To the objective observer, modern B2B transactions are faster, more secure and more detailed than ever. Yet this constant drive towards efficiency is only partly due to organic process improvement within these organisations. Another key piece of the puzzle is the growing maze of mandates covering everything from tax reporting to logistics documents such as waybills and e-invoices.
Despite being largely responsible for the speed of improvement of B2B payment processes worldwide, increasingly complex requirements are becoming an issue for many businesses.
With governments around the world tightening regulations and increasing their focus on transparency, companies today are under growing pressure to meet stringent requirements that often seem to pull them in conflicting directions. At the same time as being required to prioritise accuracy and data visibility to comply with new tax responsibilities, businesses are also required to adapt their systems to accommodate new electronic invoicing regulations. Meanwhile, there’s also a constant internal push to expand automation in order to improve efficiency.
As a result, many organisations find themselves struggling to keep up, unsure of how to manage the intersection of these key areas.
In this article, we’ll explore the implications of this situation and discuss strategies for effectively balancing compliance and automation moving forward.
Before we discuss the relationship between compliance and automation, however, let’s first look in a bit more detail at the recent explosion of mandates across these areas…
The growing governmental appetite for data
In recent years we’ve seen a significant shift in how governments worldwide approach tax collection. CTC mandates are popping up at a rapid pace, driven by a hunger for real-time data. No longer are governments content with just the basic information; they want to know every detail about every transaction.
By far the clearest evidence of the growing appetite for data over the past decade is the pace at which countries across Europe and beyond have introduced e-invoicing requirements for various types of transaction. The start of this wave can be traced back to the passing of the EU Directive 2014/55/EU on 16 April 2014, which set deadlines for invoice recipients in public tenders to be able to accept e-invoices. Since then, many countries have gone much further – extending e-invoicing requirements beyond B2G connections to many (and sometimes all) B2B transactions.
But the hunger for data doesn’t stop at invoicing. We’re already seeing signs that the same will happen for logistics processes, with Romania, India, and Turkey having recently introduced waybill systems. When looking at B2G processes, we also see a trend towards electronic purchase orders, particularly in the Scandinavian countries. Since B2G often paves the way for B2B mandates afterwards, we are quite likely to see electronic purchase orders becoming part of future mandates.
Realistically, it’s only a matter of time before the need for detailed, real-time data becomes the norm across all aspects of business transactions.
Why is the demand for data growing?
To understand why there’s such a growing demand for data, we need to take a step back and look at the bigger picture. Taxation, at its core, is a means for governments to collect revenue for public services. But to ensure that taxes are being accurately assessed and collected, there needs to be a robust system in place for verifying the legitimacy of the transactions on which these taxes are based.
This is where data comes into play. To determine if the tax associated with a delivery of goods or services is legitimate, one needs to follow the audit trail of that transaction. This means not only looking at the invoice but also cross-checking it against the associated delivery and order documents.
For example, if a company reports an invoice for a delivery of goods, rather than taking the invoice at face value, the tax authority often verifies that the goods were actually delivered and that the terms of the invoice match the original purchase order. Such validations usually happen on a random sample basis post audit.
In order to allow for a real time verification and accurate cross-referencing of invoice documents against the underlying purchase order and delivery documents, authorities will need to have relevant information available in real time on their side. The following figure shows the concept of data reconciliation between an invoice document and an underlying purchase order and despatch advice document.
Consequently further mandates requiring delivery and purchase order information to be made available to the authorities (such as the recent waybill mandates in Turkey) are likely to be implemented more widely. Similarly, China also offers a useful window into what the future may hold here. Instead of managing tax collection through an invoice document, China wants to manage tax through big data. While data protection and legal regulations might prevent such an extensive approach in most countries, the direction in which tax collection is heading is clear.
But the push for greater data transparency is about more than just ensuring accurate tax collection. The recent tidal wave of e-invoicing mandates was principally inspired by a desire to combat fraud and reduce the shadow economy (as evidenced by the rigour with which the EU is tracking the reduction of the VAT gap). By requiring businesses to submit detailed, real-time data, governments can more easily detect suspicious activity, such as underreporting of sales or over-inflating expenses. In this way, the growing demand for data serves as both a revenue assurance measure and a tool for maintaining the integrity of the tax system.
The graph below shows the difference between the VAT gap in EU countries between 2020 and 2021:
Source: https://taxation-customs.ec.europa.eu/system/files/2023-10/VAT%20Gap%20Report%202023_0.pdf
What does the future hold?
