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E invoice format for Technical Support

Welcome to our webinar on e-invoicing in the US. I'm Alex Baulf, senior director of e-invoicing and by way of background, I have around 18 years experience within global VAT, GST, sales tax, tax technology, and e-invoicing. Prior to joining Avalara, I spent 13 years at Grant Thornton, including a couple of years in the US in Chicago, and today at Avalara, I lead on Global Indirect Tax. I'm responsible for tracking major legislation and policy around the globe and articulating how that impacts our products, our content and making sure that our partners and customers are aware. I'm also head of products for Avalara e-invoicing and I'm a member of the European Commission's e-Invoicing Advisory Group. I also represent Avalara on a number of different working groups and associations for e-invoicing, and most recently I've been appointed to the interim Board of Directors, the new Digital Business Network Alliance, which we learn much more about during this webinar. In terms of today's agenda, we're going to look at the background to e-invoicing in the US. We're going to look at mandate's barriers to adoption, and that includes the US indirect tax system. We're going to look at the BPC market pilot and the move to a go live network. And then finally we're going to look at broader issues that US multinationals need to consider when looking at their e-invoicing strategy. For those of you who don't know Avalara, we are a global tax technology company founded in 2004, headquartered in the US in Seattle, but today very much a global company. We have offices in the UK, France, Spain, Germany, Belgium, Luxembourg, Romania, Turkey, India and Brazil. And we support global tax technology in over 193 countries supporting over 30,000 different customers. Avalara has SASS solutions across the entire indirect tax lifecycle, everything from registrations, obtaining VAT, GST, sales, tax, registration means through to classifying your products for import VAT and customs duty. We're probably best known for our AvaTax global tax engine, which calculates at the point of sale at the time of invoicing, sales and tax VAT, GST insurance, premium tax as well as excise. And in 2022 there were 39.6 billion calls made to our API. Two years ago we acquired IMPOSIA in Germany, a leading e-Invoicing and ADR company and say today Avalara e-invoicing provides tax compliant invoicing solutions across B2B and B2C. BTG supplies we support. With real time reporting. We can generate QR codes, create PDF invoices, as well as connecting to various networks, including Peppol. And then finally, our solutions also support reporting and returns. We have assessed the reporting solution in a managed service for customers and as well as VAT, GST and sales and use tax. We also support some additional filings, listings and digital returns and in 2022, Avalara processed more than 5.2 million indirect tax returns. So I'm going to start by just explaining what is e-invoicing. So e-invoicing is exchange of e-invoices, digital documents between suppliers and their customers. If you look at traditional invoicing and invoices, typically paper or more recently, PDFs. So this is unstructured data and the invoice can be shared manually printed, posted, mailed out to a customer, or potentially printed as a PDF and attached to an email, or maybe manually uploaded to a portal. It has a consistent format of the documents and the content inside. The format of that data is consistent. And this allows the e-invoice to be read, processed and interpreted by a system. An e-invoice can be sent for an open network, for example, the Peppol network over a government portal or platform and historically via private EDI connections, legacy procurement networks or service providers. But there is another side to this too, and maybe we're not seeing this in the US at the moment. And I'm going to talk about the many reasons why not. But around the globe, we are seeing a global trend for the reporting of tax and transactional data from an invoice or e-invoice to tax authorities. This is usually part of the issuing of the invoice. So the same process in real time. But in some countries it can be a parallel process. So even where the customer can receive an invoice in hardcopy or just a standard PDF, there is a requirement for the supplier to submit a subset of that invoice data in a predetermined format to the tax authority. So what does this mean? Well, it means that tax authorities around the globe are getting really granular to transactional data. You know, it's a move away from them, from a summary VAT, return, GST return, which really doesn't provide enough detail. It's too little, too late. So instead, they're seeing every single transaction in a in a predetermined format so they can run their own analytics. And in some countries they're starting to actually deploy AI and machine learning. In some countries, the tax authority has the ability to actually review and approve and validate an invoice before it's even received by the customer. And what we will start to see in the next few years is the validation of tax on the invoice as well. And tax authorities will start populating VAT returns based on the data they receive from these e-invoices. There is no common or standard model for e-invoicing across the globe. So I want to just to provide a very quick overview of some of the common models we're seeing. So the first one is called the four quarter model. So this is based on interoperability. So creating common standards and creating a network where businesses only need to connect once they connect once far a service provider. And that allows them to reach and send invoices and also, conversely, to receive invoices