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EU adopts simplified rules for VAT invoicing

Current state of e-invoicing in EU:

• 1.2 billion B2B invoices annually? • Maybe 5% of enterprises use structured invoices in business to

business transactions? • European Commission: the existing rules that govern e-invoicing in

Europe are still fragmented along national lines and most of the potential of e-invoicing is still untapped.

• The Commission wants to see e-invoicing become the predominant method of invoicing by 2020 in Europe.

• Mandatory for public sector purchasing in many countries by 2016. Austria, Denmark, Finland, Greece, Italy, Spain, Sweden.

The European Commission on e-invoicing: • “electronic invoicing (e-invoicing) is part of the European

Commission’s flagship initiative A Digital Agenda for Europe”

• “moving from paper to e-invoices will generate savings of around EUR 240 billion over a six-year period”

• “applying equal VAT rules on electronic and paper invoices is

expected to reduce administrative burden on enterprises by up to a maximum of EUR 18 billion in the medium term”

Communication from The Commission to The European Parliament, The Council, The European Economic and Social Committee and The Committee of the Regions “Reaping the benefits of electronic invoicing for Europe” December 2011 http://ec.europa.eu/enterprise/sectors/ict/files/com712_en.pdf

Extensible Markup Language (XML)

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Example of an XML Invoice -<pidx:Pricing> -<pidx:UnitPrice> <pidx:MonetaryAmount>9.35</pidx:MonetaryAmount> <pidx:UnitOfMeasureCode>EA</pidx:UnitOfMeasureCode> <pidx:CurrencyCode>USD</pidx:CurrencyCode> </pidx:UnitPrice> </pidx:Pricing> -<pidx:Tax> <pidx:TaxTypeCode>StateSalesTax</pidx:TaxTypeCode> <pidx:TaxExemptCode>NonExempt</pidx:TaxExemptCode> <pidx:TaxRate>6.25</pidx:TaxRate> -<pidx:TaxAmount> <pidx:MonetaryAmount>4.97</pidx:MonetaryAmount> <pidx:CurrencyCode>USD</pidx:CurrencyCode> </pidx:TaxAmount> </pidx:Tax> -<pidx:Tax> <pidx:TaxTypeCode>CountyParishSalesTax</pidx:TaxTypeCode> <pidx:TaxExemptCode>NonExempt</pidx:TaxExemptCode> <pidx:TaxRate>.5</pidx:TaxRate> -<pidx:TaxAmount> <pidx:MonetaryAmount>.4</pidx:MonetaryAmount> <pidx:CurrencyCode>USD</pidx:CurrencyCode> </pidx:TaxAmount> </pidx:Tax>

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• Deutsche Bank : “the lion’s share of savings is not made by cutting printing or postage costs but by implementing efficient processes for receiving and dispatching invoices and integrating them with other business operations. Electronic invoices can be processed directly by the companies’ other IT systems, thereby averting the costs and potential errors of transferring data across different media.”

• European Commission: e-invoices can be generated and transferred automatically and directly from the issuer’s or service provider’s financial supply chain systems to those of the recipient.”

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Directive 2006/112/EC Article 233 1. Invoices sent or made available by electronic means shall be accepted by Member

States provided that the authenticity of the origin and the integrity of their content are guaranteed by one of the following methods:

(a) by means of an advanced electronic signature within the meaning of point (2) of Article 2 of Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures.

(b) by means of electronic data interchange (EDI), as defined in Article 2 of

Commission Recommendation 1994/820/EC of 19 October 1994 relating to the legal aspects of electronic data interchange, if the agreement relating to the exchange provides for the use of procedures guaranteeing the authenticity of the origin and integrity of the data.

Invoices may, however, be sent or made available by other electronic means, subject to acceptance by the Member States concerned.

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Conversion and Electronic Signatures

Conversions break the electronic signature

algorithms

Directive 2010/45/EU Article 233 1. The authenticity of the origin, the integrity of the content and the legibility of

an invoice, whether on paper or in electronic form, shall be ensured from the point in time of issue until the end of the period for storage of the invoice.

Each taxable person shall determine the way to ensure the authenticity of the

origin, the integrity of the content and the legibility of the invoice. This may be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.

“Authenticity of the origin” means the assurance of the identity of the

supplier or the issuer of the invoice. “Integrity of the content” means that the content required according to this

Directive has not been altered.

Business Controls

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Will Business Controls Unleash E-invoicing?

1. Remaining issues before Directive fully transposed

2. Issues for electronic invoice service providers

3. Issues for electronic invoice senders or receivers

January 01, 2013

“transpose” the principles of the Directive

Status of Transposing Directive 2010/45/EU

Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany

Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland

Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom

New Directive

• EU member countries “may” require that invoices be stored “in the original form”

• Causes a problem when invoices we converted from sender’s format to receiver’s format

• Many format standards continue to exist: PIDX, CIDX, xBits, XCBL

• Form should be interpreted to mean paper vs. electronic not format 16

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EUROPEAN COMMITTEE FOR

STANDARDIZATION COMITÉ EUROPÉEN DE

NORMALISATION EUROPÄISCHES KOMITEE FÜR

NORMUNG

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Key Provisions of Code of Practice • Tax Authorities instructed to:

– Allow same business controls for electronic as for paper invoices

– Allow conversion of electronic invoices from one format to another

• Service Providers instructed to:

– Preserve confidentiality of data and not use data without consent of data owners

– Support and use open and royalty free standards

• Trading Partners:

– Authorized to convert electronic invoices – Advised to insist on data confidentiality from service providers

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Issues for Electronic Invoice Service Providers

Business Control: The COSO3 Model defines “business control” as: a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Audit Trail: An audit trail is: a paper and/or electronic record that gives a step by step documented history of a transaction, which can validate or invalidate accounting entries. Components of an audit trail include: (i) source records, (ii) list of transactions processed and (iii) transaction identifiers so that reference can be made to the source of a transaction.

