelines provide practitioners a perfect instrument for self-regulation and self-
certification of processes and technologies that are used to ensure invoices are reliable.
Primarily enabling organisations to prove that invoices are processed and stored correctly
within their individual spheres of governance and liability.
However, if well-understood, "Compliant e-Invoicing" is not about auditing e-Invoicing
solutions or Service Providers but about auditability of invoicing processes and fraud
prevention by validating whether VAT transactions are accurately administered (paid and
dedecuted). e-Invoicing is part of the total Purchase-To-Pay and Order-To-Cash cycle
and orders, deliveries and receipts need to be registered for legally valid transactions.
For most compagnies the three-way match at the end of their cycle provides means to
control the integrity of the content and the authenticity of origin.
The focus of the recommendations should therefore have been more on the auditability
and validation of VAT transactions from a Tax Authority's perspective instead of on
auditability of e-Invoicing solutions and Service Providers.

3. Currently Tax Authorities lack functionality and information to validate whether tax
deducted and tax paid are correct and therefore force companies to guarantee authenticity
and integrity. Reducing fraud is only possible if Tax Authorities are able to validate sales
and purchases, deliveries and receipts, as well as the related invoice and tax transactions
between the different involved parties.
Bringing adoption of the new VAT directives to the next level requires a mind shift of
Tax Authorities, internal and external Tax Auditors, Businesses and Solution / Service
Providers. This "paradigm shift" in thinking about Tax audit management processes and
strategies has an impact on all stakeholders.
They all need to consider and establish a new "Compliant e-Business (e-Invoicing)
approach" with less focus on the processes and technologies used (technologically
neutral) but more on the end-to-end-trade process.
The foundation of the new Compliant e-Business approach is based on two important
concepts:
- e-Invoicing is part of a larger process
- a multi-purpose exchange standard
e-Invoicing is part of a larger process
Study of the Purchase-to-Pay (P2P)and Order-to-Cash (O2C) processes with respect to
legal and auditability requirements arising from VAT manifest that one important step,
the exchange of trade related transactions to Tax Authorities, is missing. Based on
practical experience with implementing electronic ordering and invoicing architectures a
few ideas evolved. These ideas need further widespread elaboration and buy-in from
stakeholders to define strategies for development and realisation.
Looking at the Purchase-to-Pay (P2P) and Order-to-Cash (O2C) processes e-Invoicing is
the last step before payment takes place.

4. All these steps contribute to proving the authenticity and integrity of the trade transaction
to involved business partners. Reporting VAT to Tax Authorities at current is not a part
of the end-to-end-trade process in most European countries. As such from a Tax
Authority's viewpoint trade transactions are difficult to follow and validate.
The future of the new VAT directives requires re-defining the position and importance of
e-Invoicing in view of the total trade process. New ways of reporting, processing and
validating tax-related transactions as part of the total trade process are required. These
new ways of working should provide trust to all parties and be easy to implement once
standards and procedures are in place.
The new Compliant e-Invoicing approach is based on the act of reporting all financial
Tax related transactions from the General Ledgers and Subledgers of Suppliers and
Customers in a timely manner to Tax Authorities. The data exchange standards for
reporting tax related financial data already exists and are implemented in some European
countries. However there is no commonly accepted standard across Europe. SAF-T and
XBRL-GL are data standards that qualify for the goal of reporting the related
transactions.
The end-to-end-trade process flow will include one of these standards for reporting of
transactions to Tax Authorities including corrections made as result of disputes.