from anyone else on that network. It's called four corner because corners one and four, the supplier and the buyer. But then in the middle the network is created through certified service providers who take invoice data from ERP accounting systems, billing platforms, convert that to the relevant format and standard, and then share that with the customer's counterparty service provider and the network secure because the service provider has a unique access key that only they can access the network. A great example of this is the Peppol Network in Europe, originally set up for European public procurement, and it's used today by a number of government departments across Europe to receive invoices from vendors. But today it is very much global. We've seen Peppol in this four cornered model adopted in Australia and New Zealand, in Japan and Singapore, and actually this four corner model is going to be the basis for the new US B2B digital highway, which I'm going to talk about a bit later on. Sorry for the spoiler alert. I've already mentioned live reporting where the invoice itself may or may not be electronic, but the supplier submits a subset of that data to the tax authority. We then have more mature e-invoicing models, for example, in Brazil, where the tax authority actually has a clearance role. Not only is it receiving invoice data or in some cases the full invoice, it is actually reviewing, approving, validating and clearing that invoice before it's allowed to be sent on to the customer. And then as a slight extension to that, there are some countries where the tax authority, the local government implement a centralized model where they sit in the middle between supplier vendor and their customer, and it's actually the tax authority portal where the customer will log in to receive the invoice. The government plays that central role. We've seen that in Italy and we'll see that in Poland next year from July 2024. And then finally, we we talked about the four quarter model. The interesting thing about that is there is no tax authority involvement. So even though in some countries it may be a tax authority, which is the authority that manages the requirements, the standards, the accreditation in that country, they don't perceive tax data, they're not validating the invoice from a tax perspective. But what we're seeing is a move to leveraging the four corner model, but implement a tax authority in the middle. We may see this in France next year as part of the PDP process, where certified providers will share documents with each other, potentially leveraging the Peppol network and directory. We may also see this Belgium next year too. So looking at the US now, the United States of America. Why is tax not the driver? And this is a very important question because across the globe we are seeing tax authorities almost on a weekly basis announce new e-invoicing mandates in virtually every single country across the AMEA region at the moment. Is it certain stages of implementing e-invoicing either in terms of consultations, research studies, draft legislation, or actually confirms legislation and waiting for that mandate to go live. And the driver there is tax the VAT gap, which in the EU alone was over €93 billion the last count and is estimated to be around 400 billion, $400 billion globally around the world. But why is the US currently not mandating e-invoicing for business to business e-invoice exchange? Well, tax is certainly one of the reasons, and it's because there is no central government authority either at a federal or state level to establish and administer a framework or implement a mandate across America. One of the key reasons is because there is no federal VAT or GST system. There is no input tax credit mechanism, and we do not have formal tax invoice regulations in the majority of US states and at a government level, the United States Congress could mandate a framework but only for interstate transactions. And this is due to the Commerce Clause of the United States Constitution saying that Congress can only have the power to regulate interstate and foreign commerce. So the power to actually regulate what happens within states is delegated and owned by the state governments themselves so that the US could potentially, in the future mandate some sort of e-invoicing mandate for cross-border activity. This could be quite similar to how the European Commission has proposed for the VAT in the digital age, e-reporting a mandatory e-invoicing for inter-community trade from 2028, but it would need to persuade and convince individual states, individual governments within the US to also adopt this. There is some precedent because we already have a state level e-standard organization that does create some uniformity and interoperability in terms of how states and industries transmit e-documents. But again, because of this lack of a central indirect tax authority and a single tax system with single tax invoice requirements, that's going to be a big barrier. So as I just said, there is no VAT system in the US is probably the only major economy in the world without the federal VAT or GST system and sales taxes levied reported and administered at a state and local level, state, county, municipality. But there are also even special tax jurisdictions. So, for example, for fire, police, ambulance, some cities even have special taxes based on the local sports team. And it's this complexity in terms of the number of taxing jurisdictions, the number of different authorities involved, that makes it very difficult to mandate e-invoicing and to mandate the submission of tax data because we have so many different tax authorities. So on the screen now, a high level overview of US states, you know, sharing, you know, just just a very small