The Background Of The Electronic Invoice

Published Date: 02 Nov 2017

This chapter comprises a theoretical presentation of e-Invoicing on the basis of a literature review. It focuses on the analysis, findings and explanations of previous studies and publications regarding e-Invoicing and its implementation issues. This chapter aims to create a solid foundation for the research question, from which the necessity for the continuation of this research can be derived.

The theory surrounding e-Invoicing is highlighted from two perspectives: on one hand there are the technological factors (technical perspective), on the other hand relevant laws and regulations are taken into account (legal perspective). Practical factors that should be dealt with when implementing e-Invoicing within Bechlte AG will be discussed at later stage.

This chapter provides an answer to sub question 1: "What is electronic invoicing, and what (technological and legal) aspects are important?". By answering this question, it is intended to create (a part of) the theoretical model, against which the practical and experience based research of Chapter 3 and 4 will be assessed.

(e)-Invoicing – definition and scope

The invoice

The written invoice (on paper) has always fulfilled the function of data carrier within the transaction traffic between companies3. An invoice is drawn up and sent in response to delivered goods or services. This act of sending an invoice establishes an obligation on the part of the purchaser to pay, creating an account receivable. Every legal entity is free to establish an invoice. Regardless whether deliveries and services are performed by non-entrepreneurs to entrepreneurs or by entrepreneurs to other legal entities , it is required to provide an invoice in a prescribed manner4. These include legally required information (defined by applicable regional and accounting rules) and business information (defined by the particular business process of invoice issuer or receiver).

Based on the above, the term "invoice" is defined in this thesis as follows:

"An invoice is a bill for goods or services complying with the applicable regional regulations and firm-specific accounting requirements".

3 Franken, Kaspersen & de Wild, "Recht en Computer" (in Dutch), series Recht en Praktijk nr. 36, 5e druk, Kluwer, Deventer, 2004

4 Sixth VAT Directive of European Union (Council Directive from 17 May 1977, Ref. 77/388/EEC, Article 28)

The invoicing process

In their study on e-Invoicing in Europe5, Innopay and EBA defined the invoicing process as:

"The invoicing process is the activity or set of activities that result in an undisputed and accepted invoice at the seller and buyer, containing the request for delivery of the agreed contra-performance of the trade (usually defined in terms of money) and explicitly and separately stating the applicable tax."

In line with these findings, the following processes steps are to be distinguished:

Invoice creation (compiling, authorizing, storing)

Invoice exchange (sending, distributing, receiving, storing)

Invoice acceptance (invoice queries, authorizing, storing)

This study is limited to the processing of purchasing invoices, meaning that the steps "invoice creation" and "invoice exchange (until receiving)" are left out of scope. From this perspective, the following aspects of the invoicing process can be defined:

Importing (capturing, encoding, storing)

Processing (entering, circulating, approving)

Archiving (storing, reporting)

The flowchart below depicts these aspects of the invoicing process within the Purchase-to-Pay cycle6:

Figure 2.1: Flowchart of the invoicing process

Source: Own representation

5 de Boer et al, "European market description and analysis", EBA and Innopay, Version 1.0, 2008, p. 66

6 In this context, "Purchase to Pay" refers to the business processes that cover activities of requesting (requisitioning), purchasing, receiving, paying for and accounting for goods and services (Source: Basware)

The electronic invoice

The term "electronic invoice", often referred to as "e-Invoice", primarily differs from the traditional invoice because it has an electronic form. This electronic file can be exchanged, stored, preserved and presented without the use of paper. Unlike paper invoices, with e-Invoices the distinction should be made between the information appearing on the invoice and the bearer of this data (the file without its content). De Boer et al (2008) refer to this distinction as the ‘document’ containing the message and the ‘envelope’ containing the document to make it exchangeable through a network. The combination of both ‘envelope’ and ‘document’ is referred to as a ‘message’7.

This means that although the function and provided information remains the same, the content of an e-Invoice may have various message formats. The electronic information itself is regarded as the invoice (irrespective of the form) and all further actions regarding the invoice must be made ​​on the basis of this information, instead of on the envelope. The term "e-Invoice" therefore mainly refers to the information in the document, and not to the envelope containing the document.

