Mandatory B2B e-Invoicing – How Italy is Driving Change in Europe
B2B e-invoicing is being pushed forward again by Italy, with the requirement for all private companies to submit invoices electronically via the official exchange system – Sistema di Interscambio (SdI).
This follows on from the requirement this July for all invoices in the oil and gas sector, in Italy, to be submitted electronically via the same system.
Italy is seen by many as a leader in e-invoicing in Europe. Having deployed their official exchange system back 2014, before requiring all public sector invoices to be submitted via it as e-invoicing from 31st March 2015. Their stance on B2B e-invoicing is a natural progression of this long-term drive towards electronic invoicing.
Why is Italy making e-invoicing mandatory?
As in many countries, the need for greater accountability around VAT is the primary motivation for Italy’s new legislation. With the highest tax gap in the European Union (35 billion euro), Italy hopes to achieve a considerable improvement through the coming changes. Globally, countries such as Mexico and Brazil have led the way, with tax yields improved by 34% in Mexico since the implementation of e-invoicing.
Italy will adopt a tax modernization system which has been successful in reducing the VAT gap for 15 other countries to date. This ‘clearance’ model requires companies to submit all invoices electronically to the tax authority for VAT auditing, which puts the government at the heart of all B2B transactions.
How does this sit within The EU VAT Directive (2010/45)?
The eagle-eyed amongst you may have spotted a conflict with The EU VAT Directive (2010/45), which clearly states that a buyer must agree to exchanging e-invoices and should have the freedom to choose a document format. The Italian Government’s regulations would force e-invoicing on businesses without an opt out, which is in violation of that principle. However, this deviation from the EU VAT Directive has the benefit of vastly improving accountability and investigation in matters of VAT – for which reasons it has undoubtedly been allowed to continue unchallenged.
The current plans are only to require e-invoicing from businesses resident or established in Italy, but over time it is expected that pressure will be on to migrate all invoicing processed in Italy to electronic format.
What does this mean for B2B e-invoicing across the EU?
Conceptually, the changes in Italy are even more profound than making B2B e-invoicing mandatory. These changes embody a movement of VAT enforcement into the heart of every transaction. Where similar clearance models have been put in place across Latin America, the impact on businesses is considerable. Preparation for this change is key to the smooth running of business as this comes into force.
The success of similar models across Latin America are expected to be mirrored as Italy embraces these changes in 2019. Following this, it is likely that other members of the EU will start to consider a similar approach to reduce their tax gaps, the ROI seen in Italy and then other countries will drive this forward with increasing momentum. This could potentially be amplified by any changes to the EU VAT Directive in support of e-invoicing.
Right now, global businesses are already transforming to embrace e-invoicing – the benefits of e-invoicing stretch well beyond the need to comply with specific VAT clearance models. The success of the changes in Italy will send ripples through smaller businesses who have not needed to consider e-invoicing out of necessity yet. Success stories around AR and cashflow improvements will positively motivate businesses and the threat of future legislative requirements will place e-invoicing firmly on the agenda for forward thinking businesses across Europe before long.
How to prepare for these changes in B2B e-invoicing
To comply with the specific invoice production requirements in Italy, businesses will need to generate invoices in an XML 1.2 format defined by the Italian tax authority, called FatturaPA. Official EU syntaxes will also be permitted. Invoices must also be archived digitally for 10 years, with a qualified electronic signature and timestamp applied to archived batches – assuring against tampering during storage.
To certify archiving solutions meet with the Italian legislation, AgID certification is available. This is issued to providers that fulfil all of the technical, organizational, financial and formal requirements for legally compliant electronic archiving in Italy.
All of these points, from producing invoices in the correct format, to archival in a compliant manner, are already covered by the Corcentric platform. As legislation evolves across the EU and additional formats enter circulation, Corcentric will continue to ensure compatibility as well as the ability to send invoices out in a variety of other formats, in parallel.