VAT Talks - Cyrille Sautereau

Cyrille Sautereau

After we discussed the plans to implement mandatory e-invoicing in France with Laurent Poigt, in this episode of VAT Talks we speak with Cyrille Sautereau, chair of the Forum National de la Facturation Électronique et des Marchés Publics Électroniques (FNFE-MPE) and CEO of ADMAREL Conseil.

Executive summary

Cyrille Sautereau has vast experience in the e-invoicing sector, creating one of the first e-invoicing service providers in France (Deskom). In this article he first gives a detailed explanation of the e-invoicing landscape of France, showing that still only around 10% of all invoices are ‘fully structured e-invoices’ which shows the importance of the upcoming mandatory e-invoicing regime. In his role as chair of the FNFE-MPE, he is an advocate of further standardisation because far too often standards seem to be ‘quite the same, but implemented differently’

Afterwards, Cyrille makes clear that in general the FNFE-MPE supports the plans of the French tax authority to pick the so-called Y-model for e-invoicing, stating that the so called V-Model will lead a lot of companies to have two invoice flows (to the tax authority for fiscal compliance and directly to the buyer for operational specific needs) could potentially require ‘reconciliation between those two flows’. He also highlights the importance of the list of invoice information required by tax authority: ‘only a specific list of invoice data is needed for process automation and continuous transaction control. We then consider that the current list as requested in the report is too rich.’ Indeed, asking for such a high number of invoice data could have a negative effect as ‘it puts the bar too high for companies on the sending side, especially SMEs, with no real added value.’ Regarding the e-reporting aspect, he acknowledges that the main objective is to provide a prefilled VAT return which implies some new requirements on sales out of e-invoicing scope (B2C, export) and on payments. Some operational questions remain but the main lines are defined. And luckily there is still room for improvement because ‘the tax authority has forecasted some workshops dedicated to co-build the fine tuning of these e-invoicing and e-reporting final requirements.’

Lastly, we spoke about which process automation benefits e-invoicing can bring to both buyers and suppliers. Cyrille expressed that after trying for a long time to convince companies of the benefits of e-invoicing, he can now simply tell them that mandatory e-invoicing for all is coming, solving the “chicken and egg” difficulty on trading partners onboarding, and that ‘it’s now time to move on’.

We’re happy to hear that summitto’s real-time reporting (e-reporting) system meets all requirements of Cyrille. Continue further below to read the whole story.

Could you tell a little bit more about your background and your current work?

“I started my career in the banking area at Group La Poste, which became La Banque Postale. Quickly afterwards, as I have a background in IT and finance, I started a project regarding what we would now call “Purchase to Pay”, focusing on invoice management. With this experience, I created one of the first e-invoicing service providers in France known by the name of Deskom.”

“We developed Deskom over the years, moving from 0 to 4 million euros revenue with thousands of companies connected. It was in fact one of the first e-invoicing platforms in France and the EU in the early 2000s. Deskom was then sold to Cegedim in 2010, currently one of the leading players in France. In 2012, I left Cegedim to create my own consulting company with which I try to help service providers and companies to develop e-invoicing, e-commerce, Purchase to Pay etc. In 2015, I was elected Chair of the Forum National de Facturation Électronique et des Marchés Publics Électroniques (FNFE-MPE). Before, in 2011, I also co-founded, in my role at Cegedim, the European E-invoicing Service Providers Association (EESPA).”

“So, I’m really involved in the e-invoicing area. Namely, I’m participating in the European Multi Stakeholder Forum for E-Invoicing (EMSFEI) managed by the EU Commission that focused on the e-invoicing Standard EN 16931 and its implementation for public sector in all EU members. Furthermore, I’m the leading co-editor of Factur-X which is a hybrid french-german invoice standard combining a readable document with structured set of invoice data attached, compliant to the EN16931. This concept of a hybrid invoice was born at the same time in France and Germany as the best way to onboard SMEs which are not able to provide a full structured e-invoice (traditional EDI) but mainly PDF invoices and a partial subset of invoice data to follow its processing. As more than 50% of invoices are received or sent by SMEs, I am convinced, with others, that we need to find a solution which can at the same time reach the objective of process automation, and maximize and accelerate mass adoption, which implies SME fast onboarding from what they can provide or process.”

