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9 points to consider when monitoring e-invoicing change management processes

One of the key challenges within e-invoicing is to keep your processes and systems compliant at all times. Guaranteeing compliance is not easy. As we say here at TrustWeaver, “regulation constantly evolves; VAT requirements are moving targets and there is no such thing as being half compliant”. One of the biggest mistakes enterprises make is to spend a lot of money on becoming compliant with regulatory frameworks in all countries where they trade and not build in a process to ensure ongoing compliance as inevitable changes occur. Compliance is a process that must be always checked and monitored.

An organization must be quick on its feet to adjust to micro-changes. These micro-changes address the natural evolution of VAT requirements to fix loopholes in legislation or pragmatically respond to short-term economic or business imperatives. Less obvious are macro-level changes, which may introduce much more fundamental and sometimes revolutionary adjustments to VAT controls and thus business practices.

TrustWeaver experts have written many times about how we are in the middle of a global macro-level transition to real-time VAT controls. So-called ‘clearance’ and immediate reporting controls are different from the traditional ‘post-audit’ methodologies in that they are not shaped primarily by law – the determining ruleset for ensuring compliance is the technical specification that guides business process platforms to integrate to the clearance platform.

Enterprises and their solution providers must be especially vigilant not to drop the ball during the messy global macro-transition towards clearance. There are many aspects for consideration when monitoring change management processes. Here are 9 of the most important:

1) Scope

How far you should go to support a clearance implementation that is appropriate for your specific circumstances will depend on the nature and scope of your business process or service. However, it is also true that in modern e-invoicing systems that increasingly have a real-time component, tax law does not always provide you with clear guidance on the process or system boundaries (e.g.: buyer responses in Chile are regulated in generic and procedural commercial legislation but are essential to the framework). Determining the scope correctly requires legal and technical experts to work together very closely.

2) Sources

Once you have defined the scope, you must make sure you are in possession of the right normative sources. This begins with the law, which is always the anchor of e-invoicing requirements. In clearance countries, this is not as obvious as it should be. Sources may vary more than anyone would believe. For services with a heavy legal component, you will first go to laws and regulations. The problem of clearance systems and their heavy reliance on technology is that comprehensive monitoring requires you to look beyond the traditional pyramid of law (e.g: tax code, VAT law, secondary VAT law, tax administration guidelines etc.). More often than not, the legal sources extend to data protection laws, e-signature laws, e-factoring laws; and finally the commercial law that may impose legal obligations that must be complied with at all times. This broader analysis must be done in order to be able to understand why things work the way they do within a particular clearance system.

You must make sure you are in possession of the right normative sources. This begins with the law, which is always the anchor of e-invoicing requirements.

Additionally, the analysis is important to actively exclude any ancillary legal obligation that might have a heavy impact on your process but is out of scope (see #1 above) or to simply detect rules that provide ‘facilities’ or delay mandates (e.g.: In Mexico, delays come in the form of “facilities” published within the tax rules for the year). As mentioned, in clearance countries your sources aren’t exclusively legal – you won’t get far without a thorough analysis of the law, but you equally won’t get anywhere without considering the technical specifications of the clearance system. In clearance systems, you can argue that these specifications are part and parcel of the end-to-end legal framework and not just an implementation of the law in the traditional sense; clearance specifications habitually add or modify obligations, deadlines, and mandates. As a consequence, just like legal experts aren’t sufficient to understand the law in clearance countries, it is also impossible to understand technical specifications without legal input. Technical experts alone will misinterpret certain concepts or miss nuances that are obvious to lawyers.

3) Interpretation

Lawyers face this question a million times. How should a specific legal requirement be understood? If you support many countries, the difficulty here comes when you deal with many different legal systems in many different languages. A clear and basic example is the definition of e-invoicing itself. While in Europe an electronic invoice is an invoice issued and received electronically, in other areas of the world, an electronic invoice is a document issued in an electronic form, compliant with local legal and technical requirements, that is valid to support the tax declaration. Considerations concerning the end-to-end process between the supplier and the buyer in the underlying supply are missing in the definition. While in Europe an electronic invoice necessitates both sides of the transaction treating it electronically, in Mexico or Brazil, the definition allows suppliers to issue the invoice in electronic form while buyers may request to get the invoice in paper form without violating the essence of e-invoicing as defined locally. The example shows not only that local legal concepts should be taken into account but that being as close as possible to the native language and legal culture is a sine qua non: analyzing requirements without a proper understanding of local culture and language might lead to undesirable results. Furthermore, interpreting requirements from the perspective of a single discipline is hazardous. We see many examples where an insufficient understanding of local technology or business process standards and practices is certain to yield sub-optimum results. A multi-disciplinary approach is often the only guarantee to be and stay compliant.

4) Language

In clearance systems that are highly regulated, language becomes an important obstacle that cannot be overcome with google translate (Have you tried to google translate Turkish or Hungarian law?). Being able to comprehend legal and technical requirements in the language that they were originally written in is fundamental to effective monitoring and upholding compliance. Of course, you can do that externally with local advisors or have the luxury of doing that internally when you can find the required skills within your organization. The latter has the benefit of allowing you tighter control of the whole process. If you can combine both, even better.

5) Process

Monitoring and change management processes need to be tuned to the surprisingly high rate of change in both laws and technical specifications. Countries have different methods of implementing changes and you should understand them all (e.g.: Mexico updates the fiscal rules for the year every quarter). The process should be continuous and include accountability and strong documentation. How do you track changes to laws? How do you track changes to technical specifications? Do you have something to show to internal system users or external parties? Is your monitoring and change management process auditable? How do changes get timed in relation to software release cycles?

“Countries have different methods of implementing changes and you should understand them all. The process should be continuous and include accountability and strong documentation.”

6) Time and resources management

Depending on the routine at hand and depending on the possibilities given by the country’s requirement framework, it is important to allocate enough time and human resources for the task. Some modifications are quite easy and quick to deal with. Others will inevitably require deeper analysis and expertise as well as a need of re-periodization of the organization’s resources and development roadmap. Detection, analysis, escalation, and implementation are processes that must happen seamlessly in order to be able to guarantee compliance at all times.

7) Understand how micro-level and macro-level changes interact

Even with all the above in place, you must still be careful and have an insight of what is going on in the country in order to be sure that you do not miss out anything. Is there a tax reform coming up? Is there a planned change in other pieces of legislation outside your scope that might have an impact on your service? There is no ‘method’ to catch all these subtleties – building, socializing and maintaining experience is key to mastering this one.

8) Implementation

Does the change impact the service? In all cases, this is a question that requires engagement and appropriate prioritization from the full multi-disciplinary team: legal experts, engineers, analysts and product management. This is one of the key elements we treasure at TrustWeaver were we, legal counsels, have a close daily working relationship with product managers, business development, and engineers. We do not always speak the same jargon but over the years we have learned to build and cross bridges of understanding that allow to quickly grasp and implement changes.

9) Trading partner collaboration

When changes in legal or technical requirements impact your e-invoicing system, product or service, chances are that these changes, in turn, require you to alert your trading partners or service users. This is crucial so that they can adjust their processes and systems in such a way as to guarantee timely updating of contracts, commercial arrangements, and end-to-end transaction management.

To conclude, with ‘clearance’ frameworks or immediate reporting controls starting to appear, time is running out in order to get your compliance processes up to date or to find reliable partners that may help you be compliant at all times. Need some help? Ask for TrustWeaver.

Francisco de la Colina, Legal Counsel, TrustWeaver







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