Many have emphasised the potential of blockchain technology in the field of taxation and VAT. However, applying blockchain to taxation is often seen as something that is only possible in the long run, mainly because of scalability issues attributed to blockchain technology. In this blogpost, we clarify that the latter statement is not correct given the specific requirements in the field of taxation. We will first analyse the number of invoices sent within the European Union (EU), in order to estimate how many invoices per second an invoice reporting system should be able to process (this was not as easy as it sounds!). Although estimates vary, we show that in almost every scenario summitto’s TX++ invoice reporting system is able to process the required amount of invoices. Furthermore, even estimates noting the highest amount of annual invoice registrations can be reached within the near-future with common and widely understood IT infrastructure.
EU invoice volume analysed
As our system first aims to combat Business to Business (B2B) VAT fraud, such as carousel fraud, the number of B2B invoices sent are most relevant for our analysis. Unfortunately, not for every country these figures are made public. In these cases, Business to Customer (B2C) transactions are likely to be included in the figures as well. Nonetheless, these figures are also relevant, since we are improving our system to eventually also reduce B2C VAT fraud.
Invoice volume on an EU level
Multiple endeavors to estimate the amount of invoices sent within the EU have been undertaken over the last couple of years. The European Central Bank stated that “the annual invoice volume is estimated to reach 36 billion invoices in 2016”, 50% of the complete volume are invoices to businesses and governments. In other words, each year 18 billion B2B and Business to Government invoices are sent within the EU. A study commissioned by the European Commission (EC) in 2019 found similar figures. The EC concluded that the total invoice volume of the EU was 34.9 billion in 2017 of which 18.4 billion sent and 16.4 billion received. The difference between invoices sent and received results from the under documentation of B2C invoices and to a lesser extent to extra-EU trade flows. Billentis, a company specialised in invoicing, provides an estimate that is in line with the above mentioned studies. They state that the invoice volume in Europe is over 40 billion for 2019. Note that this includes non-EU countries.
In sum, the EU-wide estimates are all of a similar size. However, in the abovementioned reports, the figures of individual Member States are only partly discussed. Therefore, in the next session, we’ll analyse the invoice volume per Member State.
Invoice volume on a EU Member State level
An analysis of the invoice volume per Member State allows us to give an estimate of the invoices sent per second in different Member States.
Based on a survey performed in 2012 by the Dienst Administratieve Vereenvoudiging (DAV), the Belgian government estimates that the total invoice volume of Belgium is around 2 billion per annum, of which 1 billion sent and 1 billion received. Furthermore of these 1 billion invoices sent in Belgium, 478 million were B2B, whereas the rest was B2C. In Finland, the national central bank keeps a record of the total amount of invoices sent. Although it does not make a distinction between B2B and B2C, the national bank states that in 2018 319.8 million invoices were sent in Finland.
In France, it is estimated that 2.5 billion B2B invoices are sent on an annual basis, whereas in the Netherlands annually 531 million B2B invoices are sent. During the conference “VAT in the Digital Age”, organised by the EC in December 2019, Maria Delia Ruggiero from the Italian Ministry of Finance stated that 3 billion invoices were sent on an annual basis in Italy without mentioning B2B or B2C numbers. There is not much information available about the total amount of invoices sent in Spain. The only estimate that could be found, states that every year 4.8 billion invoices are sent in Spain. No distinction is made between B2B and B2C.
These figures are (at least to a certain extent) in line with the overall estimates for the EU made by the EC. However, the invoice volume that is often referred to for Germany does not correspond to the previously found figures. Different sources state that on an annual basis 32 billion invoices are exchanged in Germany. This thus probably includes, sent and received invoices. Still, this figure is almost the same as the invoice volume of the complete EU as estimated by the EC. Although this figure is not very plausible we have included it in our analysis to show that even in the most unlikely scenario, our system will be able to process the required number of invoices in the near-future.
Invoices per second
We have listed the invoice volumes and corresponding ‘invoices sent per second’ in Table 1. The invoices sent per second give an indication of how many invoices our invoice reporting system should be able to process for a country wide implementation. The table shows that summitto’s invoice reporting system can already handle the required number of invoices for almost every country that was analysed in this blogpost (marked in green). Only Germany cannot be fully served at this moment (marked in red), although there is a high chance that this figure is not correct. Important to note is that the invoices per second are calculated based on a year with 365 days and 24 hours. We know that this does not represent the actual situation as most invoices will be sent during working days and working hours. This fact is taken into account in the next section, where we explain the number of invoices our system can process.
Table 1: invoice volume EU
|Country||Number of invoices (in billions)||Invoices per second|
|EU**||18.4 to 40||571 to 1268|
* Only B2B invoices.
