E-invoicing and GRC

published on 4 october 2024 I reading time approx. 5 minutes

The topic of e-invoicing is gaining momentum and is becoming a key issue in the exchange of invoices between companies, as e-invoices are now legally mandatory in many countries around the world or will soon be. With the passing of the Growth Opportunities Act in March 2024, electronic invoicing will also become mandatory in Germany from 01.01.2025 onwards. The specific challenges for companies in terms of the area “governance, risk and compliance” are analyzed in more detail here.

What is an e-invoice?

An e-invoice provides the required invoice content in a structured, machine-readable data record in XML (“Extensible Markup Language”). This ensures that information issued in this form by the invoice issuer can be transmitted electronically, received electronically and processed automatically in IT systems, e.g. ERPs, without media discontinuity.

E-invoicing in Germany and the EU

Electronic invoicing in Germany is regulated by Art. 27 of the Federal Ministry of Finance (“Bundesministerium der Finanzen”, BMF) draft bill on the Growth Opportunities Act and is applicable from January 1, 2025, onwards. On March 22, 2024, the German Federal Council approved the Growth Opportunities Act in the latest draft from November 2023. The proposals are generally in line with the current status of the ViDA initiative (VAT in the Digital Age) of the EU. There are also other national e-invoicing initiatives in various European countries.

One can derive the following from the provisions of the Growth Opportunities Act and the draft of the BMF letter dated June 13, 2024:

New definition of an invoice, in this case an e-invoice, based on the EU Commission's ViDA directive proposal, based on the EN 16931 standard (Directive 2014/55/EU from April 16, 2014)
Introduction of mandatory e-invoicing from January 01, 2025, onwards
Deletion of the priority of paper invoices in Section 14 (1) sentence 7 UStG
Restructuring of the obligation to issue invoices in Section 14 (2) UStG in order to be able to describe B2B invoices in the future
Restriction of e-invoicing to domestic B2B transactions, i.e. transactions taxable in Germany between two VAT-registered companies based in Germany as supplier and recipient of services
Determination of residence in Germany, e.g. in the case of registered office, place of management or VAT permanent establishment in Germany; not yet in the case of registration for VAT purposes of foreign entrepreneurs in Germany
Exceptions for so-called low-value invoices up to EUR 250 (gross invoice amount) and tickets/invoices for passenger transportation (tickets)
A transitional arrangement is planned between January 01, 2025, and December 31, 2027, for the creation and issuing of invoices, i.e. outgoing invoices
For a limited period until December 31, 2026, other invoices can be issued on paper or in another electronic format, e.g. PDF or EDI (with the recipient's consent) instead of an e-invoice
Extension of this transitional regulation until December 31, 2027, for transactions carried out until December 31, 2027, by companies whose total turnover pursuant to Section 19 (3) UStG did not exceed EUR 800,000 in the previous calendar year
EDI (Electronic Data Interchange): Interoperability is mandatory: The structured electronic format of an e-invoice can also be agreed between the invoice issuer and invoice recipient (Section 14 (1) sentence 6 no. 2 UStG) and thus deviate from the requirements of the EN 16931 standard. The prerequisite for this is that the format enables the correct and complete extraction of the information required by the UStG from the e-invoice into a format that corresponds to the EN 16931 standard or is interoperable with it. This regulation enables the continued use of already established electronic invoice formats (e.g. EDI procedures such as EDIFACT) even beyond the transitional periods.
Permitted formats: The use of electronic invoice formats is not limited to national formats (e.g. XStandard, ZUGFeRD (from version 2.0.1)), provided they comply with the European standard for electronic invoicing and the list of corresponding syntaxes in accordance with Directive 2014/55/EU. For the electronic invoicing of domestic B2B sales, the use of other European invoice formats in accordance with the aforementioned standard, e.g. FatturaPA (Italy) or Factur-X (France), can also be considered. Hybrid formats (e.g. ZUGFeRD) are generally permitted, with the XML part taking precedence.
Invoice issuer: Various transitional regulations apply to the obligation to issue an e-invoice, according to which the invoice issuer can still issue another invoice under certain conditions.
Consent for other invoices: Consent can be given in the form of a framework agreement (e.g. in the General Terms and Conditions) or by implication (e.g. by acceptance without objection) and does not require any specific form.
Invoice recipient and “no receipt”: With regard to the receipt of an e-invoice, there is no transitional regulation; it must, therefore, be ensured by the invoice recipient from January 01, 2025. It is sufficient for the invoice recipient to provide an e-mail inbox for this purpose. The parties involved may agree on other electronic transmission channels. If the invoice recipient refuses to accept an e-invoice or is technically unable to do so, they are not entitled to an alternative issuance of another invoice by the invoice issuer.
Transmission by e-mail / platform: E-invoices must be transmitted in electronic form. For example, e-invoices can be sent by e-mail, they can be downloaded via a (customer) portal or data can be made available via an electronic interface.

Adaptation of processes, new control risks and adaptation of the internal control system (ICS)

The following processes must be analyzed and adapted if necessary:

Purchase-2-Pay: Invoice receipt and verification from January 01, 2025, onwards
Order-2-Cash: Invoice issue from January 01, 2028, at the latest
IT-System: invoice processing, storage and archiving
Tax-Compliance-Management-System

The e-invoice gives rise to new control risks:

Correctness, receipt and processing of e-invoices
Proper invoicing of customer invoices
Changed functionality of the IT systems (program change, new functions, new data)
Timely processing of invoices
Tax compliance risks
Fraud, cyber risks, data protection

Adjustment of the ICS:

New controls to ensure the correctness and efficiency of the changed processes must be designed and implemented.
Automatic controls replace previous semi-automatic or manual controls (e.g. in invoice verification).

The changes to incoming and outgoing invoices are shown below:

Effects on incoming invoices:

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Effects on outgoing invoices:

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Conclusion

Electronic invoicing will also be mandatory in Germany from January 1, 2025. For companies, this can result in a variety of technical, procedural and legal challenges and pitfalls. Against this backdrop, companies should promptly analyze the specific effects and risks and take concrete measures to properly implement suitable tools. In many cases, it makes sense to involve consulting experts for smart, proper and efficient implementation.