Tax Compliance & E-Invoicing: New Business Era

The advent of e-invoicing is reshaping how companies manage invoices and navigate the complexities of tax compliance globally. Taxation becomes even more convoluted for enterprises operating across multiple countries with varying tax regulations. Addressing these challenges, the European Commission is taking strides towards harmonising tax regulations to facilitate smoother processes.  

In line with this transformative endeavour, Kefron is ushering in a new era of streamlined tax compliance solutions. But what are the key changes being ushered in by the EU in the realm of tax regulations, and how will they impact your business? 

Embracing Continuous Transaction Controls (CTC) 

The shortcomings of traditional tax handling mechanisms have become glaringly evident, with the European VAT gap standing at a staggering €93 billion or 9.1% of expected VAT revenues in 2020 alone. In response, European nations are enacting innovative regulations aimed at closing this gap. Central to this transformation is the adoption of e-invoicing and continuous transaction controls (CTC). The CTC framework revolves around the real-time monitoring and regulation of business transactions.  

Under CTC, enterprises submit transaction data to tax authorities as the transactions occur. These authorities then engage in real-time validation and monitoring to ensure adherence to tax regulations. By curbing tax fraud, bolstering transparency, and enhancing efficiency through immediate visibility, CTC revolutionises the tax compliance landscape. Notably, countries such as Poland, Italy, and Belgium have already made e-invoicing mandatory. Looking ahead, the EU is set to mandate cross-border e-invoicing and e-reporting by 2028, underscoring the growing significance of CTC. However, the intricacies of the CTC model vary among countries, posing unique challenges for global conglomerates navigating divergent legal and technical requirements.  

Core Features of CTC in Tax Compliance 

The essence of CTC hinges on continuous communication between businesses and tax authorities. This dynamic unfolds through distinct stages: 

• Validation Process: Suppliers transmit invoices in a designated format to tax authorities, often accompanied by a digital signature using a private key linked to a public certificate. 
• Verification and Clearance: Tax authorities validate the supplier’s signed invoice, registering it under a unique identification number within their internal platform. Clearance evidence, which could range from a timestamped transaction ID to digitally signed documents, is issued. 
• Buyer’s Role: Buyers assume the responsibility of verifying compliance with the tax authority or agent, often utilising cryptographic tools for authenticity and integrity checks. Alternatively, some countries entrust the clearance validation to tax authorities or state agents. 
• Payment Decision: If buyers employ online systems for validation, tax authorities or state agents communicate whether payment is permissible or not in a response.

Navigating VAT in the Digital Age (ViDA) for Enhanced Tax Compliance 

The European Commission’s ViDA proposal marks a pivotal step towards standardising VAT reporting across the EU. The impact on businesses will be profound. All e-invoices must adhere to the EU Standard 16931, with EU states poised to introduce mandatory B2B e-invoicing by January 2024. As of January 2028, e-invoicing will become the default method for invoice issuance across the EU.  

ViDA paves the way for streamlined CTC adoption by eliminating existing EU restrictions, enabling domestic CTC schemes to flourish. This shift is anticipated to accelerate the adoption of mandatory e-invoicing and real-time reporting. It emphasises structured data e-invoices in machine-readable formats with the ability to convert to a human-readable format or with a human-readable attachment. This standard still mandates processing for clearance, VAT reporting, coding, approval/matching, and exception handling to ensure compliance.  

Rise of E-Accounting and Standard Audit File for Tax (SAF-T) 

The rise of e-accounting is gaining attention, affording tax authorities electronic access to specific business account ledgers at defined times. Widely embraced for accounting ledger reporting, SAF-T adheres to international standards for electronic exchange of accounting data. This standard, as defined by the OECD, employs XML for file formatting.  

The synergy between CTC and ledger access empowers tax authorities with enhanced tax collection capabilities and liability reconciliation in real-time. Consequently, businesses confront heightened demands for real-time reporting. Notably, SAF-T implementation varies across nations, reflecting diverse approaches.  

Implications for Businesses in the Digital Tax Age 

For multinational corporations, the myriad of CTC models and adoption variations introduce unwanted complexity. Navigating a landscape of compulsory formats and data diversity among countries can prove challenging, given the substantial variances in tax platforms and integrations. Furthermore, the proliferation of EU’s Business-to-Government (B2G) platforms and localised legal archiving requirements compounds the intricacy.  

The intricacies extend to accounts payable (AP) and receivable (AR), both of which necessitate tax authority clearance. The task of maintaining an automation system is formidable, as tax authorities frequently introduce changes and updates. These endeavours place a strain on AP and AR teams, consuming valuable time and generating unnecessary stress.  

Kefron: Pioneering Seamless Solutions in Tax Compliance 

In this dynamic landscape, Kefron emerges as a technological ally, to transcend the challenges of tax compliance. This solution provides an integrated VAT clearance and reporting service spanning 40+ countries, seamlessly aligning with CTC, e-invoicing, and e-archiving requirements.  

Kefron’s advanced API integration and country-specific onboarding alleviate concerns of missed elements. The technical team vigilantly tracks and incorporates tax authority updates, ensuring sustained compliance. Kefron’s AP solution boasts precision, customisation, and user-friendliness, rendering e-invoice processing effortless. Moreover, it bridges the gap between machine- and human-readable formats, obliterating technical obstacles. In summary, the confluence of e-invoicing and evolving tax regulations ushers in a new era of business operations. Kefron stands as a steadfast solution provider, empowering enterprises to navigate complexities and focus on their core objectives.  

The landscape of business operations is amid a profound revolution, catalysed by e-invoicing and innovative tax compliance strategies. The European Commission’s pursuit of standardised tax regulations and Kefron AP signifies a paradigm shift in how businesses navigate the intricate terrain of taxation. As we journey into this transformative era, it’s essential to recognise that streamlined processes and integrated solutions pave the way for enhanced efficiency, reduced stress, and heightened focus on what truly matters – the growth and success of your business. Explore the possibilities of seamless VAT clearance, comprehensive reporting, and simplified e-invoicing across a multitude of countries with Kefron today.