Models of Transmission of Electronic Information on Invoices

I will briefly discuss some possible models for the electronic transmission of information about invoices to a Tax Administration (TA), and use “electronic invoice” (EI) as “a structured electronic document which supports a commercial transaction”.

In most countries where a Value Added Tax (VAT) is used, invoices are key instruments to provide evidence for tax compliance. Many of these countries still practice the post-audit model, which means that tax audits happen considerably later than business transactions. In some countries, due to the availability of the information of the invoices on real time, TA are able to act with much more speed, effectiveness and correctness, using what is known as a clearance model.

This post-audit model has many disadvantages for taxpayers and for the TA and facilitates tax evasion. Hence, we see a rapid change towards real-time or at least near real-time clearance models. In this case, companies are required to exchange invoices via tax authorities, or at least to submit key invoice data in an electronic format.

It is useful to distinguish between e-invoicing and e-reporting to tax authorities:

E-invoicing: Supplier, buyer and TA all share the same electronic document that supports the operation, and is, for all commercial, financial, tax and juridical purposes, THE invoice, which contains the full information about the operation. This is the model adopted in Italy and in Latin America.

E-reporting to tax authorities, or electronic information about invoices, includes reports of business transactions, extracts of invoices, declarations of any other fiscal data, and VAT records. It is designed to speed up processing of VAT statements and returns; only the supplier has finally an electronic invoice, and usually sends the original invoice in graphic form to the buyer. In another scenario, the parties exchange just an extract of the invoice electronically (which is suitable for reporting and tax audit purposes). This is the model adopted in some European countries, with the exception of Italy.

A cash register is a mechanical or electronic device for registering and calculating transactions at a point of sale (POS), normally attached both to a drawer, for storing cash and other valuables, and to a printer, for printing out receipts or invoices. Usually TA rule out the use of special cash registers, or, more specifically, the printers attached to cash register, to better control POS registers for tax control purposes, forming what is now known as Fiscal Registers, which use a device called Fiscal Memory, where each and every sale is registered in a way that cannot be erased, and accessible to TA for control purposes. Most advanced models (and, obviously, more expensive) are capable of generate, sign and transmit EI to the TA in an online model, managing automatic contingency strategies for possible periods where communications are down, and still keep the information used to generate the EI on its fiscal memory.

Mainly in Asian publications, e-reporting from cash registers to tax authorities is often translated into English using the term “e-invoicing”; according to the previous exposition, and the proposed definitions, it would be better translated as “e-reporting”. The same can be said of some Latin American publications, which classify periodically transmitting the full contents of all the invoices issued by a taxpayer, without any kind of validation of the contents of those invoices (normally invoices of communication services and electric bills), as “e-invoicing”. Also, according to the previous exposition, and the proposed definitions, it would be better classified as “e-reporting”.

Most recently, after 2010, some countries’ TA where EI use has already reached maturity (in this case maturity been understood as 100% of B2B operations registered on EI transmitted to the TA) have decided not to mandate anymore the use of fiscal registers, since those TA already have all the purchases of retail stores, and for the country is much less expensive to use only EI, also on B2C operations, than the potential increase on revenue result for using expensive cash register capable of transmitting automatically to the TA either a daily resumed report of sales, or every detail of every sale, or, yet, the full EI. To be pointed out that revenue from retail stores use to represent less than 10% of total VAT revenue in almost every country. As it was to be expected, those countries had ruled out the voluntary replacement of fiscal registers by EI, with a strategy such as in some years, as those registers are becoming obsolete, total replacement by EI.

Latin American (Brazil, México, Chile, followed by many other countries), followed by Italy in 2018, were pioneers on implementing the pure clearance model. This model comprises using EI with advanced digital signature covering the entire information of the invoice and submitting this invoice to technical approval by the TA prior to the occurrence of the operation. Asian (Singapore and South Korea) and some European countries (Spain, Portugal, Hungary, followed by many others) are implementing clearance models based on electronic information about invoices. This strategy (the clearance models) is growing in adoption, and it is expected to be the dominant control method globally from 2025.

The pure clearance model is the strategy that gives more advantages to the society as a whole, basically because it is the model that by far imposes the less amount of tax accessory obligations to taxpayers while, at the same time, impulses e-commerce and promotes formality, what is known to reduce the VAT revenue gap. Fiscal registers represent a technology more than 40 years old, even with “new clothes” such as automatic transmission of information over the Internet, and don’t, at all, represent assurance of tax compliance, or avoidance of fraud, for it is very difficult, and real expensive, for a TA to be sure that all fiscal registers in use in the country are really compliant with the regulations, and are not equipment that appear to comply, but in reality don’t register, or send the correct information.

For more extensive descriptions all of these models, from the point of view of private companies, it is recommended to read the following works:

  • KOCH, Bruno. 2017. Billentis Market Report 2017: E-Invoicing / E-Billing, Significant market transition lies ahead. Billentis Inc. [Online] 18 de May de 2017.
  • VAN DER VALK, Christiaan, et al. 2017. Tax-Compliant Global Electronic Invoice Lifecycle Management White Paper 9th Edition – November 2017. TrustWeaver 2017. [Online] November 2017.

The description of most Latin American e-Invoicing models can be found on CIAT e BID. 2018. La Factura Electrónica en América Latina. BARREIX, Alberto, and ZAMBRANO, Raúl, editors. Washington/Ciudad de Panamá ( BID/CIAT, 2018. IDB-MG-595. (English introductory chapter:

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