What is it that makes e-invoicing so interesting to you?

“[laughing]I did not expect to become an e-invoicing expert. What is fascinating, for me, is that there really is a challenge we need to solve: all companies still have their own business processes and they need to share or synchronize it with their business partners. In the paper document world, this connection is done manually by providing the invoice information in an invoice document, which will be interpreted and processed by the buyer through manual booking, matching, validation. As soon as you want to automate the process, you need to agree on a common business process, a common set of supply chain messages and procedures to manage errors with all your business partners, which have to do the same with their own business partners. This is the EDI world and it works fine for concentrated flows which can give a return on investment. However, it remains mainly peer to peer, mainly driven by large companies which enforce their suppliers to adapt themself to their business process (including asking them to provide manually required information on Buyer Portals). In addition, with the development of e-commerce, it becomes more complex with additional players like carriers, final customers, second tier suppliers, factoring companies, banks, marketplaces. On top of that, invoices are also dealing with VAT and indirect income tax, which adds a compliance layer and more and more real time VAT e-reporting and clearance obligations on invoicing process. So to summarize a huge problem which is systemic and holistic and therefore a huge challenge to solve. Inevitably interesting!

The objective is more automation for more efficiency and payment acceleration to reduce working capital needs for the benefit of investments and innovation for more added value. In an ideal world, the target solution is simple: share the same process, the same semantic, the same data. But, in our real world, it starts from an entropic situation where all players have developed their specificities. Then, it is the journey for a global and synchronized transformation through process digitalization which becomes interesting.”

Previously we spoke with Gerard Bottemanne, an e-invoicing expert in the Netherlands, about the e-invoicing landscape in the Netherlands. Could you tell a bit more about the e-invoicing landscape in France?

“Although not the same as in the Nordic countries, in France there is quite a well-developed e-invoicing landscape. E-invoicing started with EDI in the 90s, followed rapidly by e-invoicing platforms such as the ones I mentioned earlier (Deskom / Cegedim, b-process, etc.). Globally, it was a buyer driven development and we can say that large companies and a part of their first-tier suppliers are now equipped with multi-channel solutions to process e-invoices (full structured, paper with scanning & OCR, PDF, Portals and WEB-EDI). Nowadays, there are multiple service providers (more than 50), providing software solutions, on premise, on SaaS, e-invoicing platforms and more and more “purchase-to-pay” or order to cash platforms and solutions. The main difficulty has always been and remains business partners and especially suppliers’ enrollment, especially for SMEs with non-concentrated flows. Mass adoption is not there, so network effects cannot play a mutualization role, even if service providers are making an effort to interoperate. The only solution proposed to non-strategic SMEs is to key in invoices on multiple buyer portals or to send or upload PDF invoices and complete and approve data extraction provided by the portal, invoice per invoice. The result is in fact a kind of hybrid invoice manually created. Consequence is that there are around 10% of fully structured e-invoices and around 20% more of PDF invoices (rapidly increasing in 2020), which are close to paper invoice regarding process automation.”

“At the same time everyone agrees that e-invoicing should be used more often and widely as it should contribute to accelerate payments. Indeed, in France, payment delay is around 12 days on average on top of the legal / contractual delay. This is problematic because 25% of bankruptcies are due to this payment delay. Then, payment acceleration, which involves process automation, but also dynamic discounting, factoring and reverse factoring, is essential for SMEs and under the focus of public policy.”

“Since 2017, France has implemented a B2G mandate through a national platform named Chorus Pro. Since 2017, 135 135 million invoices have been sent through the platform, with 860 000 private companies and 130 000 public entities connected, and more than 1,1 million users (figures given at beginning of November 2020). Even if B2G represents less than 5% of B2B & B2G invoices, it shows a real adherence from the private sector and also brings some interesting insights regarding SMEs capabilities. Indeed, on Chorus Pro, less than 40% of invoices received are fully structured and the other 60% are hybrid (native or manually built on Chorus Pro Portal), this percentage becoming more than 90% for SMEs. The next step is B2B mandate, which is forecasted for 2023-2025. In 2023, any private or public entity will have to accept an e-invoice and they will have an obligation to send e-invoices, progressively by size of company, between 2023 and 2025. The objectives are multiple: organize a global move to e-invoicing for process efficiency and payment acceleration, providing pre-filled VAT-returns and reducing the VAT GAP. The latter is also a good argument to derogate to article 232 of the VAT Directive 2006 / 112 modified by 2010 / 45.”

