PEPPOL ASPIRES TO DISRUPT TAX COMPLIANCE

PEPPOL may still not be widely known or recognized among tax managers, tax experts or accountants. However, it has already become a part of the tax world and becoming familiar with its solutions and development should be a feature on the agenda of tax stakeholders.

The below text is an attempt to assess the ways PEPPOL (or similar solutions) may be considered disruptive to tax requirements and tax compliance.

PEPPOL, as an e-Invoicing Solution

PEPPOL was originally initiated as a project to deliver a standardized solution for the procurement processes of government organizations across the EU. Since 2008, the developments across the EU in this field have been significant. Nowadays we are witnessing the global expansion of this solution which intends to go beyond the e-Invoicing model. Currently, the project is run by the successor of PEPPOL, the OpenPEPPOL organization.

Before PEPPOL became known across the EU, the first disruption came as Directive 2010/45/EU on the common system of value-added tax (regarding the e-invoicing) came into force. Some countries were already advanced in using e-invoices; still, in many (including especially, but not limited to, the Central Eastern European region), such a change was considered revolutionary. The Directive extended and popularized the usage of e-invoices by allowing various formats (e.g., pdf) to be used. As a result, a variety of e-invoicing models started to be developed, using multiple standards and technical solutions. As a majority were proprietary solutions, the e-invoicing landscape in the EU became extremely diversified and unstandardized.

Therefore, the Directive 2014/55/EU on electronic invoicing in public procurement is a remarkable milestone. The cornerstone of this document created an e-invoicing standard that would be interoperable across all EU countries in the B2G sector. The Directive did not indicate any particular standard to be used, but rather provided criteria to be met for creating the standard. That is the reason why PEPPOL has become so popular among EU countries for the implementation of e-invoicing solutions.

The most significant feature ensuring the Directive’s success was that the e-invoice should be a machine-readable document, which can be processed automatically by the recipient. PEPPOL has, to a great extent, addressed these goals and quickly become a preferred standard. The solution’s main advantage is that it focuses on “language of communication” between the parties of the transaction (via called Access Points), rather than technical specifications to be met.

Therefore, unlike other e-invoicing solutions (mostly based on a 3-corner model) PEPPOL allows multiple parties from multiple jurisdictions to connect much more easily. There is less dependency on a single-service provider. The PEPPOL solution allows trade partners to connect using two different providers (4-corner model). This means that for example, a Dutch company wishing to take part in a tender and provide a service (issue invoice) for a public authority in Belgium may do it using a Dutch service provider who will enable connection with a service provider in Belgium.?

The Directive 2014/55/EU requires that e-invoicing become mandatory in B2G trade across the EU within two main deadlines: April 2019 for European central/federal and in April 2020 for regional and local administrative authorities in the EU. According to the EU's latest reports as per the end of Q2 2019, Romania is the only country that did not transpose the Directive into the national law.

Current PEPPOL Landscape

PEPPOL is used in 28 different countries in Europe, while some governments (e.g, Belgium, Sweden, Norway, Netherlands) have chosen PEPPOL as the main or recommended standard for B2G e-invoicing.

With its success in the EU, PEPPOL has already gone global by creating its international e-invoice model. Singapore is the first to implement this standard and the first Access Point provider has announced the service for Australia and New Zealand.

According to the latest data, the current PEPPOL landscape includes

●???????29 countries with Certified Access Points

●???????254 Certified Access Points

●???????100 M+ Transactions between Certified Access Points in the last 12 months

●???????379 OpenPeppol members and observers from 34 countries

Technically PEPPOL is based on the EDI standard. The standard message adopted by the PEPPOL network is called PEPPOL-UBL (Universal Business Language) and is a variant of XML. The latest version is the PEPPOL BIS 3.0 standard, which has been mandatory since August 2019. At the same time, the PEPPOL BIS 2.0 version will no longer be supported after 31 December 2019.

Currently, there is no worldwide e-invoicing standard but PEPPOL intends to become the first one. It has already created a proven model, which is widely used for B2G e-invoicing in the EU. Nevertheless, PEPPOL aspires to bring even more innovation to the tax compliance world.

PEPPOL Goes Beyond e-Invoicing

There is another dimension of the development of digital invoicing solutions, apart from the standardization of the invoicing process, implementation of the interoperability and savings perspective. All these are definitely important drivers for implementing standardized e-invoicing models.

That perspective, which has come into play rapidly in recent years, is VAT frauds in the European Union. It has already been proven that the post-audit approach is not an effective tool and tax frauds are not traceable under such a control model.

Therefore, an area where PEPPOL may soon become a vital player is an innovative value-added tax (VAT) compliance solutions. These often take the form of a technical requirement that must be fully compatible with the tax authorities’ model. The trend is being set to create a pre-defined format of data provided to tax authorities. There are generally two models in which transaction data are currently required: reporting requirement and tax clearance.?

The first model stands for reporting VAT transactions as a standardized report (listing) – e.g., SAF-T or similar reports (JPK in Poland, Control Statement in the Czech Republic), which can be delivered either per reporting period (monthly/quarterly) or in a (near) real-time manner (SII). The reporting requirements are already quite popular across the EU. To some extent,?they are compatible with a single standard (SAF-T) created by OECD. Hungary is somewhere in the middle of the way from reporting to the clearance model. This implemented real-time invoicing for reporting purposes, without including the tax authorities’ approval process.

The second model is a step further into the future in terms of tax authorities’ control and supervision of taxpayers’ transactions. The tax clearance model assumes that the transaction (invoice) is first approved (cleared) by the tax authorities before it is shared with the client. This model has already been popular and proved successful in Latin America countries (e.g, Mexico). In the EU this model is already implemented only in Italy; it is still under discussion in other countries.

PEPPOL has presented the clearance solution as a 5-corner model in which the tax authority portal is inserted between the Access Points (Service Providers) and stands for a validation step in the invoicing process. To answer the question posed at the beginning, most probably we will witness PEPPOL (or similar solutions) driving the tax compliance (reporting) revolution by delivering a standardized solution for exchanging data between multiple authorities and business partners on a global scale.

RTC has become a certified Access Point for PEPPOL. RTC provides fully cloud SAP BTP and PEPPOL-compatible solutions.?

For further details, do not hesitate to comment or contact me.

+44 7833 537388 | [email protected]

Ridvan Yigit