5. Establishing the new Compliant e-Invoicing approach will require all stakeholders to join
forces and work together on extending Business and ICT architectures for inclusion of
Tax Authorities.
In the Business domain the focus should be on administrative and process-oriented
elements. Governments and Businesses will have to ensure that Tax reporting is
adequately embedded in policies and laws. Most work has to be done in the ICT domain
to ensure technology, information and applications support the new flow of information.
All involved parties face significant investments in infrastructures, application systems
and exchange standards.
However adoption of e-Invoicing in Europe with a view to the future advent of electronic
business will only become succesful when Tax Authorities have a clear and complete
view on trade transactions. They will gain more control and better understanding of
businesses. Moreover the technology drift of e-? will come to an end and businesses will
applaud for the transparancy in the end-to-end-trade process.
A multi-purpose exchange standard
At current when organisations want to establish e-Invoicing with all their trading partners
they will have to send two types of documents: a data message and a readable image.
This will introduce additional complexity at both sides because companies will have to
deal with the different capabilities of their receiving and sending trading partners.

6. Global adoption of e-Invoicing requires a business and technical environment that
enables all types of companies to participate regardless their capabilities and maturity.
The technical environment must provide reach to all their business partners irrespective
of data exchange standards. Providing reach is not about connectivity but about being
able to process the invoice content as an image or as data.
The multi-purpose exchange standard is an XML Data Package that contains a readable
image and document data. The exchange standard requires a technical platform for
generating the XML Data Package at the sending side and procesing the data at the
receiving side. Apart from that a reader for viewing the image is required for companies
that are nog able to process the data automatically in their financial applications.
There are potentially two solutions available that can be used as the basis for the multi-
purpose exchange standard:
- the Adobe XDP (XML Data Package) format

7. - the OASIS Open Document format.
Both formats are XML-based containers that are able to support all of the available
international data exchange standards. Although Adobe is much further in providing a
total working solution, Open Document is based on an Open and Collaborative
Community supported by several Open Source minded companies.

8. Still there is much work to do to ensure these solutions fully support the processing and
transmission of the multi-purpose exchange standard.
Building the new Compliant e-Invoicing approach
Establishing the new Compliant e-Business (e-Invoicing) approach requires all
stakeholders to support the development of Governmental and Business ICT architectures
for reporting, processing and validating the tax related transactions.
These efforts include:
- a data exchange standard for tax related transactions based on SAF-T or XBRL-GL
- a European-wide infrastructure for the communication and storage of tax related
transactions including Business Intelligence functionality for analysing transactions
reported by businesses across Europe
- interfaces for generating the data exchange messsages from data stored in the General
Ledgers and Subledgers from the financial and ERP systems of Suppliers and Customers
Data Exchange Standard based on SAF-T or XBRL-GL
Compliant e-Invoicing will be valid for all types of invoices for sales and purchases of
goods or services.
Compliant e-Invoicing in the Staffing Industry where the focus is on delivery of services
by hourly workers looks as follows:

9. Compliant e-Invoicing for non-product and product related (B.O.M.) goods and material
looks as follows:
European-wide infrastructure
European Member States have to design and implement an ICT architecture that supports
the exchange of trade related tax data between Tax Authorities of different Member
States. Conceptually there are a few scenario's for realising such a collaborative
infrastructure. These range from totally centralised to decentralised service oriented
architectures.
1)a central European Tax reporting and Business Intelligence platform including:
- standardised connections for Businesses to provide tax related transaction data based on
the European-specific data exchange standard via a web-enabled portal or data exchange
services such as EDI
- a central data warehouse for storage of reported tax related transaction data
- Business Intelligence functionality for Authorities and Businesses to analyse, validate
and when needed correct stored information
2)a decentralised country-based architecture including:
- country-specific standards and connections for Businesses to provide tax related
transaction data
- decentralised local data warehouses for storage of reported tax related transaction data

10. - a Business Intelligence solution based on a service oriented architecture that enables
analysis and validations of transactions across all Country-specific data warehouses
Conclusions
As many of us realise e-Invoicing is just the first step towards full automation of the
supply chain. Only when the latter is accomplished all parties involved will realise the
return on investment pursued.
Tax Authorities and/or the CEN/ISSS Work Group should launch a new Task Group in
phase 3 that is going to formalise a standard for Tax reporting and define / develop
European-wide functionality for processing the tax related transaction data by all
Member States as such that they are able to validate cross-company transactions.
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