As a consequence, with an e-Invoice, no distinction can be made between the terms "original" and "copy", because these terms refer to the medium in which the information is recorded rather than the information itself. This means that on a stand-alone source document, no assurance can be derived with respect to the originality and validity of the invoice information, nor of the sender. In contrast to the traditional invoice it may be noted that with the current legislation and technological resources there effectively is no difference in safety between paper and the non-secured electronic invoice. Only with help of encryption, such as signatures or message authentication codes, the unauthorized change of (electronic) documents can be prevented or detected.

e-Invoicing as a process

The term "e-Invoicing" can – even more than the notion "e-Invoice" – be defined and interpreted in many ways. According to the European Commission, "e-Invoicing is electronic transfer of invoicing information (billing and payment) between business partners (supplier and buyer)"8. It is therefore that the European directives make no mention of "electronic invoicing" but "electronically transmitted and posted invoices" or "electronic distribution of invoices" when regulatory is described9. This is consistent with the previously made contention that e-Invoicing tends to focus on the (secure) communication and / or storing of invoice information rather than the creation of invoices.

It should be noted that there is some ambiguity in the term e-Invoice, because not all electronic representation of invoicing information can actually be called e-Invoices. The key issue is that such invoices are not only transported in electronic form, but also processed electronically. In the e–Invoicing / e-Billing Report 2011, Bruno Koch from Billentis defines the term "e-Invoicing" in both a very abstract and a very concrete way. The report states:

"The term "e-Invoicing" is used in the same context as "E-Billing" and covers electronic invoices among enterprises, from/to the public and private sector. (…). All statistics and forecasts are based on a very strict definition of e-Invoicing: transported and archived fully electronically from end-to-end and in a tax compliant manner."10

7 de Boer et al, "European market description and analysis", EBA and Innopay, Version 1.0, 2008, p. 68

8 http://ec.europa.eu/internal_market/payments/einvoicing/index_en.htm, consulted 11.04.2012

9 As inferred from EU Directive 1999/93/EC on electronic signatures and Council Directive 2001/115/EC, 2006/112/EC and 2010/45/EU on the conditions and common system of value added tax

10 Bruno Koch (Billentis), "Market Report 2011: e-Invoicing / e-Billing in Europe and abroad", 2011, p. 8

By following this last definition, some electronic documents containing all required invoice data are not considered to be e-Invoices. Koch makes this distinction to ensure that there are no non-tax compliant en "semi-electronic" invoices included in figures and statistics, supposedly because these invoices fall outside the scope of the Billentis business objective. The term "semi-electronic invoices" applies to the following electronic documents:

Electronically sent invoices, but printed and archived by recipients as paper invoices

Scanned paper invoices

Invoices which are transferred and processed electronically, but supported by paper summary statements

According to the European Payment Council, "the purpose of electronic invoicing is to streamline the administration of the billing and payment process by eliminating paper handling for both buyers and suppliers"11, meaning that semi-electronic invoices are not applicable to this end. However, this research focuses on the perspective of the buyer. In the most elementary form, the supplier could transfer the e-Invoice as an image, being an exact replica of the paper version. In order to explore all possibilities, scanned paper invoices are considered to be within the range of this study.

Another important feature of e-Invoicing is that in addition to automatic posting and handling by the receiving part, the e-Invoice should be available as an image alike a traditional paper invoice format for circulating over departments, personnel in charge and auditing12. Therefore, e-Invoicing is defined in this thesis as:

"e-Invoicing is the electronic transmission of VAT and tax compliant invoice information in any format, either directly or through a third-party, that can automatically be processed by a company’s payment system and displayed in human-readable form".

In most literature, the difference is made between a business-to-customer (B2C) and business-to-business (B2B) invoicing situation. Electronic Bill Presentment (and Payment), also referred to as EBP(P), is the provision (and fulfillment) of invoices over the Internet in a B2C context. EIP(P), Electronic Invoice Presentment (and Payment), is the provision (and fulfillment) of invoices over the Internet in a B2B context. This research will further focus on the EIPP models for B2B only, leaving B2C processes out of the scope.

De Boer et al (2008) stated that electronic invoicing is a part of the end-to-end trade process that has a strong dependency on other processes including taxation and contraction. Focusing on the purchasing process, e-Invoicing is a part of what in general is called ‘e- Procurement’. E-Procurement can be defined as the support of the tactical and operational purchasing process with the aid of Internet Technology.

