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Latin American Countries Take Efforts to Eliminate Tax Evasion

Approvals in B2B Transactions Becoming Commonplace

by Steve Sprague, Vice President of Product Strategy, Invoiceware International

November 5, 2015

For years, government-mandated electronic invoicing meant mandates for billing the public sector. The concept of e-invoicing with the U.S. Department of Defense has been around for decades through the wide area workflow (WAWF). However, I doubt many thought that regional tax agencies would insert their approvals in the front of a business-to-business (B2B) transaction. But this is the reality in more than 10 countries across Latin America as we approach 2016.

Unlike the rest of the world (at least for now), tax agencies from Brazil to Mexico are inserting their approval process into every B2B transaction in order to eliminate tax evasion as well as black market goods. Common functional requirements across the region include:

  • Government-mandated XML standard per country: Each country has one and only one legal XML framework for invoicing. This means that paper copies no longer matter even during after-the-fact audits.
  • Government registration of the XML prior to sending it to your customer: There are a few common models in the market:
    • Real-time approval: Brazil is the classic example. When you send your unique XML document to the government server, it will register it and apply a “unique ID” to it via the stamping process.
    • Off-line approval: Ecuador is moving to this model by the end of 2017, where you will have 24 hours to register an invoice starting from its create date within your accounting system.
    • Folio approval: Chile’s model includes a list of pre-registered folios per document type. As your accounting system consumes the folio, each is registered as used and acknowledged with a functional message from the government. You can think about this model as preassigned approval codes versus real-time approval codes.
    • Inability to ship your goods without the approval code or a registered e-bill of lading on the truck: This is often overlooked by companies, but the effect on logistics by mandated Latin American e-invoicing is as drastic as the financial impact. In some countries, you literally could have three related documents on the truck at the same time:
      • E-invoice
      • Freight invoice (i.e., Brazil’s CTe, Mexico’s Carte Porta, and Peru’s Guía de Transportista)
      • Bill of lading (i.e., Chile’s Guía de Despacho and Argentina’s Remito)

Unfortunately, many companies underestimate the complexity of these requirements from a system perspective. As you evaluate solutions to manage these complex and changing mandates, ensure your solution approaches cover the following functional topics:

  • Data extraction – upwards of 80% of the problem in Latin America is getting the actual data out of your SAP ERP system. This can be due to customizations you have made during your implementation. Global processes that are inflexible or pure gaps in SAP ERP functionality can create integration issues when applying them in Latin America. For example, many of the tax issues concerning VAT are levied at the state level; reports such as the Perception tax in Argentina or Libros in Peru often require Z programs to provide the full functionality).
  • Printing – No one would think that an electronic document would actually require paper copies, but in this case it is required at the point of shipping. The PDF outputs are required to accompany the goods as they travel from ports or through the country from seller to buyer. There are often multiple pages and multiple printing rules. Before you get into SmartForm nightmares, ensure you understand the complexity that this brings.
  • Contingency – every government realized that they would become a potential roadblock in your business process and therefore built in back-up procedures when their systems were down. Ensure you have built in automated time-out switches that will move through the government processes. Otherwise, you will surely end up in a situation where you can’t ship.
  • Change management – these are not one-time changes; they are constant. Ensure you set up an architecture that doesn’t have to stop 17 other global projects because Argentina has a new XML coding that needs to be installed by the end of December. This is the most overlooked cost in Latin America – and usually is borne by the SAP Center of Excellence.
  • Most importantly, ensure that SAP ERP is your system of record – more and more companies are implementing shell SAP ERP systems with the ultimate system of record being multiple local, third-party solutions. CEOs and CFOs would be shocked at the limitation and exposure that has been set up in this region of the world.

This trend and solution requirements should not be taken lightly as it is expanding. We are seeing adoption of these types of standards in Turkey, Vietnam, and Indonesia. They are similar mandates, where VAT-based tax agencies are turning to automation to collect their taxes. And it is moving cross-border. There are pilots already in motion between US/Canada and Mexico for cross-border trade while Brazil, Argentina and Mexico are looking at cross-border trade standards across Latin America.This is the way of the future, so now is the time to future proof your SAP billing process. Visit www.invoicewareint.com to learn more. 

 

Steve Sprague is the Vice President of Product Strategy for Invoiceware International. He is responsible for both product management and e-Invoicing regulatory updates. Over the last 16 years, he has designed solutions for SAP ERP that deliver out-of-the-box compliance for Latin America and European Union e-invoicing and fiscal reporting requirements.

 

 

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