handful of states without even a state sales tax. But there is no one overall federal sales tax or VAT. And also showing how the Wayfair decision has been implemented across these states. But then if you drill down into individual states, you know, looking at a zip code level and even more granular, you will see multiple sales tax jurisdictions. In fact, there are over 10,000 different jurisdictions in the US with a sales tax. So again, a huge barrier to creating standards and mandates. The only harmonization we see at a state and local level is the streamlined sales tax agreement or the SST. So this has some simplifications and streamlining of the compliance process for businesses. And under the state, businesses must submit a sales tax, simplified electronic return, or the SER based on a predefined XML schema. So we're starting to see some rules around electronic submission of tax returns in either the format of that document, the technical standards, and that allows for increased automation. This is also an example of tax authorities from different states working together, you know, agreeing on a on a more simpler, streamlined, more harmonized system potentially in the future. Could this lead to more harmonization around health sales taxes displayed on invoices and potentially how it is reported. Could we move to more granular transaction level reporting? You know, maybe this is one of the organizations that may be involved in that. When we look at business to government, the position is slightly different. So there have been a number of different government incentives and legislation to improve public procurement, looking to digitalize it, looking to gain efficiency and savings through e-invoicing. And over the last few years, back in July 2015, the Office of Management and Budget issued a memorandum on improving government efficiency and saving taxpayer dollars for e-invoicing. And so this applies to federal agencies and vendors supplying to these government agencies must have the option to submit their invoices electronically. So this is part of the Government Paperwork Elimination Act and the government have set out the businesses can do this one way by using a federal shared service provider that offers e-invoicing. And this is just another way of invoicing the government. But again, as we look at the B2B state of play, there are currently no e-invoicing mandates either at a state or federal level. And we talked about the barriers, but also it's the complexity of the current landscape. And one of these one of the drivers there is businesses in the US have more commercial freedom compared to most countries for invoicing because we don't have to find rules on tax invoices. We don't have an input tax credit mechanism. So the way tax is presented does vary. And so this has led to a lot of divergence, a lot of disparity, a lot of complexity in terms of the e-invoicing formats, syntax, data, subsets that are used. A lot of businesses have adopted procurement accounts payable networks often just so the requests have larger customers. So these tend to be more kind of point to point solutions to corner networks connecting a vendor to a customer or connecting them to a procurement network just to share an invoice electronically. And often the benefit is only really received by the customer. We've seen some EDI electronic data interchange, again point to point individual solutions between larger multinational businesses and their customers. And there was a study by the BPC, the Business Payments Coalition, that identified over 250 different e-invoice providers creating and sending and receiving more than 15 different invoice formats across the US. But it doesn't stop there because how do those 15 there were then over 40 different subsets to those formats. And then at an industry level, we're literally talking about hundreds of different industry specific codes, catalogs, ways to determine the data that should be used on invoices so they can be interpreted and processed. So very fragmented, very diverse, creating a complex environment for e-invoicing across the US. And I wanted to share a quote from the Business Payments Coalition. This came from a study, the catalog of electronic invoice technical standards in the US from which they say stats I just shared came from this Diversity of options creates a major barrier to adoption for US businesses. The lack of interoperability between different syntax formats and subsets and the various service providers and systems creates headaches for end users. Oftentimes US businesses interested in electronic invoices are required to integrate directly with their trading partner system, which when a network to which their trading partner belongs, resulting in an additional cost burdens to the business. In effect, there isn't a common standard. There isn't a common network where businesses want to start e-invoicing. There's not a logical place to start. It's often driven by the suppliers, by vendors or by larger customers. So it's for that reason that the Business Payment Coalition, which has members from the Federal Reserve banks, including the Federal Reserve Bank of Minneapolis in Chicago, they've launched a market pilot to create an e-invoice exchange in the US and across North America, with the overall objective to establish a production ready Business to Business e-invoice exchange framework for the US market, enabling sellers and buyers to exchange invoices electronically. So this is very much linked to improving business payments, allowing the payment process to be more automated, saving time, saving money, saving on bureaucracy enactment. So what is the market pilot? Well, this is been developed over a number of different years and it's aiming to design, build, test a virtual