11 European Payments Council (EPC) AISBL, "Take Payments to the next level", Version 1.3, 2009, p. 31

12 Second Directive on VAT invoicing (Council Directive 2010/45/EU), Article 233. "Legibility" of the invoice is defined in the explanatory notes as human readable until the end of the storage period.

Advantages and disadvantages of e-Invoicing

According to the European Commission, the importance of e-Invoicing is contributed by it being an essential part of an efficient financial chain and a link between internal processes and payment systems within companies. The establishment of common standards, simplification and fostering of payment processing are expected to lead to the improvement of cash flow, cost reduction and be a facilitator of access to new markets13.

In their Final Report, the European Expert Group on e-Invoicing14 distinguished the following benefits of e-Invoicing for organizations:

Customer retention: fulfilling the expectations of trading parties.

Quality improvement: through direct communication and elimination of errors caused by manual handling.

Efficiency gains: through optimized and automated processes, better transparency of working capital movements and faster payment of invoices.

Cost reduction: based on a compelling business case.

Environmental benefits.

Because (paper) invoices are often derived from data available electronically and in later stage again translated into electronic data, it is likely that all stakeholders can realize substantial benefits by skipping the paper invoice. This is shown diagrammatically in figure 2.2 below:

Figure 2.2: Cost, time and environmental saving opportunities by transferring invoice data electronically.

Source: Own representation

13 European Payments Council, "SEPA Benefits for Customers", available at www. europeanpaymentscouncil.eu

14 European Union, DG Internal Market and Services / DG Enterprise and Industry "Final Report of the Expert Group on e-Invoicing", 2009, p. 75

The supposition that the electronic transfer of invoice information could form an effective solution for saving time and money on both sides of the business relationship, has been subjected to various surveys and studies in recent decades. "Increased efficiency" and "cost reduction" are seen as the main benefits of electronic invoicing by the PWC study on the Invoicing Directive (2001/115/EC)15.

In addition, business process analysis by the Expert Group16 has shown that reductions in processing costs are often higher on the side of the receiver of an invoice compared with the sender. What the exact savings will be varies considerably from one organization to another. Amounts that are mentioned range from 25 to 60 Euros per received invoice and 5 to 15 Euros per submitted invoice.

According to Crew et al17, SEPA estimates the total savings for businesses within the Single Euros Payment Area at around 64.5 billion euro per year. The University of Hanover calculated potential savings of nearly €135 billion per year, based on an 80% reduction in costs and 30 billion invoices sent per year in Europe18. The EACT project of Corporate Action on Standards (or CAST) predicts a potential of €243 billion per annum in Europe alone19. The underlying difference in the two calculations is in the cost per paper invoice they assume, not so much in the reduction percentage20. The fact remains that the potential savings to society are enormous.

Nevertheless, according to Koch (Billentis, 2011), the market for e-Invoicing still is highly fragmented, and less than 12% of all invoices within the EU are transferred electronically in any sense19. In 2008, de Boer et al identified a variety of disadvantages, issues and inhibitors that underlie this slow growth, and classified them into five categories20. Following is a summarized representation of their findings.

Category 1: Commercial and strategic barriers

Obstacles in this category are formed by customer compatibility/readiness, readiness of internal systems, complexity, and supplier compatibility/readiness. Furthermore, there is a concern about the return on large investments and although there is recognition of the potential elimination of human error, the impact of system problems is also a factor. The solution to these barriers is basically very simple: if potential participants can persuade themselves that there exists a strong business case, and they have the confidence to implement, it is expected that they overcome their resistance to the adoption of e-invoicing.

Category 2: Legal and VAT issues

Although the current legislative environment offers a solid foundation for guaranteeing the authenticity and integrity of an e-Invoice, there still are concerns about legal certainty, non-compliance and a resulting lack of confidence. This legal uncertainty is felt to require urgent resolution and adequate management. By way of summary, pragmatic solutions are felt to be necessary if these barriers are to be removed or resolved. Given the complexity and magnitude of these issues, they are being examined in more detail in section 2.4.

