Archiving electronic invoices has become a dull necessity for many businesses. This information is stored away without much thought -- the system is in place for when businesses are required to present historical invoices, but until then they’re forgotten about. The files exist, but storing them has historically been accompanied by an ‘out of sight, out of mind’ attitude. This view of e-archiving, and how we handle it, needs to change.
Overlooking the process can lead to some businesses falling foul of various regional tax regulations -- causing situations with weighty consequences. The risk is even higher for those operating in various overseas destinations. As the wave of digitisation continues to sweep across Europe, and the rest of the world, compliance will rely on adhering to each countries’ particular tax law. We’re already seeing many tax jurisdictions introducing the mandatory adoption of electronic invoicing and this trend is set to continue as we move further into the digital age.
Across differing tax authorities there are consistencies, however there will always be some key differences of course. Importantly, whilst e-invoicing is the current disrupter it is vital that attention is equally given to e-archiving strategies to ensure that businesses remain compliant.
Digitisation: the revolution
The EU VAT directive implemented across member states in 2001 was a forerunner in compliance regulation, as it explicitly regulated the right to use invoices in an electronic format. It was in Latin America, however, that the introduction of various types of continuous electronic controls of business transactions really took off. Brazil, Chile and Mexico were among the first countries to make the practice of clearance e-invoicing compulsory for all businesses.
While regulations around e-invoicing differ depending on the country in which invoices are raised, these days e-archiving is a base requirement almost everywhere, and subsequently has also led to the introduction of e-auditing to complement the entire process. So, most countries therefore require the “original” of an invoice to be electronically archived by each trading partner to provide evidence of the underlying supply.
Because the evidence of any transaction is stored in an organisation’s legal archive, for tax administrations worldwide archiving is a key consideration when evaluating a company’s compliance. With this in mind, businesses who already have an archiving strategy in place are already halfway to ensuring global compliance, and this is what all should be aiming for. Following that the focus should be relating to requirements concerning the transaction element of the e-invoices themselves.
Implementing an archiving strategy can provide a common anchor for all of an organisation’s transactions, no matter where in the world they took place. Because knowledge of the specific location in which archive particular e-invoices are stored makes it far easier for an organisation to trace a “compliant path” back from their final destination. This will involve tracing back through the different applications, service providers, trading partners, processes, product lines and countries from where they may have originated.
Despite some commonalities across the electronic invoice archiving process, it’s essential that businesses remain vigilant and observe the nuances in legislation between countries. If they don’t, they run the risk of finding themselves non-compliant with certain regional or national regulations.
The US places less emphasis on transactions and looks more towards record retention, with the country’s Internal Revenue Service (IRS) publishing explicit federal requirements for those taxpayers that only keep records in an electronic format. This is also apparent in countries in the Asia Pacific region, such as Singapore, Japan, Australia and New Zealand, there is a similar focus on record retention, meaning fewer rules relating to the issuance of electronic invoices, and more controls around electronic archiving instead.
That said, if we turn attention to EU countries it’s a different story. As long as an electronic invoice is accessible online from the country whose VAT law applies to that particular invoice, each member state has the autonomy to have its own archiving requirements in terms of technicality, security and duration of the storage period.
In Germany, for instance, specific archiving requirements are set out in its tax authority’s GoBD principles for keeping electronic records. However in Italy, which was the first EU country to make e-invoicing mandatory in 2019, a number of specific technical requirements apply to the archiving of electronic invoices. Among these, Italian businesses must not only provide a documented description of their archives and archiving processes (a relatively common requirement), but they must also map out a delegation plan which clearly establishes and assigns responsibility for those processes, which is no mean feat.
The landscape is clearly complex and difficult to navigate; the wealth of different tax rules can make regulation feel like a minefield. It becomes vital, therefore, that when storing electronic invoices and other very sensitive documents, businesses employ solutions that offer the level of legal requirement monitoring and specific regulatory compliance features needed for multi-country legal archiving.
The bigger picture of compliance matters
To remain compliant with the different regional regulations around electronic archiving strategies, it’s crucial the systems we use are flexible. Technology solutions must be able to adapt to the varying needs of international businesses in order to work effectively.
Further, the capacity to convert to mandatory auditing formats and documentation structure is key. Different tax authorities will often use different formats for audits, so an inability to provide information on request may be considered as non-compliance. Any solution used must allow auditors to search certain mandatory fields, whether general or country-specific.
It’s important to consider that archive preservation must also be specific to the requirements outlined by the tax authorities in each country in which a business operates. What’s more, it must respect the sovereignty of the data stored in those archives and ensure compliance with international requirements on the physical location of data storage, such as GDPR and similar data protection initiatives.
Tax control requirements are currently undergoing a global digital revamp, so the archiving of electronic invoices can often be overlooked in favour of managing the e-invoice generation process itself. This approach is short-sighted, though, mainly because archiving is a key part of the overall process, and can be just as much subject to rules and regulations as the issuance of invoices.
Compliance in the digital age will require businesses to ensure that the software they use is capable of storing e-invoices in a streamlined space, regardless of the type of software used. Irrespective of whether it’s transactional or cloud-driven, e-invoices must be stored in a centralised repository. This is necessary because this data is incredibly valuable, and using this approach ensures that transactions are clearly evidenced and the disparate demands of tax authorities in different countries are sufficient. Unconsciously adhering to the archiving requirements won’t be enough to navigate this increasingly intricate and complex regulation landscape.
Filippa Jörnstedt, Regulatory Counsel, Sovos