Could you tell a bit more about the role of the FNFE-MPE?

“Our role is to support the development of e-invoicing in France and collaborate on EU and international initiatives. In that area, we are primarily focused on standards because we think that a common semantic and common e-invoice implementation formats will create a clear structure. In other words, it results in the situation in which everyone processes an invoice in the same way without talking to each other.”

“It is important to really understand the benefit of the EN16931. Previously, on a very high level, it could be said that standards already exist with UBL or UN/CEFACT CII or EDIFACT. However, those are only syntaxes, libraries of business components, organized like a tree with branches and leaves. However, these trees have thousands of leaves, which is the result of decades of standardization work adding sectorial specificities or practices to the global data model. The result is that there remains some implementation decision to be made in order to choose which of the thousands of leaves should be used for an invoice implementation. Consequence is that if you ask 2 developers to implement an invoice in one of these syntaxes, they will never pick the same leaves. They need to agree or refer to an implementation guide and spend some time on process alignment and testing.”

“An interesting example of this complexity can be found when comparing the EU semantic Norm implementation in UBL (EN16931) and the Chorus Pro UBL message (which was developed before the EN16931 was published). They are both UBL compliant. However, among the 90 business fields present in both messages, 30 are not implemented in the same leaves. So, you may think there is a standard, but actually it is about how you implement it. You see the same thing at the company level. Each company has its own characteristics, they choose an implementation that is useful for them, with private specificities, and they enforce their business partners to implement their version. The result is always “quite the same, but diversity everywhere”.

For the first time, the EN16931 has defined a core set of invoice data and how it must be implemented in 3 syntaxes (UBL, UN/CEFACT CII and EDIFACT). It means that there is now a unique way to implement an EN16931 compliant invoice in those 3 standards syntaxes.

“The next step is to face the complexity and diversity of business cases in real life. The EN16931 was built first for “core” invoices, under an obligation to receive by public entities. It was then not built to face all business cases and an obligation to send. Indeed, this core semantic data model has 165 business data where full e-invoice formats used in integrated industries (automotive, retail, etc.) deal with hundreds and close to thousand business datasets. In addition, as already said, most SMEs are only able to provide a partial set of invoice data (subset of the EN16931). And, last but not least, any e-invoice must be presented in a human readable form, for tax auditors but also and first for users on validation process, in case of litigation, etc.”

“This duality of a readable view for humans and structured data for machines, in addition to 100% capability to provide and use PDF invoices and only a partial subset of structured e-invoice information led to the hybrid invoice concept. In fact, this was practiced for years by service providers without assuming it, adding PDF presentation to structured invoice datasets, sometimes considering the PDF as the legal invoice, sometimes as a readable view for comfort. Factur-x / ZUGFeRD (german name) is nothing else than the combination of PDF-A/3 Standard for long term archiving and legibility and EN16931 implementation in UN/CEFACT CII XML, with profiles of growing subsets of the EN16931 plus an extended profile.”

“The second issue for FNFE-MPE is interoperability, which starts with standards, but also with good practices, end to end compliance. We participate in many initiatives, including reports made at EU level (EMSFEI, group 4). We have also published an Interoperability Charter last year. The next step is the implementation of Invoice Response Messages in order to implement interoperability on invoice process statuses. Standard messages are now available in UBL and UN/CEFACT SCRDM Cross Industry XML. Most stakeholders agree on the fact that the best added value for the suppliers is to get real time information on invoice process in order to anticipate correction or litigation and to set up invoice refinancing based on approved invoices. This is also key to move in a virtuous circle for mass adoption, giving added value to suppliers, which are creating and sending invoices. In other words, to have more e-invoices, we need senders. And it is always more efficient to motivate senders with added value for them than power relationships.”

“The third issue the FNFE-MPE is focusing on is the general promotion of e-invoicing, which includes regulation and end-to-end compliance. We work together with our 70 members in different working groups to achieve all above mentioned goals. Lastly, we also organized conferences regarding e-invoicing in order to support final user companies, service provider implementation and finally mass adoption.”