15 PWC, "A study on the Invoicing Directive (2001/115/EC), now incorporated into the VAT Directive (2006/112/EC), Final Report, 2008, p. 4

16 Michael A. Crew, Paul R. Kleindorfer, "Reinventing the Postal Sector in an Electronic Age", Edward Elgar Publishing, 2011, p. 24

17 Michael Breitner, "E-invoicing can save Germany 25 bln euro annually", press release by the University of Hanover, 2006, available at www.rechnung.de/pressedownload/Pressemitteilung_rechnung_141206.pdf

18  EACT presentation by project CAST coordinator Gianfranco Tasso, cited by the European Commission Informal Task Force on e-Invoicing, "European e-Invoicing Final Report", 2007, p. 9

19 Bruno Koch (Billentis), "Market Report 2011: e-Invoicing / e-Billing in Europe and abroad", 2011, p. 35

20 de Boer et al, "European market description and analysis", EBA and Innopay, Version 1.0, 2008, p. 58/59

Category 3: Trust and operational issues

In an overall context, invoicing, whether paper or electronic, involves trust, and the deployment of controls in a well described environment. Although there are no significant issues for suppliers and buyers with the migration from paper to electronic, there are problems with applying (differing requirements for) operational controls and managing commercial and tax law implications. The EU Informal Task Force Report states: ‘Improving operational acceptance of e-Invoicing involves better managing or reducing the risk associated with the electronic exchange, automated processing and storage of these documents.’ This too is being discussed in the sequel of this paper.

Category 4: Standards

In the field of standardization of the invoice, there currently are (too) many specifications in use both in Europe and globally. For some this is felt to be a significant barrier to the widespread adoption and commercial support of e-Invoicing services. Most experts subscribe to the view that such standards (in the sense of data formats) should be global, not based on purely European specifications. Others state that it is possible for standards to be communicated and managed through a variety of technical means, in particular "translation services" resulting in the notion of "any format in, any format out". In short, further standardization work is needed. The current developments in the standardization area are being discussed in section 2.5.

Category 5: Business and cooperation models

This group of issues concerns the need for more compelling business and service model(s). In practice this means that end-users or businesses are reluctant to choose a certain model or solution because it does not fit to all their requirements and only solves one particular issue. According to de Boer et al, the current collaboration model between various stakeholders is felt by many to be inadequate, and there is evidence of a degree of contention /defensiveness for market positions. The creation of a platform appropriate and targeted collaboration could help to solve this issue. The different models currently available are described in section 2.6.

Most issues and inhibitors on e-Invoicing as identified by de Boer et al (2008) could be described as limitations in favor of paper invoices, having relevant implications on the implementation of e-Invoicing. Although the findings by de Boer et al still are relevant at this moment, there have been a wide range of developments in each of the above mentioned categories since 2008. In addition to its conclusion that the market for electronic invoicing still is highly fragmented, Koch’s report (2011)20 declares in this respect:

"Extrapolating the organic market growth and with the added effect of some known initiatives (…), the author expects a market penetration of above 50% in 2017 for the B2B/B2G segment and in 2020 for the B2C segment. This should be achievable without any intervention from politics and economical development".

Koch’s statement indicates that most obstacles at the business area, such as standardization and legal issues, as well as some shortages of trusted exchange models and authoritative, comprehensive market information are now out of the way or at least expected to be in the next few years.

21 Bruno Koch (Billentis), "Market Report 2011: e-Invoicing / e-Billing in Europe and abroad", 2011, p. 36

Legal environment

Legal background

Apart from demanding a certain payment fee for rendered goods or services, the invoice functions as evidence for VAT paid to the taxation authorities. This VAT paid is the basis for cost deduction in VAT liable to be paid and therefore it has a prominent position in the trade and tax legislation. This applies to the Netherlands, Germany and other Member States of the European Union (EU).

At the time the Sixth VAT Directive was adopted (1977) it was not an absolute necessity to have one single set of rules regarding invoicing in the EU. Therefore, it was decided to leave to Member States legislation to fix most of the rules regarding the creation, transmission and storage of invoices. This splintering of regulations and legislation across Europe strongly affected the later objective to achieve a harmonized policy in order to allow e-Invoicing on a large (cross border) scale. To change this situation, the European Commission made a proposal for an Invoicing Directive amending the Sixth Council Directive in November 2000, resulting in a final Directive being published in January 2002. At the time, PWC commented:

"The invoice is probably the most important document in commercial trade. Complying with 15 different invoicing procedures across the EU causes industry a colossal administrative burden and the new Directive is definitely a positive move towards the simple, consistent rules European businesses have been asking for"22.

