Finland moves to amplify the use of e-invoices

Gabriel Pezzato, Regulatory Counsel at Sovos

In April 2020, Finland introduced legislation changing their e-invoicing regulation, effectively granting to B2B buyers the right to request a structured e-invoice from their suppliers. Initiatives that promote the use of electronic invoices are gathering pace across the globe with varying levels of involvement in the process by tax authorities, but with a vast array of different set ups and legislation that businesses need to be aware of and able to adhere to. 

When it comes to European countries, the EU VAT Directive dictates the e-invoicing framework and, consequently, Member States cannot deviate from these rules without asking the Commission for a derogation. Under EU law, the ‘buyer’s acceptance’ of e-invoicing is required, affecting mandatory e-invoice initiatives, as Member States can’t unilaterally roll out such compulsory rules in their respective countries. To side-step this, European countries have focused on changes to reporting systems, with real-time or near-to-real-time systems being used to try and ascertain the same invoice data that would otherwise be received from mandatory e-invoicing through centralised platforms. The only country to currently have an exemption from the EU rules in Europe is Italy; these derogations are time-intensive to obtain and require a substantial economical case to be built to back them up. 

In other European countries, as is the case in Finland, suppliers may issue e-invoices as long as their buyers accept to receive them electronically. Finland’s new regulation has however worked around the EU directive limitations and created a right for buyers to request structured e-invoices from their suppliers, rather than making e-invoicing generally mandatory for suppliers. Naturally, the uptake by buyers has been huge, with the added benefits of an electronic system and its corresponding data a clear win for those operating in these circumstances.

The benefit of structured e-invoices

Empowering businesses to request structured e-invoices from their suppliers is a way to avoid the rigmarole needed for compulsory e-invoicing. Further to this, structured invoices allow machine readability, which has an enormous impact on efficiency and accuracy, freeing up tax professionals to focus more strategically, reducing the manual undertaking in audits and reducing financial losses resulting from mistakes and deliberate fraud. From a business strategy perspective, the Finnish approach works in favour of accounts payable solutions, and improve efficiency and tax management of companies that normally operate with a large volume of invoices, such as big retailers. 

In effect, this move by the Finnish government encourages businesses to leverage technology to step away from manual and paper-based processes, as the government itself successfully did in public procurement. Business-to-government invoices are already exchanged electronically at a rate exceeding 90% in Finland, so increasing this digital uptake in the B2B market will only help to standardise and speed up the country’s processes, with the country utilising these existing B2G structures.

Not just better processes – tackling the VAT Gap 

Of course, the end goal for many countries in Europe and beyond is to reach what’s known as a clearance model, currently implemented in the likes of Brazil, Chile and Mexico, whereby tax authorities receive and approach structured e-invoices in real-time. 

One of the major draws for these systems is its effect on the VAT Gap – the difference between VAT expected to be recouped by a country and what they receive. These methods do need a fair amount of involvement and monitoring of the public sector though, so are easier to implement in the aforementioned countries who can directly involve themselves with the private sector to a greater degree.  

In Europe, this isn’t currently achievable due to the inflexible European legislation in place, however the current European VAT Gap is estimated to stand at around £137 billion – more than 11 per cent of expected VAT revenue. So, while Finland’s shift to putting the onus onto the buyer is a welcome step towards more advanced e-invoicing, it’s not going to have the same effect as a mandated e-invoicing clearance regime. 

But with analysis showing these missing billions being left on the table, the uptake of e-invoicing in Finland, and other countries such as Italy (and likely Greece and Poland in the coming future) paving the way with their own derogation from the EU directives to put mandated e-invoicing in place, may mean revisiting the VAT Directive is a conversation growing in popularity, despite still being in the early stages. 

A legacy to be discussed

While the clearance models of Latin America and the real-time reporting (however onerous it may be) from the likes of Hungary and Spain provide governmental insight into invoice data, Finland’s model does not at this moment in time. The modernisation of tax flows is being cleverly encouraged, but companies still must comply with other traditional tax obligations on a periodic basis.

Regardless, the initiative from Finland has the potential to increase the acceptance of structured e-invoicing and encourage the conversation around Europe’s current inflexible e-invoicing legislation.  

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Gabriel Pezzato Sovos

Author: Eleanor Hazelton

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