** ‘EU’-wide requirements are unlikely to cause limitations as TX++ can be set up per Member State.
Scalability of summitto’s invoice reporting system
Often the scalability of blockchain based initiatives is questioned. This is partly due to the fact that blockchain has become an umbrella term for various technologies. For example, in many instances, critics only point to the well-known example of Bitcoin to address scalability issues. Bitcoin is only able to process 3-7 transactions per second. This is deliberately done in order to let anyone, even people with a computer with less storage and bandwidth, participate in the network; making the system as decentralised as possible. We discuss this further in our article published in IBFDs International VAT Monitor. For the purpose of this blogpost it is important to note that, for an invoice reporting system the level of decentralisation as in Bitcoin is not necessary. Our system is a golden mean between full centralisation and full decentralisation. This will allow tax authorities to still control the invoice reporting system, but will also make sure that the tax authority is not subject to one single point of failure. Moreover, even just giving taxpayers a deeper insight into how data is processed gives them more power to have their say regarding possible improvements.
By building an invoice reporting system leveraging blockchain to offer specific tangible confidentiality and decentralisation advantages, we are able to handle ~700 invoices per second per country at the moment. Additionally, invoice registration can be batched and if necessary be registered off-peak hours to mitigate problems when more than these ~700 invoices are sent per second. Furthermore, we are working to increase this amount continuously. The research which summitto performed over the past two years allowed us to identify through which methods registration throughput can be scaled up. Therefore, we expect to raise this amount further in order to cover every number presented in the table above. Fortunately, we can already cover almost all of the countries analysed and even an EU-wide deployment based on calculations of the EC.
So in conclusion, depending on the country we can reach enough invoices per second already today. How many invoices really are sent and received still is a bit of a mystery but to be prepared even for the most outrageous numbers we will continue tuning our software to meet any possible demand. As each country will need their own reporting system, every country can further specify this on its own terms.
e.g.PWC (2020). How blockchain technology could improve the tax system. Retrieved from: https://www.pwc.co.uk/issues/futuretax/how-blockchain-technology-could-improve-tax-system.html and Bulk, G. (2018). How blockchain could transform the world of indirect tax. Retrieved from: https://www.ey.com/en_gl/trust/how-blockchain-could-transform-the-world-of-indirect-tax.
European Central Bank (2016). E-Invoicing: Bringing the payment process fully into the digital age. Retrieved from: https://www.ecb.europa.eu/paym/intro/mip-online/2016/html/mip_qr_1_article_4_e-invoicing.en.html.
European Commission (2019). Study on the evaluation of invoicing rules of Directive 2006/112/EC. Final Report. Retrieved from: https://www.bakertilly.pt/media/3491/relat%C3%B3rio-final.pdf.
Billentis (2020). eBilling - electronic invoicing. Retrieved from: https://www.billentis.com/EBPP_EIPP_e.htm.
The DAV was established by the Federal Public Service Chancellery of the Prime Minister of Belgium.
Dienst Administratieve Vereenvoudiging (2020). Elektronische facturatie. Impact van elektronische facturatie op de administratieve lasten van ondernemingen en burgers in 2019. Retrieved from: http://www.vereenvoudiging.be/webfm_send/3367.
Bank of Finland (2020). Statistics. Retrieved from: https://www.suomenpankki.fi/en/Statistics/payments-statistics/tables/.
Financieel Management. BV Nederland kan 10 miljard euro besparen met e-factureren. Retrieved from: https://financieel-management.nl/artikel/bv-nederland-kan-10-miljard-besparen-met-efactureren
Watch the presentation of Maria Delia Ruggiero from 05:08:00 here: https://ec.europa.eu/taxation_customs/events/vat-digital-age_en
Inza, J. (2007). En España se emiten 4.800 millones al año. Retrieved from: https://inza.wordpress.com/2007/02/28/en-espana-se-emiten-4800-millones-de-facturas-al-ano/
Markert. R. (2016). Es geht auch ohne papier. Retrieved from: https://www.computerwoche.de/a/es-geht-auch-ohne-papier,3225347 and Grupo Seres (2019). E-invoicing in Germany process and current status. Retrieved from: http://blog.groupseres.com/en/e-invoicing-in-germany-progress-and-current-status-seres-global
S. Jafari (2020). Combining modern technology and real-time invoice reporting to combat VAT fraud: no revolution, but a technological evolution. Retrieved from: https://www.ibfd.org/IBFD-Products/Journal-Articles/International-VAT-Monitor/collections/ivm/html/ivm_2020_03_e2_2.html.
For a technical deep-dive into different types of decentralisation, see: Buterin, V. (2017). The meaning of decentralization. Retrieved from: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274.
Buterin, V. (2017). Engineering security through coordination problems. Retrieved from: https://vitalik.ca/general/2017/05/08/coordination_problems.html.