Recently the French tax authority (DGFIP) published a report about e-invoicing and e-reporting. We previously discussed this report with Laurent Poigt, Partner at PwC. FNFE-MPE was one of the parties consulted by the writers of the report, what do you think of the result? Are you a fan of the so-called Y-model?

“Yes. The main reason why the V-model would not be a very good idea, is that it would require a large migration of companies that are making use of a system that is already working.[1] It is important that the existing integrated solutions would not require too many changes, and that we do not need to invent something completely different. Therefore, the idea was to connect the existing service providers or solutions (that often offer more services than only e-invoicing) to Chorus Pro. Furthermore, it is also important to make use of these service providers to keep a fair competition in the market.”

“Another problem with the V-model is that you have a Single Point of Failure. All transactions would pass one platform. What you see in Italy, where they do have this single platform, is that it creates a double flow of invoices at least for existing fully integrated EDI solutions. Those users keep the existing flow for the operational invoice process but are also sending the e-invoices to the tax authority in the compliant required format, with potentially reconciliation needed between those 2 flows.

“A different argument was that you do not need all the invoice information for VAT purposes. You only need a specific list of invoice data, which we think is too rich as requested in the report. It is important not to ask for too much structured data, because it puts the bar too high for companies on the sending side, especially SMEs, with no added value. Therefore, it is preferable to acknowledge that the invoice is a complex document, but that only a partial set of invoice data is necessary for process automation and VAT control, and hopefully they are quite standardised and represent the core invoice data. Given the need for suppliers and buyers to have a readable presentation of invoices, knowing that only certain data elements in the invoice are relevant for process automation and even fewer data elements are relevant for VAT audits, the concept of a hybrid invoice, including a partial set of data for the tax authorities, should play a central role in the success of the upcoming B2B mandate for e-invoicing.”

“We therefore propose to precisely define these three levels (readable view, partial or complete structured data for process automation in a standard (sectorial if necessary), and partial set of structured invoice data reasonably requested by the tax authorities) and to let the market develop it further for the needs of companies as it will bring added value for them and their business. Thus, you need this Y-model, which brings flexibility between final users and full standardization for the national platform and tax authority. It remains a clearance model where an invoice must be controlled as compliant before sent to the receiver and only a subset of invoice data must be required by tax authority on a real time basis. It will be close to the current EDI mode where it is requested to make mandatory field controls before sending or receiving an e-invoice.”

“Then, on existing flows, the only difference will be for solutions or service providers to extract the required invoice data and to realize some controls before sending the invoice. For new flows, the minimum required will be to provide the requested set of invoice data in a structured form in a standard close to the EN16931 (taking in account a few extended data to face all B2B business cases), potentially in addition to a full readable view.”

“In addition, as any invoice sent through the new system will have an impact on the prefilled VAT-return, we also explained that it would be necessary to provide a capability for the receiver to reject some invoices in certain cases, through e-reporting, especially to avoid any “spam” of invoices from unknown suppliers or with no required business information (such as a PO number or a reference).”

“The last reservation we made is the high amount of data requested by the tax authority. It seems to us that the list of requirements was built on a “all mandatory fields in all concerned regulations and all what might be useful someday” principle. It is a good thing that the tax authority understood that a lot of companies will provide information via PDFs, because they don’t have anything else. There is then a need to extract invoice data from it. It is quite a usual service for a set of 15 document level data, widely proposed by existing solutions, service providers and even the existing Chorus Pro platform for B2G. But it becomes much more complex and costly when it comes to line level data, with a high risk of error or time for manual checking. The good thing is that the e-invoicing mandate for B2B will push more structured data provision for an e-invoice. However, there is a need for a balanced approach, at least to start. For instance, it could exist some kind of tolerance to provide only the document level data in a structured form for the first years.”

You mentioned that the tax authority actually does not need too much data for VAT purposes. Could you explain why?

