US Mandates for E-Invoicing and Reporting Are Taking Cues from Latin American and European Tax Authorities

Latin America is without a doubt the leader in business-to-government compliance requirements, and nations across the globe have taken note of how countries in this region have successfully cracked down on tax fraud. In 2015, the United States introduced two new fiscal requirements — public sector e-invoicing and country-by-country reporting — with themes that are similar to the approaches being taken in Europe and Latin America as the government seeks to create efficiencies in tax collection and cut down on tax evasion.

After a four-year pilot program that explored the feasibility and benefits of e-invoicing in the public sector, the US Treasury Department has announced that government agencies must begin processing all invoices electronically by 2018. As the largest single purchaser of goods and services in the country, the federal government’s shift to e-invoicing marks a significant milestone in the business-to-government landscape — one that follows the European e-invoicing model.

David Mader, controller and acting deputy director for management at the Office of Management and Budget, cited the primary reason for the transition in a discussion with Federal News Radio. “One [reason] is there is a clear savings to the government from moving from paper to electronic. We have estimates over a couple of studies that show an annual savings of anywhere between $150 million and $260 million, which is significant savings.”

A benefit he failed to mention in this interview is the increased transparency in purchases and transactions that e-invoicing provides. Not only will the government benefit from hard cost and time savings in the move to e-invoicing, but better record keeping and automated processes will help to make sure that payments are increasingly trackable.

Country-by-country reporting is the second major initiative that was discussed by the US Treasury Department. Previous articles I have published focused on how governments are turning to automation to ensure transparency into the practice of transfer pricing. In conjunction with other member countries of the Group of Twenty (G20) and the Organization for Economic Cooperation and Development (OECD), the US Treasury Department and Internal Revenue Service (IRS) have introduced legislation requiring multinational enterprises to submit country-by-country reporting starting in 2017. This new report requires companies and their foreign-controlled subsidiaries with revenues greater than $840 million to report revenue, operating income, taxes paid, capital, employees, and assets by jurisdiction. The goal of this requirement is greater transparency, and therefore the ability to better enforce federal income tax laws. In particular, the government will be scrutinizing transfer pricing practices between business units in order to ensure these transactions are taxed appropriately and to cut down on tax evasion.

While Latin American business-to-government requirements are far more punitive than those the US has introduced, these new initiatives clearly show the trend of governments moving to implement technology to monitor multinational corporations. This move validates an increased globalization of data — under which governments will share and analyze corporate transactions. Companies caught off guard by this increased scrutiny run the risk of major penalties. If you are a US organization, you need to understand how you are setting up your global financial systems and the controls you have in place.  Shockingly, most companies are going to be caught off guard as these trends continue. 

We recommend setting up a new shared services organization — a government compliance team that runs strengths, weaknesses, opportunities, and threats (SWOT) analysis, meets quarterly, and is comprised of leaders from tax, orders-to-cash, procure-to-pay, and record-to-report. Over the years, decisions in these processes have been implemented in silos, and we predict the pendulum will be forced to swing the other way due to governments inserting themselves into day-to-day business processes. It will become necessary for process groups to coordinate solution decisions or risk ending up with 27 disparate applications. Are you prepared for this new global trend?