How to keep up with the regional complexities of e-invoicing and CTCs: Part 3
In the first two installments of our blog series on e-invoicing and Continuous Transaction Controls (CTC), we discussed the basics of e-invoicing and how it affects tax teams and compliance efforts. In this article, the third and last of the series, we will explore some of the regional complexities and challenges that companies may encounter with e-invoicing and CTCs, as well as updates on regulatory changes and strategies for keeping up with the requirements that typically accompany these mandates.
The purpose of this series is to help readers gain a better understanding of e-invoicing and CTC, and their impact on corporate tax teams. Our guest expert, Nazar Paradivskyy, VP of Regulatory Affairs at Pagero, part of Thomson Reuters, will help explain what companies need to know to transition smoothly into this new era of digital invoicing. Pagero helps companies manage all aspects of their e-invoicing compliance responsibilities, and Nazar Paradivskyy heads the company’s global regulatory department.
Challenges of e-invoicing compliance
For multinational companies, e-invoicing compliance is complicated by several factors:
- One of the most problematic issues is the fact that there are no widely accepted international standards for e-invoicing. At the moment, the closest thing to an emerging standard are Peppol (4-corner) and Peppol CTC (5-corner) frameworks, but there are dozens of others. Without a harmonized or at least aligned international standard, every country is free to devise and implement its own version of e-invoicing, with its own specific rules and requirements.
- Consequently, a company that does business in thirty different countries could have thirty different e-invoicing formats and requirements to manage from the regulatory perspective, on top of the business, or industry-specific requirements and technical standards that after time will continue to exist next to the mandatory requirements.
- Companies trying to comply with each country’s regulations could encounter a minefield of complications, including last-minute rule changes, inaccurate or incomplete technical specifications, inconsistencies between the technical specifications and the underlying regulatory framework, software incompatibilities, and a host of other obstacles.
- For example, some e-invoicing mandates are often accompanied by continuous transaction controls (CTCs), which require businesses to submit transaction data (e.g., VAT/GST and sales and use taxes) for approval by tax authorities, in real-time or close to it, before a transaction can take place between the trading partners.
An automated software solution is the only practical way for companies to comply with e-invoicing/CTC mandates, and—depending on the sophistication of the company’s existing systems—implementing such a solution could require anything from a few tweaks of an ERP to a complete system overhaul, especially if it is to account both for legal and business requirements and processes. Also, providing standard pre-built integrations that connect to any government or business network will minimize deployment and maintenance costs.
More from this blog series:
Part 1: E-invoicing basics for compliance professionals →
Part 2: How e-invoicing and CTCs impact tax teams and compliance efforts →
Getting ahead of regional differences
More than 80 countries have already passed e-invoicing legislation, and dozens more are expected to follow in the next few years. For impacted companies, it is imperative to get ahead of the e-invoicing juggernaut and understand precisely what measures and actions will be necessary to meet the company’s compliance obligations.
“The best thing businesses can do is assume that this is just the beginning, and that e-invoicing/CTC mandates are here to stay,” advises Pagero’s Nazar Paradivskyy. “Being reactive will be costly.”
CTC compliance by region/country
To give you an idea of the variety of e-invoicing mandates being implemented around the world in the next few years, here is what these new digital tax protocols will look like in several regions/countries:
Europe
Europe is probably the most complex region with 40+ jurisdictions, with the majority being part of the European Union (EU), but many are outside the EU. Both regulations, where there is a mix of domestic and EU frameworks, create the complexity, and the fact that contrary to many other regions, Europe is leading regarding business digitalization and automation, thus these two angles must be observed.
Procurement Directive has made B2G e-invoicing mandatory for all EU public administrations and its suppliers in most Member States. In parallel, in the B2B sector, countries have introduced a mandatory infrastructure to exchange electronic invoices, for instance, Italy and Romania (centralized exchange), or implemented alternative real-time digital control models, which happened in Hungary (real-time reporting), Spain Basque Country (real-time reporting) and Greece (invoice synopsis clearance). New e-invoicing frameworks are expected to be put in place soon in Belgium, Croatia, France, Germany, Latvia, Poland, Slovenia, and Spain, to name a few. We should also not forget non-EU jurisdictions, for instance, in Norway, nearly 90% of all invoices are electronic voluntarily. Or Serbia with Turkey, who have implemented country-side CTC e-invoicing schemes.