Member States were obliged to implement this Directive by the year 2004. Though this was a milestone in the right direction, further actions were needed.  The Council sought to improve on the Sixth Directive by recasting it in 2006. Again this didn’t bring the pragmatic improvements in the quest for a harmonized and uniformly applied legal framework for e-Invoicing. Therefore, the European Commission undertook a review of the current legislative framework for invoicing, as set out in Directive 2006/112/EC. Most of the study was performed by experts from PWC23. The final report and conclusions resulted in submitting a proposal for a Council Directive amending Directive 2006/112/EC on the common system of VAT as regards the rules on invoicing.

In order to create a 'possible roadmap for e-Invoicing and payments related standardization initiatives24', the European Union conducted an informal meeting by the end of 2006. From this meeting, a formal consultative called the Expert Group was formed at a later stage. Basically, the Expert Group was established to assess the current e-Invoicing situation, not only regarding laws and regulations but also on technical and organizational aspects and their mutual relationships. In addition to making recommendations, the Expert Group is deemed to monitor the implementation process through Europe’s Member States and provide the board with proposals for corrective actions when needed.

According to the Expert Group, the key article in these regulations is Article 233 of Directive 2006/112/EC25. With regard to this article, they recommend that "No legislative or other requirements should be imposed on electronic invoices above those that exist for paper invoices today". A full version of the article can be found in Annex 1.

22 PWC Press Release, "EC compromise on simplifying invoicing will reduce potential savings for business", 30 January 2002

23 PWC, "Analysis of Business Requirements for e-Invoicing in a Public Procurement Context", final study, 2009, p. 106

24 NES / Jostein Frømyr, "Common platform for e-procurement", Presentation at IBX, 22 March 2007, p. 28.

Furthermore, the Expert Group identified the following key issues in the legislative framework26:

The present European landscape of e-invoicing legislation is disharmonized. The methods set out in Article 233 of Directive 2006/112/EC have been implemented in Member States’ national legislation in widely different ways. This leaves trading parties experiencing difficulties in finding the right degree of clarity and legal certainty to encourage adoption of e-Invoicing.

Internal business controls did not receive appropriate attention in the current legislative framework and its implementation. This is unfortunate because such controls are essential to all invoicing processes and, for most, whose systems are mature and robustly auditable, can actually provide the necessary assurance and without creating technical and operational complexity.

These findings, together with the Proposal Directive based on the PWC study, resulted in the adoption of the Second Directive in the field of VAT in 2010. It’s provisions shall be applied by Member States of the EU as from 1 January 2013. The content of this new directive as well as its impact on e-Invoicing is being assessed in section 2.4.2 below.

Current legal situation

By guaranteeing an equal treatment of paper and electronic invoices and ensuring that no additional requirements for paper invoices are to be established, the new Invoicing Directive (2010/45/EU) removed most barriers on switching to e-Invoicing. Under the new Article 233 of the Directive, companies are now free to send and receive e-Invoices provided that they comply with certain conditions. These conditions apply for all invoices, whether paper or electronic.

In short, the Invoicing Directive 2010/45/EU covers the following four main points:

There will be an equal treatment between e-invoices and paper invoices.

The identity of the supplier or issuer of the invoice has to be assured (authenticity of origin).

It has to be assured that the VAT details are unchanged (integrity of content)

The legibility of invoices has to be assured

Authenticity of origin

This means the assurance of the identity of the supplier or the issuer of the invoice. In order to assure the authenticity of origin, four elements are to be considered:

Assurance by the supplier, which can be achieved by having a record of the invoice in the accounting documents. Where there is self-billing or a third party issues the invoice this may be evidenced through supporting documents.

Assurance by the customer, meaning that the taxable person receiving the supply must be able to ensure that the invoice received is from the supplier or the issuer of the invoice. This gives two alternatives to the taxable person to choose from.

Assurance of the identity of the supplier (by the use of any business controls)

Assurance of the identity of the issuer of the invoice (by for example an advanced electronic signature or EDI)

25 European Union, DG Internal Market and Services / DG Enterprise and Industry "Final Report of the Expert Group on e-Invoicing", 2009, p. 29. Note: the full article appears in Annex 1.