network that will allow American businesses to exchange e-invoices, looking to develop common standards, common formats, and establishing a network that’s open. It's secure. It has a common delivery framework between certified service providers, and the pilot had three distinct waves looking at how to develop the standards, then build and test and actually have a proof of concept developing access points to this network and the actual delivery of e-invoices, meeting these new standards. And the intent was, as the pilot moved through these different phases, these different waves, they build on the success of each previous one, incorporating the learnings that came before really looking to identify best practice, removing barriers for businesses in America to adopt e-invoicing. The pilot was initially planned to run through to the end of 2022 last year to establish an operational B2B invoice exchange framework for the US market by 2023. This year. So in terms of the pilot, there were over 90 organizations participating in this market pilot, but from a very diverse set of bodies and companies. So service providers and large corporates, but also financial institutions, existing business to business networks, and e-invoice service providers, input from consultants, billing service providers as well as providers. On the AP/AR side due to the importance and the linking to to faster payments that we saw a lot of bank processes involved. Some very large corporates, including Microsoft and various different users from these businesses providing different experiences, different personas. And we also saw representation from different industry organizations, again trying to bridge that gap around the diversity of requirements and codes that we currently have for industries across the US. So you'll see as in each wave, more and more participants joined and then in the final wave it was was key for last year, but it was extended for some kind of final testing and development for the first quarter of this year to April 2023. And it was extended to April because in April we had a big announcement at the e-Invoicing Exchange Summit in Miami. I was there in the room and it was announced that the pilot was formally ending and we were moving to a go live network for the US. So moving away from the BPC Business Payment Coalition sponsored market pilot, the phase looking to define the standards, the market practices and supporting industry adoption, creating that network to go live business to business highway. So we've seen the establishment of the Digital Business Networks Alliance with BNA. This is a not for profit organization that's been set up to oversee the wider ecosystem of invoice service providers within this new delivery network. It will be responsible for onboarding new members and access point providers, as well as actually supporting the infrastructure that will support this highway. This network, and it will also be there to promote further adoption and create the network effect to get more and more businesses on this network. So the DNA, the Digital Business Network Alliance is still very new. I was recently appointed to the interim board of directors. The board has met for the first time and is now getting into a regular cadence and is now starting to finalize the standards, the process, the service providers to join. But but also what this looks like for corporates to so the main missions here are to operate an electronic delivery exchange network which will soon be available for use by all businesses in the US. The network will support the digital delivery of an e-invoice in a manner that allows all customers of all service providers to communicate with customers of all other service providers connect with the network. So no longer will businesses be constrained to to use one specific provider just because a larger customer and multinational has dictated them to do that. And this will be achieved through interoperability and this four corner model and the DBNA will assist service providers in connecting to this exchange framework. And it will be directly responsible for defining the standards, creating the policies, the rules and the guidelines. So for anyone familiar with Peppol, very similar to this, it's quite similar to EESPA the European e-Invoicing Service Provider Association, but this is specifically for the US and the wider North American market. So what does this exchange framework look like in practice? Let's look at the model, the data structure, the format and the delivery mechanism. So this exchange network is going to create a B2B digital highway, a network to connect businesses across the US with each other, to exchange invoices in a common format. And they're going to use a four cornered model. So very similar to Peppol, which I talked about before. The invoice data structure will be UBL2.1. So that's universal business language. That's a common standard for data to a common global data dictionary. This is also supporting the Peppol network and the European e-invoicing standard. The delivery channel is the AS4 protocol and there are mechanisms for data structure and data exchange which very similar to the Peppol network. But just to make it clear, the US is not adopting Peppol, it is not becoming part of the Peppol network and the DBNA is not becoming a Peppol authority. The main driver here is for the US market and the North American market and that's the focus. But that said, the standards are very international, they're global and this is very close to Peppol and depends probably over 90% interoperable. And where there is difference, where there's divergence that is something that probably can be met by service providers converting augmenting invoices so they can still be interpreted received across networks