Despite the long simplified input tax deduction for digital records, many companies still send paper invoices. But those will soon be a thing of the past, at least in the B2B sector. The catalyst may be the upcoming advent of electronic invoices in public administration.

Input tax deduction – Integrity & authenticity of the invoices

Electronic invoices have not required a digital signature for the right to an input tax deduction since mid-2011. Nevertheless, the integrity and authenticity must be still guaranteed for invoices coming in, for example, by web download, electronic data interchange (EDI) or as email attachments. For this, German value added tax law requires the use of procedures within the company which the company uses for comparison with its payment obligations. It sounds a lot more complicated than it is in practice, because every company has always checked if the incoming invoice is correct in terms of the type and volume of delivery/service provided and the information included are correct and only paid invoices which they are obligated to pay. It does not matter here if this happens with computer assistance as part of a correspondingly set-up accounting system, or – as is still common and legally permissible with smaller companies – through the manual comparison of the invoice with available business documents, such as a copy of the order, request, sales contract, delivery note or bank transfer – or payment document

EU requirement implemented

Since automated processing of incoming documents can contribute to cost reductions – even at small and mid-sized companies – and helps to accelerate business processes, after some initial hesitation, more and more companies are doing away with sending paper invoices. But far from all of them. Additional impetus may certainly come very soon from the German E-Invoice Act of April 4, 2017, for the implementation of EU Directive 2014/55/EU regarding electronic invoicing in public procurement. Because this provides an obligation for public clients of the German federal government to accept and process electronic invoices in structured formats. And the individual German states are also working on the prompt implementation of the EU regulations in their state laws. In view of the positive experiences in other EU countries, the objective is the – by no means Utopian – increased volume of electronic invoices. Billing of public clients by companies in Denmark was already legally prescribed in this way in 2005, which contributed significantly to digital invoicing and automated processing in the B2B sector.

Priority: Automated processing

But be careful. Unlike in tax law, pure image files, PDF formats and scanned paper invoices are not considered to be electronic invoices in invoicing public clients. Rather structured, error-free machine-readable invoice contents are required to avoid unnecessary post-processing effort in automated inbound processing.

PDF formats and scanned paper invoices are not considered to be electronic invoices in invoicing public clients.

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These requirements are also met by hybrid formats with two representations of an invoice with identical content, such as the ZUGFeRD-2.0 format with an image format (PDF) and a structured document format (XML). However, according to the E-Invoice Regulation of October 18, 2017, invoicing parties and invoice senders must, in principle, use the data exchange standard XRechnung, developed by the responsible IT planning council (see box: New standard format for invoices).

Also important is that, while the EU directive only prescribes the obligatory acceptance and processing of (exclusively) electronic invoices by the administration as invoice recipient, the E-Invoice Regulation will in future also obligate invoicing parties to transmit electronic invoices. Excluded from this are only invoices from direct orders up to an amount of 1,000 Euro (net) and invoices from defense and security related orders or certain issues from the Foreign Service. Because of this obligation for issuance and transmission in the XRechnung format, there is also a need for action on the part of the manufacturers of software products in the area of invoicing. Due to a lack of knowledge about the customer structure of their software users, they will have to provide functionalities for the creation of electronic invoices at short notice. And because companies with public clients could also – and probably will – use the XRechnung format which they implement in their bookkeeping software for their private sector clients, this also applies to the corresponding adjustments to their automated invoice receipt processing.

The time for the required conversion measures is already counting down. In principle, German federal ministries and constitutional bodies are obligated to accept and process electronic invoices beginning November 27, 2018, as will all other federal agencies one year later, beginning November 27, 2019. It will apply to state authorities and communities no later than April 18, 2020. And as of November 27, 2020, companies must also have converted and transmit their invoices in electronic form.

New standard format for invoices: XRechnung

Beyond the E-Invoice Act of April 4, 2017, the E-Invoice Regulation of October 18, 2017, includes regulations for the data model and data transmission, the required invoice contents and the processing of electronic invoices, as well as the protection of personal data. The act prescribes the use of XRechnung, which on the one hand meets the European standard and also includes information relevant to the administration. This should in particular enable the direct posting of the invoice with public recipients. Along with the mandatory VAT information, XRechnung includes more information, such as the supplier number, an order identification number and especially a routing identification number. The routing identification number facilitates the allocation of the invoice to the responsible person at the invoice recipient.

You can find more information about the XRechnung format and tips for its practical implementation in this article.

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About Bernhard Lindgens
At the Federal Central Tax Office, Bernhard Lindgens is primarily responsible for combating fraud and works as a specialist author in the fields of tax law, accounting and tax compliance for Handelsblatt Fachmedien, among others.
Bernhard Lindgens
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