SAP

Ariba May 2012 $4.3 billion

b-process Oct 2011 €35 Million

Quadrem Nov 2010 $150 Million

Project Team 3

The 4-Corner Model

The Model Interoperability Agreement is available at: http://tinyurl.com/ModelInteroperabilityAgreement

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What about interoperability? The big barrier is different pricing models.

Forrester estimates of who paid network revenues to various vendors in 2010

Source: Forrester Research, Inc., based on provider Web sites and briefings

Issues for Electronic Invoice Service Providers

• Advising Clients on Auditability of Business

Controls • Overcoming Fragmentation • Model Interoperability Agreement • Business Models • Anti-trust (monopsony and price signaling)

Issues for Trading Partners

Engulf and Devour Corp 5800 Wall Street

New York, New York 10001 ________________@_______________

_______________________ Company Name Address City, State Zip Attn: Contact Dear Company Name,

Our records indicate your company has not subscribed to Cloud Co. Noncompliance may result in restrictions from performing work for Engulf and Devour. A subscription to Cloud Co is required by September 30, 2009. If your company is a current subscriber, there is no additional fee. However, if your company received this letter, please contact Cloud Co to ensure your company is connected to Engulf and Devour. If your company has not subscribed to Cloud Co, please contact the Cloud Co Customer Service Team immediately at (_______) ____________________ or (_____) ____________________ (www._________________.com) to complete the subscription process. There is a nominal fee for this service. Engulf and Devour believes the benefits to both parties will far exceed any associated costs. Your company’s Cloud Co subscription will provide Engulf and Devour access to the following information: 1. EHS Questionnaire – Cloud Co contains the MSQ which will be utilized to gather your company’s EHS data and quarterly statistics. 2. Review And Verification Services (RAVS) – Cloud Co RAVS will review your written health and safety programs for compliance with regulatory and/or Engulf and Devour standards. You will be required to submit to Cloud Co RAVS copies of your company’s written health and safety programs. Cloud Co RAVS will also verify your company’s OSHA and EMR statistics. (See Document Submittal instructions below). 3. Training Review And Verification Services (T-RAVS) – Cloud Co T- RAVS will review your employees training records. You will be required to submit proof of training to Cloud Co RAVS. 4. Document Submittal – Engulf and Devour will use Cloud Co to track and verify your company’s Insurance Certificates, OSHA Logs and EMR Certification documentation. During your subscription set up, Cloud Co will explain how to submit your current Insurance Certificate as well as OSHA logs and EMR letters from the past three years, directly into Cloud Co for review. 5. Department of Transportation (DOT) Operator Qualified (OQ) Program Coordination – Contractors impacted by the OQ regulation must ensure their employees OQ qualification records are entered into Cloud Co and submit Cloud Co OQ reports for all qualified employees performing OQ covered tasks on Engulf and Devour DOT assets immediately to Engulf and Devour’s General Jobsite #239. In addition, contractors must submit an OQ Action Plan to Engulf and Devour for review. The OQ Action Plan approval is then registered in Cloud Co upon verification that OQ reports have been submitted to Engulf and Devour’s General Jobsite in Cloud Co. A copy of Engulf and Devour’s required OQ Action Plan can be obtained, along with additional information regarding Engulf and Devour’s OQ program requirements, at www.__________________________.

• Service Provider may use the bidding information submitted by Suppliers in the course of Service Provider Sourcing Services projects to determine general price trends in various supply industries, to create predictive analyses useful for estimating likely market prices, and to evaluate suppliers appropriate for inclusion in future spend management projects in similar markets. Service Provider may also use such bidding information in the publication of “high level” sourcing project results, provided that such publication (i) does not directly or indirectly identify Supplier or Buyer by name or provide a third party with sufficient information to allow a third party to identify Supplier or Buyer, (ii) is aggregated with data from at least four (4) comparable suppliers from a single project, (iii) does not specifically identify Supplier’s products or services, or the prices of those products or services, and (iv) does not identify Supplier as a participant of any specific project.

• Service Provider also retains the right to analyze, aggregate and report statistically sound summaries of the transactions flowing through the Marketplace.

• Service Provider will use anonymized information gleaned from registrations and from auctions conducted on our web site to provide better service to our customers. Service Provider may also analyze the information including performing a trend analysis to better serve its customers.

• In addition, Service Provider maintains the right to disseminate Data you send to Service Provider, so long as such Data is in an anonymous, aggregated form so as not to identify you.

Issues for Trading Partners

• Data Protection/Trade Secrets • Fees • Costs of Integration • Ownership of Data • Anti-trust • Allocation of Risks

Phillip H. Schmandt McGinnis, Lochridge & Kilgore, LLP

pschmandt@mcginnislaw.com @pschmandt (twitter)

Phillip.schmandt (skype)

600 Congress Avenue, Suite 2100 Austin, Texas 78701

(512) 495-6087 (512) 652-8062 Cell

3200 One Houston Center 1221 McKinney Street

Houston, TX 77010 (713) 328-1887

(713) 328-1877 Cell