across the globe. So what are the benefits of this common exchange framework? This B2B highway? Well, it's all about interoperability. It's moving away from the problem statement that there are so many different invoice formats, different codes, different information and data that even if it was in the same structured format, it's very difficult for businesses to interpret. There's a single connection here so buyers can connect once connect to the network via service provider and can reach everyone else in the network. And the network will make use of a single standard e-invoice formats. So a single format for the US market and anyone that joins this network and the exchange framework must use this format. They can't deviate from it. It must be accepted by everyone in the network. But this interoperability is certainly a benefit because it allows for minimal integration effort. You connect once to a service provider and then the service provider connects you to the network. There's no longer any need for individual point solutions. EDI connections. No need to simply use a private network procurement network, AP network used by recipient because we will start to see the network effects Once some very large corporates join this framework agreement, they join the network. They will incentivize. They will want their customer and vendor base to join the network too, and I'm sure there will be incentives there to we will see cost savings to a reduction in cost associated with traditional point to point connections as they're eliminated. But also for businesses that haven't really adopted the digitalization of invoicing yet and move away from paper and move away from PDFs and move away from posting, printing, mailing out manual tax coding and in a manual processing big AP departments, those costs will be reduced. Resources within those teams can focus on more strategic and value added activities. So I just focused on the US, the US market at the moment domestically, what's happening to create interoperability, a common framework, a common standard, a common network. But that's only half of the puzzle for US businesses. So if you're a multinational, if you have operations, a footprint in countries outside of the US, you'll also be exposed to these wider tax driven mandates. And these mandates vary. They vary based on who they apply to, the formats, the standards, the syntax is through a different API is that they need to be connected to different endpoints with government platforms. Some of these mandates require different lifecycle statuses to be tracked and there'll be variations in terms of accreditations and certification requirements for the software you use. We're seeing a trend of tax authorities requiring QR codes to be generated. There may be strict digital signature requirements too, as well as quite onerous and prescriptive archiving requirements for that invoice for the lifecycle of that document, which in a lot of countries can be up to ten years. So a lot of complexity, a lot of divergence. And if you're a multinational in countries outside of the US, outside of North America, you're probably experiencing this already. And historically, businesses looked at this tactically. You know, a local finance manager, a local country manager may have found a local solution. They may have outsourced to a local provider. They may have got a local bolt on to their system. But with the pace of e-invoicing change and the mandates coming across the globe, it's becoming too complex. You can't just rely on local tactical solutions. You need to think of the strategically and you need a single scalable one way to comply. And we know we're seeing this across businesses from our customers. We're seeing this demand as well from finance and accounting platforms. They need to futureproof their systems, provide this core functionality for their customers. It's complex and it's very difficult to do it alone. So that's why Avalara is now working with our customers to provide a single global, scalable e-invoicing solution. So we're pleased to launch our Avalara e-invoicing and live reporting solution. As I said, this is single, scalable, standardized, built for seamless integration, built on a universal business language UBL2.1 API. And if you remember, that is the same standard that's being used in the US for the UK Live Network. And so a new API based approach will allow for fast and scalable deployment of e-invoicing on a global scale. Connect once access functionality to meet e-invoicing requirements across the globe. So on the screen now a very high level overview of how the Avalara e-invoicing and live reporting solution works. So a US company can connect the ERP system billing platform to our solution based on an API. An API built on UBL2.1 and then we take that data in the common format. We then convert that to whatever the local requirements are we have an engine catalog of unique mapping requirements for every country and that will include the format, the standards, whether we need a specific digital signature, do we need to generate a specific QR code? Where do we need to send that invoices that need to go to the tax authority? Do we need to wait for an approval? Do we need to add an approval number and then sending that invoice to the customer. And then conversely, on the AP side, receiving invoices. If the invoice is in an XML format, converting it into something that is human readable, something that can actually be interpreted by human as well as a system, and we can act to networks like the Peppol network. We are certified Peppol provider in Europe, in Australia and New Zealand, in Japan, we connect to numerous government tax authority platforms and portals across the globe and in many countries. We're also certified locally