26 European Union, DG Internal Market and Services / DG Enterprise and Industry "Final Report of the Expert Group on e-Invoicing", 2009, p. 30

Integrity of content

The integrity of the content of an invoice  means that the content required according to the new Invoicing Directive (2010/45/EU) has not been altered. This can be assured in numerous ways. Both the taxable person making the supply as well as the taxable person receiving the supply are obliged to make sure that the content of the invoice has not been altered. According to the Explanatory Notes on the Invoicing Directive 2010/45/EU, the following elements are of interest in order to fulfill this obligation:

Both taxable parties can agree together through for instance a certain technology like EDI or advanced electronic signatures, or can both independently of each other choose the way to ensure the content is unchanged.

The integrity of an invoice does not relate to the format of an electronic invoice. This allows the customer or a service provider acting on his behalf, to convert or present in a different way the electronic data in order to fit with his own ERP system.

In case the taxable person has chosen to fulfill the requirement of integrity of the content by using an advanced electronic signature, when converting from one format to another, the change must be recorded in an audit trail.

Even if Member States require that the invoice is kept in the original form, either paper or electronic, the format of an invoice can in any case still be changed.

Form is taken to mean the type of invoice (paper or electronic) and format relates to the presentation of the electronic invoice. A format change can for instance be a change to the way the date is presented, or of the file type itself.

Legibility of an invoice

Legibility of an invoice means in the first place that the invoice is human readable. The invoice should be presentable in a style where all the VAT contents of the invoice are clearly readable, on paper or on screen. EDI messages, XML messages and other structured messages in the original format may be considered human readable after a conversion process. It should be possible to check the information between the original electronic file and the readable document presented has not changed. It should also be noted that the legibility of an electronic invoice from the point of issue until the end of the period of storage can be ensured by any means, but advanced electronic signatures and EDI are not sufficient by themselves to ensure legibility. Business controls creating a reliable audit trail between the invoice and the supply can be used to ensure the authenticity of origin, integrity of content and legibility for all invoices. However, other technologies or procedures such as (qualified) digital signatures or EDI are also allowed (though these are only examples of electronic invoicing technologies and cannot be mandatory requirements).

The new Invoicing Directive states minimum requirements for the invoice content that must be included in each invoice. This means that if Member States wish, they can extend the list of mandatory contents. In addition, diversity of legal requirements for e-Signatures in Member States has led to problems with cross-border interoperability, which also has had a retarding effect on the adoption of e-Invoicing solutions making use of those signatures. To this end, the Commission has proposed that the current Directive on e-Signatures (1999/93/EG16) to be revised27. According to EU Directive (EC 1999/93) the qualified electronic signature must currently comply on four criteria:

It must be linked to the signatory in a unique manner

It must be possible to identify the signatory

It must have been established by means that can exclusively be controlled by the signatory (the user must demonstrate that he is who he claims to be)

It must be associated with the data to which it relates in a manner that any subsequent change can be detected.

Review of the current legal situation

The proposed new Council Directive (COM(2011) 778) was indented to make e-Invoices equivalent in all respects to paper invoices.  This purpose would be realized by the introduction of at least two major changes to existing e‐Invoice practices:  

it would eliminate the requirement for advanced e-Signatures be used in e-Invoicing.

it would eliminate the requirement for the recipients consent to receive invoices in electronic form28.

In the original 2006/112/EC Directive on VAT Invoicing, article 233 required e-Invoices to assure integrity of content and authenticity of origin by means of either an advanced e-Signature, EDI or "other electronic means allowed by the Member States." This article also allowed enterprises to use electronic invoices only if the recipient consented to receive electronic invoices. The proposed new Directive would amend Article 232 to say that invoices can always be sent by paper or "made available" electronically, thus deleting the requirement of recipient consent.  The new Directive would delete Article 233 and the requirement to use advanced electronic signatures entirely.

The Expert Group recommended the adoption of a pan European "overarching framework for interoperability, in which trading parties and their service providers could interoperate with each other across Europe in an open and standardized way29". This recommended "framework" would include, among other things:

Full harmonization of national/tax requirements among Member states regarding e‐Invoicing.

A single "semantic data model" for e‐Invoice content standards (as opposed to recommending a single content standard).

A business requirement of reducing manual work for the sender/receiver, while remaining technology neutral and accessible to all trading partners with or without ERP systems.

A method of ensuring "trustworthiness and data protection." While invoices do not typically include personally identifiable information of individuals, the Expert Group emphasized that commercial data is nonetheless worthy of protection.