As we’ve already touched on, the future of tax reporting and data collection is likely to see an even greater emphasis on detailed, real-time data. When we examine the current trends in international mandates, it’s clear that governments aren’t just content with capturing invoice data. They’re also increasingly interested in data relating to logistics and ordering.
“Peppol was not built as simply a tool to streamline e-invoicing, but rather as a comprehensive network infrastructure. All the technologies necessary to fulfill further mandate requirements covering purchase orders and dispatch advice messages are already there ready to be used.”
Philip Helger
Over the coming years it’s very likely that we’ll start to see mandates covering a wider spectrum of B2B communications. In particular, it seems logical that submitting purchase orders and logistics documents in real-time will become a requirement in many countries, as this would allow tax authorities to have a complete picture of a transaction, from the initial order right through to the final delivery.
What does this mean for businesses?
If current trends continue as expected, not only will businesses need to be prepared to handle a growing volume of data, they’ll have to ensure this data is accurate, easily accessible and archived appropriately.
Specifically, businesses need to get the following three things right:
- VAT – This is particularly important for cross-border and triangular transactions
- VAT reporting – This is complicated by the fact that every country’s rules are different
- E-invoicing – This involves both technical and functional challenges, including collecting data points properly in the ERP system, realising the transmission to the authorities, and getting government issued IDs back
Further, businesses will also need to invest in robust digital infrastructure that can support real-time data exchange and integrating systems across the supply chain.
Understandably, all this work can seem like a big headache – particularly when tight deadlines are involved. However, new data regulations also bring opportunity for businesses. Approached correctly, tax and e-invoicing mandates can act as a catalyst for positive change and an opportunity to align tax reporting with broader automation efforts.
“Rather than seeing upcoming regulations as a headache, businesses would do better to approach them as an opportunity to enhance system efficiency and data accuracy in the long term.”
Philipp Liegl
Why are so many businesses struggling?
One of the core reasons that many modern businesses are struggling to juggle compliance and automation requirements is that, historically, tax and EDI/e-invoicing have been viewed as entirely separate domains, each with its own set of objectives and mindsets. This siloed approach has led to inefficiencies and confusion as businesses attempt to integrate these areas to meet modern regulatory standards.
Furthermore, many companies still have limited experience when it comes to e-invoicing. In Germany, for example, companies which only do business with German suppliers and customers have not yet been subject to any e-invoicing regulations. Even with large multinationals trading in various different jurisdictions, the ownership of the e-invoicing process has so far been left to the local entities – e.g. Italy and Spain – without any central governance or ownership.
The traditional tax mindset
In the tax world, as a speaker at a recent tax conference put it, “the key goal is to stay out of prison!”. While all good tax compliance service providers naturally seek to improve process efficiency, innovation and development in this direction is driven by two key factors: the need to meet changing compliance requirements, and the desire to perfect tax process accuracy. Although tax engines and tax determination add-ons for ERP systems have greatly improved this process over recent decades, tax has largely remained a company-internal function. With the advent of e-invoicing this has changed, as many different technical requirements (e.g. exchange formats and exchange protocols) need to be taken into account. This typically falls outside the area of expertise of internal tax personnel.
The traditional EDI mindset
By contrast, for professionals working with Electronic Data Interchange (EDI) and e-invoicing, automation and data exchange with external parties has long been a central focus. Document standards like EDIFACT or ANSI ASC X12 and exchange protocols like AS2, OFTP2 or X.400 have had a significant impact in improving automated communication between different business partners along the supply chain. These technologies were developed to reduce manual intervention, improve speed, and minimise errors in data exchange, leading to more efficient business processes. Although accuracy is obviously still crucial in EDI/e-invoicing, the principal goal of these areas has historically been to improve efficiency and reduce operational costs of supply chain processes through automation. While the invoice is certainly a part of supply chain processes, it is only one document. The majority of exchanged documents in supply chain processes are logistics documents, such as purchase orders, purchase order responses and despatch advice messages.
Are B2B integration, e-invoicing and tax reporting really that different?
At first glance, B2B integration, e-invoicing and tax reporting might seem like three totally distinct areas, each with its own processes and requirements. However, when you look a little closer, they’re very closely related indeed.