and helping exchange that document with the customer, with the government and meeting compliance requirements. But it's a single solution based on a single API allowing a strategic and global approach. The US and other multinationals across the globe say that marks the end of the formal presentation for this webinar. We're now going to see if there's any questions from the audience that we can answer, right? I see there's a few questions coming through, so bear with me as I answer this. So actually, first one kind of US company join the Peppol network? So the short answer is yes. If US businesses want to exchange e-invoices with businesses across Europe, Australia, New Zealand, Japan, Singapore, there are actually businesses beyond those jurisdictions. Absolutely. You can engage with a Peppol certified service provider to connect to that Peppol network. You get a Peppol unique ID number and you have the ability to exchange the invoices, meeting those local Peppol standards with businesses. So even though the US hasn't formally adopted Peppol it's going to split in a different route. That doesn't prevent a US business from accessing the Peppol network and for international procurement and cross-border sales, using those common standards and that common network. Another question Has tax been considered as part of the common invoice format and standard for this new US initiative? Yes, it has. I made it very clear before that the tax authority are not involved, the tax authority and not receiving any tax data. They're not approving, validating the invoice. However, as part of the work that's been done to design the structure and the data to be used within that invoice, tax has been thought of and we're all going to tax category codes. There are tax exemption codes, so common codes that are being maintained by X12 and these X12 codes are common that they're occasionally updated. But is the common taxonomy. And so they can be used for enhance invoice automation, processing, tax coding. You can use it as part of your tax calculation process. Another question under the the US B2B digital highway. So this new framework, what happens if your customer uses a different service provider? Does that need to encourage more charges? For your question, the answer is no. A part of creating this common framework and creating this fork on a model is you only need to use one service provider and commercially that's up to you to choose and even if your vendors, your customers are using a different service provider on the network, there are no charges, there are no additional roaming fees for using a different provider. The providers are connected through the network and using a common address book to find each other. But there are no additional charges. There's no penalty for using a different provider. So again, that's one of the benefits of moving away from the old procurement network model where your vendor, where your customer would almost try and force you to use one provider. This is creating an open network with certified providers that the DBNA will have as members and they will satisfy the providers. They will create the rules, but businesses in the US be free to select that and it doesn't need to be the same as your supplier, your vendor or your customer. Any more questions? Oh one on Timeline say announced that the pilot is now ending and we're moving now into a go live phase. What is the timeline for this network going live and businesses exchanging invoices on this network? I'm going to great question. I'm very soon. It's going to be kind of Q3, Q4 when we're going to start to see businesses join the network. We're seeing the formalities of service providers formally joining the DBNA being finalized as we speak. And then we're going to see a lot of marketing, a lot of awareness in the market around this new networking, around these standards. And then you start to see the network effects later this year as SAS and large corporates join that network and put volumes, heavy invoices across that network. And we'll start to see, you know, various different businesses of different sizes, including SMEs, join the network to. And final question, I think this is quite cheeky, not really only e-invoicing but will the US implement VAT and when I've been asked that question probably for the last 15 years and I'm asked that virtually every time I visit the US to speak at a tax conference or e-invoicing events, I don't think so. In the immediate term, due to the complexities of the state and local tax system, there doesn't seem to be a lot of appetite at the moment at the federal level, but with elections coming up, anything's possible. But I don't think in the immediate future and I don't think federal VAT will be the driver for e-invoicing across the US. I think it's it's really going to be driven commercially. It's going to be driven by the open market. It's going to be driven, you know, through the promotion by the BPC, by the Federal Reserve banks, by the new Digital Business Networks Alliance. And I think creating this common network, a common format breaking down the barriers that have held back US businesses from adopting e-invoicing. I think we're going to see organic growth not by mandate, but by businesses doing it for business efficiency and cost savings. So thank you so much. I hope you enjoyed this webinar. Look forward to speaking with you in the future. Thank you. Avalara also has a continued series of e-invoicing update webinars. Please join us on our next one on Europe e-Invoicing Updates 2023. This will be a mid-year update on the latest requirements, the latest on new mandates, dates and recent changes across Europe, and also join to watch a demo of the Avalara e-invoicing live reporting solution. You can register now online.