E-invoicing Glossary: Fusing Tax Compliance and Technical Precision

E-invoicing, being implemented all over the world, has created a space where the nuances of tax requirements blend harmoniously with the precision of technical solutions. Step into our glossary, a lexicon that demystifies the terminology behind fiscal rules and binary codes.

On this journey, we will delve into the ecosystem of stakeholders, deconstruct structured invoices, decipher the transmission protocols, inspect the gears of technical measures, and ultimately illuminate the crossroads where tax compliance finds common ground with IT.

Stakeholders: The pillars of every transaction

Invoice issuers and recipients: Sellers of products or services who are responsible for issuing bills, or invoices in relation to sale transactions, and buyers who receive the invoices. After verification, recipients accept the bill and settle the debt.

Tax authorities: They oversee continuous transaction monitoring and perform control activities at entrepreneurial entities, ensuring the accuracy of tax settlements without requiring taxpayer involvement. They verify invoice information through direct access to a centralized system. Additionally, they conduct control and verification procedures during tax proceedings and engage in analytical, forecasting, and research activities pertaining to government jurisdiction. Advanced analytical tools are utilized for focused inspections in situations where irregularities are suspected.

Service providers: Direct access to government platforms managing e-invoices is in most cases foreseen for small companies that issue small amounts of invoices. What's more, in some cases, direct access to threads is simply impossible and integration with a certified provider of e-invoicing services is required. Providers of this type of service offer specialized solutions facilitating communication between government units and enterprises and between taxpayers themselves, while ensuring:

• Compliance with e-invoicing legal requirements
• Validation of invoice data
• Mapping invoices to the appropriate, required format
• Transmission of invoices to government platforms
• Archiving

Choosing the right supplier is critical and affects performance, accuracy and compliance.

Structured invoices: bridging data precision

EN-16931: This is a European standard on electronic invoicing containing a semantic data model for e-invoices. Initially widely used in public procurement, it is now slowly spreading to B2B transactions.

Syntaxes: The structural framework of an electronic message. Syntaxes are used as machine-readable languages for presenting essential data components. Properly implementing this format enables automated processing of the information. UBL stands as the established XML syntax for electronic business documents, including e-invoices, while another widely used XML syntax is CII.

CIUS: Core Invoice Usage Specification is a comprehensive guide and directive for businesses. It offers detailed instructions, explanations, examples, and business rules for effectively utilizing structured information elements found in a core invoice model. Typically, CIUS is applied on a national level, establishing distinct regulations and limitations.

Extensions: To accommodate specific business terms or requirements not covered by the standard schema, additional elements can be included in electronic invoices. These extensions are especially valuable for addressing unique needs arising from varying tax regulations in different countries. The inclusion of custom data ensures compatibility with the standard while catering to the specific, custom conditions.

PEPPOL: Pan-European Public Procurement Online was initially established to set uniform standards for public procurement throughout the EU (B2G). Today, PEPPOL has evolved into a dual-purpose platform; it functions as both a delivery network and a standard for e-invoicing, alongside other procurement processes. PEPPOL  aligns with the European e-invoicing standard (EN16931) via its PEPPOL BIS Billing 3.0 specifications. Accessible through access points and certified providers, the PEPPOL network serves as an exemplary illustration of the four-corner e-invoicing model.

Transmission as the path to smooth e-invoicing

Four-corner model: A model that facilitates information exchange for procurement data involving four corners: a sender, a recipient, and two service providers. This model offers greater flexibility compared to other solutions, as it allows   two companies to engage with different service providers. The four-corner model is utilized within the PEPPOL network.

Web services and platforms: Based on which service providers carry out the transmission and mapping of invoices, which basically consists of converting one document format into another, required by local regulations, subject to the restrictions imposed by this format.

Interoperability: Standardized framework of standards and rules governing the seamless transmission of information among various parties, irrespective of the networks they operate on. Interoperability serves as a vital ridge connecting multiple business networks. It facilitates effortless communication and data exchange, enhancing the operational efficiency of organizations. Agreements about interoperability between service providers in e-invoicing foster collaboration, ensure data accuracy, and enhance the overall efficiency of the process.

Schematron: The Schematron validation process is used to verify contents of an invoice. This validation method ensures the accuracy of several invoice details, including the proper format of compensation amounts, date comparisons, conditional statements, and other formal prerequisites. It also conforms the accuracy of calculations and verifies that the prices listed on the invoice for products align correctly, both with and without VAT considerations.

Schema: A verification process used to validate the format of the e-invoices. Schema confirms that the e-invoice’s structure aligns with the intended format. The Schematron validation complements the Schema verification and further enhances the quality of invoice data by performing additional checks and validations.

Secure communication channels: Electronic invoice communication channels facilitate a direct interaction between the sender and the recipient. Furthermore, platforms serving as interfaces for these communication channels have the capacity to streamline and automate specific operations. By establishing an EDI connection, tailored solutions can be developed to enhance the efficiency of these exchange processes. Common EDI communication protocols include AS2, OFTP2, email, FTP, http, or SOAP.

Tax compliance: navigating the legal terrain

Audit trail: A record of transaction’s history within a company. An audit trail enables auditors to track financial data from the general ledger back to the source document (such as invoices, receipts, vouchers, etc.) and observe the entire transaction process. A clear and accessible audit trail signifies robust internal controls within a company and serves as the foundation for objectivity. An audit trail lacking essential documents may signal non-compliance with proper accounting practices.

Authenticity, integrity, and readability: These are basic terms that the supplier and buyer have to comply with when participating in invoice exchange. The authenticity of origin ensures that the invoice was sent by the stated sender and received by the intended recipient. The integrity of content guarantees that the contents of the document were never altered after the issuance. Readability ensures that an invoice is readable by a human from the generation throughout the entire retention period.

Digital reporting requirements: DRR is any obligation imposed by the government for VAT-taxable persons to periodically submit digital data on their e-invoicing transactions to the tax authority. Digital reporting requirements can be divided into periodic transaction controls and continuous transaction controls.

Beyond the horizon

Delving into the e-invoicing glossary reveals a crucial juncture where tax intricacies intersect with technical complexities. The provided definitions offer a glimpse into this convergence, shedding light on the multi-faceted nature of e-invoicing. It’s also worth acknowledging that the realm of e-invoicing is vast, with many more elements to explore beyond the scope of this glossary.