In the most recent developments, the VAT in the Digital Age (ViDA) proposal from the EU aims to make intra-community e-invoicing and Digital Reporting Requirements (DRR) mandatory for all Member States, as well as harmonize the future CTC mandates to be introduced in the remaining jurisdictions. EU Member States will no longer need to seek approval (derogation) from the European Commission to enforce B2B e-invoicing in their jurisdictions once the proposal is approved by the EU Parliament. Furthermore, Nordic Smart Government & Business, organized by the Nordic tax administrations, has participated in a ViDA pilot utilizing Peppol CTC, effectively demonstrating that the model can be applied to intra-community and domestic transactions.
Middle East
Many Middle Eastern countries since they have introduced VAT are in the process of either implementing e-invoicing or laying the legislative groundwork for it. Israel introduced a clearance CTC model the 5th of May 2024 for tax invoices exceeding 25,000 NIS. From 2025, tax invoices surpassing 20,000 NIS must be cleared against ITA. Saudi Arabia, for instance, is well on its way with the “integration” phase of its e-invoicing program, having started with the largest companies and, extended the obligation to small and medium-sized enterprises with phased thresholds. Notably, B2B and B2C transactions follow different CTC models, where B2B is subject to pre-clearance, while B2C follows the real-time reporting approach. Meanwhile, the United Arab Emirates is waiting until Q2 2026 to start the first phase mandatory e-invoicing program for B2B transactions. Other Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar) are also planning to roll out e-invoicing systems with CTC.
Asia-Pacific
CTC implementations are diverse, with a range of countries implementing Peppol (either 4-corner or 5-corner model), such as Australia, New Zealand, Singapore, and Japan. At the moment, this implementation has a voluntary character, but could at any point elevate into a country-wide mode, such as the developments set in Singapore, which are in the process of upgrading to Peppol CTC. Others, such as India, Vietnam, and Malaysia have opted into the pre-clearance model. Most notably, there are active ongoing discussions among countries in the region to put a joint Peppol-based framework for cross-border trade in the region. Even South Korea, which had the CTC rolled out back in 2011, is considering this option. China introduced its new country-wide e-fapiao framework. Businesses can start issuing and receiving fully digitalized fapiao without a hardware device from December 2024.
Latin America
Latin America was the first region to regulate the use of e-invoicing. Chile began its famed program in 2003, Mexico in 2004, and Brazil in 2006. Unfortunately, being early movers, they have turned an invoice, which is a commercial document, into a fiscal report. Thus, many jurisdictions currently introducing CTC e-invoicing frameworks study these implementations to avoid making the same mistakes, and among others, not turning e-invoicing into invoice reporting. More than 15 Latin American countries have implemented mandatory e-invoicing together with CTC systems, the latest being El Salvador and the Dominican Republic.
Preparing for the future of e-invoicing
This is just the tip of the e-invoicing iceberg, however. To prepare for the inevitable expansion of e-invoicing, Nazar Paradivskyy advises companies to review their existing systems and processes to determine what changes will be necessary given the countries in which they do business or where they intend to expand. Then, “businesses should start looking for reliable partners and solutions to support them in this transformation journey,” says Paradivskyy Nazar—because going it alone can be difficult, time-consuming, and costly.
To address the challenges presented by e-invoice mandates, Thomson Reuters has released ONESOURCE Pagero, a vital component of the comprehensive ONESOURCE suite of tax solutions, offering multinational corporations a single, trusted partner for all their tax and e-invoice compliance needs. The ONESOURCE integrated platform enables seamless management of VAT/GST/SUT&U tax calculations, e-invoice processing, and post-audit tax preparation and filing.
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ONESOURCE Pagero’s innovative software also ensures effortless integration with existing business systems, reducing costs by automating data exchanges and minimizing IT support requirements. Furthermore, automatic regulatory updates alleviate the burden on tax departments, mitigating the risk of non-compliance.
Beyond e-invoicing compliance, ONESOURCE Pagero’s open global network connects over 100 business networks, (serving more than 14 million customers) and suppliers. This cloud-based platform empowers businesses to accelerate growth, gain valuable insights, and streamline global compliance processes.
By automating tax compliance processes, tax departments can optimize resources, manage CTC complexities, and focus on strategic advisory and growth initiatives. With e-invoicing/CTC mandates on the horizon, ONESOURCE Pagero’s universal, all-in-one solution provides a single, reliable answer to reducing compliance complexities and costs for businesses.
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