In a nutshell, EDI (the core of modern B2B integration) is a methodology utilised by organisations to exchange business documents such as purchase orders, shipping notices and electronic invoices (among others) with one another in a standardised electronic format. E-invoicing, meanwhile, effectively refers to the exact same process, just relating solely to one type of document, the key difference being that the required data points and standards for e-invoices are typically dictated by the government. In addition, in many jurisdictions the invoice documents are not exchanged between the business partners directly, but via a central service provided by the government.
Similarly, there is a huge overlap between tax reporting and e-invoicing. An invoice, after all, is a record of a transaction, and that transaction is directly tied to the taxes that should be collected.
Ultimately, while there are still differences between these areas, the overall trend is clear: B2B integration, e-invoicing, and tax reporting are becoming more intertwined, and thinking of these areas as islands is no longer helpful.
Governments are increasingly demanding not just invoices but also logistics documents and other transaction-related data. Further, in several jurisdictions official government-issued information must now be brought back to the ERP – usually via dedicated APIs. For example, in some countries with CTC mandates, businesses must submit invoices in a specific XML format through a Web Service, with the state in turn providing an official invoice approval number to confirm the legitimacy of the transaction. That official approval number must be stored in the ERP system in order to be available in case a credit note is issued for the invoice (e.g. in case the invoice is being cancelled). In such cases the official approval number of the state must be part of the credit note.
As processes such as this become more commonplace, businesses will need to adapt to a landscape where EDI, e-invoicing and tax reporting are no longer distinct processes, but part of a unified approach to managing business communications and compliance. This will require a shift in how companies approach their digital infrastructure, with a focus on integrating these processes to ensure seamless data exchange and compliance.
The benefits of a unified solution
Given the growing demand for data and the increasingly blurred lines between B2B integration, e-invoicing and tax reporting, having a single provider who can handle all these related issues offers several significant advantages, including…
- Stress-free compliance. As tax, B2B integration and e-invoicing regulations continue to accelerate and overlap, having a provider that stays on top of country-specific requirements and proactively implements the necessary updates will become increasingly valuable.
- More time for internal teams. Handing key B2B integration, e-invoicing and tax reporting tasks to an external solution provider greatly reduces the strain on internal teams. With more time, individuals can then focus on more value-adding activities and initiatives.
- Reduced vendor complexity. With a single provider managing your B2B integration, e-invoicing and tax reporting, the administrative burden of juggling multiple platforms and processes is lightened. This saves time, reduces the risk of errors, improves data visibility, and makes system integration much simpler. What’s more, when issues do arise, there’s no need to jump between different support portals.
- Cross-functional expertise. With a unified B2B integration, e-invoicing and tax reporting solution you get a partner that understands the complex overlaps between these areas and can offer guidance on how to navigate them effectively.
- Increased flexibility. As the demand for data continues to grow, it’s important that your business is ready to adapt to new regulations and requirements. By selecting a provider that is experienced in B2B integration, e-invoicing and tax reporting, you can overcome new hurdles without the need for a major system overhaul.
- Reduced risk. By streamlining tax clearance processes and automating e-invoicing workflows, a unified tax reporting and B2B integration solution can accelerate approval processes while greatly reducing the frequency of errors and delays.
- Audit readiness. With a single provider handling your business’s tax reporting and B2B integration processes, accessing accurate, jurisdiction-specific tax reporting and e-invoicing data is easy.
How ecosio and Vertex’s collaboration is changing the game
Remarkably, despite the numerous benefits that a unified B2B integration, e-invoicing and tax reporting solution offers multinational businesses, no such solution existed until August of 2024, when EDI and e-invoicing experts ecosio were officially acquired by tax compliance giants Vertex.
The result of this unique collaboration? An unparalleled global solution for indirect tax reporting, e-invoicing and compliance.
Instead of juggling multiple tools and platforms for tax determination, periodic transaction controls (PTC), continuous transaction controls (CTC) and electronic data interchange (EDI), businesses can now outsource all of these issues to a single provider for the very first time.
Via one connection, businesses benefit from the powerful combination of ecosio’s global network and powerful B2B integration technology and Vertex’s end-to-end Indirect Tax offering.
With a single connection you can now…
- Mitigate the risk of non-compliance
- Meet global CTC and reporting requirements
- Eliminate manual processes
- Accelerate revenue
- Streamline data extraction
- Ensure audit readiness
Want to know more?
For more details on how ecosio and Vertex’s collaborative approach could help you simplify and streamline your existing tax, B2B integration and e-invoicing processes, get in touch today.
