The global compliance landscape is changing fast. From January 2019, electronic invoicing, or e-invoicing, has been mandatory for all companies in Italy for both business-to-government (B2G) and domestic business-to-business (B2B) transactions. Now governments across Europe are watching closely to see if it helps Italy to reduce widespread tax leakage in the country.
Our friends in Latin America are much further ahead in their e-invoicing journey. Mexico is the world leader in terms of e-invoicing but Chile, Brazil, Argentina, Ecuador and Peru have also expanded their e-invoicing regulations over the last decade.
The main motivation for governments in Latin America (and Italy) has been stopping VAT leakages due to fraud and the existence of inadequate tax collection systems. Italy has the largest VAT gap among the EU Member States – in 2015, the difference between the expected VAT revenue and the amount actually collected in Italy was an incredible €35 billion. It’s not surprising therefore that it has taken action to address the issue.
Watch Tungsten Network’s SVP Country Compliance, Ruud van Hilten and PwC’s Ellen Cortvriend discuss the importance of tax compliance inside and across borders
Being compliant is vital if firms want to get paid, avoid penalties and have the ability to reclaim VAT, a tax that could add up to thousands or even millions of Euros depending on the size of the company. If companies have non-compliant invoices in their ledger, they can’t close their books nor go back to the market and show how well they are doing. It may also result in a lack of confidence among board members or shareholders in terms of the leadership’s ability to run the business properly. In short, compliance is not a ‘nice to have’ option; it is a legal requirement with significant consequences if ignored.
Ellen Cortvriend, Director at PWC, explains: “In Italy, if you don’t send your invoice via the governmental e-invoicing platform Sistema di Interscambio, your invoice is considered not to have been issued. This means you are exposed to huge penalties. It is very important in this world of change, that you can rely on a strong partner to help you keep ahead of these changes and implement them in a compliant way.”
Don’t go it alone
As governments worldwide revise their tax systems, it is vital that companies follow the amendments and ensure their invoices are compliant. Without support, this can be extremely time-consuming process as every country has different tax regimes and requirements. What’s more, the pace of change can be overwhelming – in Italy, there have already been a number of changes to the legislation, which have resulted in fundamental modifications to the overall framework with each adjustment. It is hard to imagine global businesses having the appetite to make significant procedural changes every time regulations change. It would requires expertise and huge investment in resource; in short, is not necessary when a best-in-breed service provider like Tungsten Network can do it for them.
Another option for multinational companies is to approach local providers in each different country to get help connecting with specific government system in that territory. This may work in the short-term but in the long run, businesses will have to manage 20 different operators in 20 different countries. Again, this seems like unnecessary duplication of effort when Tungsten Network can oversee one setup for the biller and ensure compliancy worldwide.
We make it our mission to work closely with governments as they develop their tax systems and to ensure all invoices going through our electronic network are compliant worldwide. To date, we are tax-compliant in 48 countries, more than any other trading network in the world. As we wait to see further e-invoicing mandates creating a domino effect across Europe, we are continually on hand to support customers navigate these changes and trade effectively across multiple borders.