Replacing digital signatures for ensuring authenticity of origin and integrity of content with auditable internal business control processes.

By the Second Directive on VAT Invoicing30, trading partners now have the right, but not the obligation, to use advanced electronic signatures. Trading partners choosing to forego the security of advanced electronic signatures for the ease of transmission, will need to consider the effect of Directive 1999/93/EC on a Community Framework for Electronic Signatures and national legislation issued pursuant thereto by the member states.  Under Article 5.1 of that Directive, advanced electronic signatures based on a qualified certificates are required to be afforded the same treatment as handwritten signatures and are admissible as evidence in legal proceedings.  Electronic signatures without such an "advanced" electronic signature fall under Article 5.2 of that Directive, which provides the weaker level of protection of not being denied legal effectiveness "solely on the grounds" that they are in electronic form or not based on a similar advanced electronic signature. The impact of these signatures on practical situations is questionable and should reviewed per Member State and per business.

27 European Commission, "Reaping the benefits of electronic invoicing for Europe", Brussels, 02.12.2010, p. 6

28 European Commission, "Proposal for a directive of the European Parliament and of the Council amending on statutory audits of annual and consolidated accounts", Brussels, 30.11.2011

29 European Union, "Mid-Term Report of the European Commission Expert Group on e-Invoicing", 2009, p. 22

30 EU Council Directive 2010/45/EU

However, the foundation of the new directive is based on "equal treatment of paper and electronic invoices31" in a technology neutral way by removing the conditions for advanced e-Signatures and/or the use of EDI. The reasoning is that e-Invoicing is part of a larger process where every process step contributes to authenticity and integrity of the trade transaction.

In some Member States, government initiatives are being designed to make e-Invoicing mandatory for public procurement. These projects are vital for accelerating the market penetration of e-invoicing. At European level the European Commission has launched the PEPPOL project (Pan-European Public Procurement Online) in order to make all processes related to e-procurement across the EU possible, including the exchange of invoices, electronic communication between companies (including SME’s) and public bodies. The developed interoperable e-Invoicing solution of this project could also be applied outside the governmental context and deployed in B2B relationships.

Legal overview

In Europe, the invoice has always fulfilled a prominent role in trade and tax legislation, demanding a certain payment fee for rendered goods or services. From the outset, laws and regulations regarding the exchange and processing of invoices were based on invoices as a paper data carrier, wherein the medium itself served as evidence. The format, statutory function and surrounding regulations on invoice documents and invoice processing has been interpreted differently between the EU-member states.

Over the last decades, written information has increasingly been replaced by digital variants, making it possible for invoice information to be exchanged, processed and stored fully electronically. The technological and organizational advancement on the subject has had its implications on relevant laws and regulations. Moreover, with the EU’s desire for a harmonized and uniformly (business) environment between member states, the need for appropriate legislation and regulations on electronic invoicing has increased significantly. After several revisions of EU Invoicing Directives, the European Union tries to achieve their objective by the adoption of Council Directive 2010/45/EU, which has to be implemented by member states as of 1 January 2013. This directive is the result of recommendations on the previous Council Directive made by various experts. Although the new Directive offers more possibilities for organizations to adopt e-Invoicing, not all recommendations have been incorporated, and it is not clear how certain requirements must or can be met. Several subjects are susceptible to different interpretations, leaving room for Member States to adapt the directive in disharmonized ways.

Under current legislation, both the integrity of the invoice (assurance that the content has not been modified)  and its authentication (assurance of identity of the sender) is assured by the use of an advanced e-Signature.  Under the proposed new regime, e-Signatures in general would only provide authentication and possible a much lower level of authentication than provided by current e-Signatures.  Precisely how the integrity of the document and equivalent protection of authentication will be ensured through auditable business processes will of course be of interest to all enterprises in Europe. Hence, practitioners should note that the devil will be in the detail of the "auditable internal business control processes32". In brief, extreme legal prudence on (cross-border) e-Invoicing is necessary until prevailing values ​​are set internationally.

31 Official Journal of the European Union, Reference L 189 from 22 July 2010, recital 8 on p. 4

32 Communication from the European Commission to the European Parliament, "Reaping the benefits of electronic invoicing for Europe", Reference COM(2010)712, 2 December 2010, p. 6