Understanding the compliance journey

Countries are at different stages of the digitalization journey, and also have different strategies. Let's look at the individual stages of this journey on the next slide.

Let's look at the different stages of digitalization we are seeing around the world:

1. Every country started with periodic, and aggregated to box level and paper-based returns, the standard tax return forms we all know from our private tax declarations, and that we used to send via mail.

2. Instead of sending these forms via mail, governments can offer a portal to manually type in the data.

3. They can go one step further and provide electronic formats for e-filing, that are submitted to a portal or from machine-to-machine.

4. Level one to three have been based on aggregated data. E-auditing then adds another level of detail, individual transactions. However, this information is still to be submitted periodically.

5. With e-invoicing, we are adding a new dimension. A platform to efficiently exchange documents. Between businesses and governments (in their role of business partners buying and selling products), as well as between different businesses. Therefore, a digital trail, but not yet connected to the authorities from an audit perspective.

6. This connection is introduced with E-accounting. In (near) real-time, a company needs to send a copy of the electronic document to the tax authorities. They now have a digital copy of the transactional data as well.

7. E-clearance and e-distribution again, go one step further. Before sending the invoice to the authorities, the sender needs to obtain clearance from the authorities (proven by an ID), or the authorities distribute the electronic document themselves.

8. From there, it's only a small step to the last level, E-verification. The authorities have all the data, but no taxes have been declared or paid yet. From their source data, the authorities can create a periodic return, and determine the tax burden. The company only needs to accept the draft.

To sum up, independent of the stage an individual country is in, a global solution needs to be able to cover all variants. And the trend is clear, countries are moving to the right.

Let's look at the archetypical end-to-end process flows, to bring life to what the last section actually means for individual companies.

Tax authorities are at different stages of the digitalization journey, and implementing different information flows when mandating e-invoices:

• E-accounting: this is the simplest scenario. You continue to send invoices to your customers without extra steps, but the same data needs to be sent to tax authorities near real-time. For example, Spain.

• E-clearance: you continue to send invoices to your customers, but you first need to verify with tax authorities, register it, and return a unique number or stamp. Only when approved, is it a valid invoice that can be sent to customers. For example, Mexico.

• E-distribution: this is the next logical step. Once registered, tax authorities forward the invoice directly. For example, Italy.

• Statutory reporting: You prepare a periodic report on document level or box level, but always aggregated over a period, then submit it to the authorities. For example, Portugal SAF-T.

Although the information flow differs from scenario to scenario, in all cases, there is a digital link at invoice level.

Now that the authorities own the original version of this document, as we have registered it with them, they can draft periodic returns. In some countries, they already do so.

They send back a draft return and we accept it. If it's wrong, we need to correct the underlying business transactions, send the corrections to the authorities on transactional level, and request new draft return.

And if you think about that process, it is really mandatory to keep all data in sync, because the authorities of course get a "mirror" copy of each document from the business partner.

The general problem for any customer, is that they have multiple representations of the same information. These need to be kept in sync.

Let's start with the sales document as an example. It triggers the creation of an accounting document.

For the respective process, either the sales or the accounting document is viewed as the source document.

In a next step, an exchangeable format is created (such as, xml or json). However, for the authorities, that is actually the source of truth. This is the document that they will receive, process, and store on their side. Often, it is defined by the authorities and it can either be an electronic document transmitted in (near) real-time, or a statutory report transmitted at period end. The linkage to the source document can be 1:1 or n:1, and can include individual document information or be aggregated on a box level.

As the exchangeable format transferred from machine-to-machine is a technical document, usually, a human-readable representation, such as a PDF or a view, is needed. This information has to be accurate.