“For instance, if you ask for the capital structure of a company in a structured way, nobody cares. Furthermore, if you ask on the line level for the name of the goods, the specifics, the brand etc., you don’t need that for VAT purposes or for process automation. If you put the brand or a textual description in a full text element, what do you want to control with that text. You need structured data if you want to control and match something. You need numbers and references. Everything that is free text is no use for automatic processes but remains important for manual processing in case of litigation. Looking at VAT controls, the first need is to have the VAT breakdown and to identify the sender, the receiver, the invoice date, the delivery date, basically all document level information. The line details could only be used to check if the right VAT is applied line by line, which implies to have a common referential for all items of any invoice in France. We are far from it currently.”

“We exchange documents in order to transfer pieces of information from the supplier side to the buyer side and the best way to move this information is by sharing the process. That means building the process together in the cloud and synchronizing the system to the actual transaction. For the moment we try to synchronize the transactions to the system, but the best way is to synchronize the system to the transactions built in common. If we do so, the single source of truth will be in the cloud. This will be the case for everyone, so as well for the tax authority.”

In our conversation with Laurent Poigt he told us that Peppol is not very much discussed in the report. What should its role be according to you in the implementation of mandatory e-invoicing and how would it benefit businesses?

“Peppol is a network that solves some interoperability problems. However, if you take what I just said, Peppol is still exchanging documents and not sharing processes. Furthermore, Peppol is first a delivery network based on a clever technology or a protocol named CEF e-delivery and based on a core invoice standard as a CIUS or EN16931 UBL implementation. On top of it, Peppol proposes a governance per region or countries, which allows the use of other formats. It was first dedicated to public procurement (Peppol means Pan European Public Procurement Online). So, it is more a network of networks using the same e-delivery protocol. In fact, that is exactly how we use it in France as we have a Peppol access point for Chorus Pro. In general, Peppol is not very much used in B2B in France because service providers are currently directly connected to each other. Besides, it is not too often used in relation with Chorus Pro, because Chorus Pro, as a National Platform, is playing the same role for B2G: managing a national registry of the public entities and organizing the invoice delivery. In addition, Chorus Pro is also providing an API for direct connection with applications and to provide information on invoice process statuses, which is not proposed by Peppol currently. So Peppol at the moment is only a gateway to allow non-domestic suppliers to send e-invoices to public entities in France.”

“One of the subjects of the report is that the national platform (Chorus Pro) will have to manage the national registry for all entities (public or private) which will be a single point of truth for company registration. As you can see, it is quite close to what Peppol is providing with SML / SMP. Regarding invoice standards, UBL should certainly be used as UN/CEFACT SCRDM XML especially under Factur-x hybrid format, knowing that providing a readable view will be key to implement an obligation to receive for all on January 1st 2023 (especially for SMEs which will not all be able to understand and process an XML invoice on this date). We cannot presume the final technical decision for Chorus Pro implementation, but the use of the same CEF e-delivery protocol could be chosen under the hat and governance of Chorus Pro. Then, we could have in France a Chorus Pro network connected through Peppol under the same protocol or simply through a Peppol gateway to the other Peppol networks with their own governance. It is only a matter of connecting SML (Service Metadata Locator which registers any entity and identifies its access point).”

“To conclude, Peppol is a solution among others and the idea is to make sure that all these solutions work on the same protocol and can be connected all together in order to develop automated business processes on a higher level than only on the national level.”

The second part of the report is the e-reporting part. Not too much is said about this aspect in the report. Why has it not been discussed in the report and how should this be implemented according to you?

“I’m not so sure that nothing has been said. What we understand for the moment is that the objective is to close the VAT gap, while at the same time we cannot enforce e-invoicing for B2C and intra-Community transactions, so we use e-reporting for that. Furthermore, additional information on invoice process statuses is necessary like payment information such as the payment date and potentially other statuses (reception, booked, approved, …). Therefore, the information requested on e-reporting is not really the exact equivalent of what is required on e-invoicing. For instance, on B2C, it is closer to a e-ticket which states the VAT breakdown and a reference to the final customer if it exists.”

“What is not very clear still is if it is real-time or not. It could also be weekly or even monthly. We already have an obligation to provide a VAT return on a monthly basis (for most companies). The only difference will then be the level of detail as it will become per invoice where we now have aggregated numbers. But this is also to be discussed in the coming weeks for fine tuning.”

“Regarding the e-reporting on the receiving side, we understand that the goal is to make sure that any deductible VAT has been collected. Once VAT information is given per invoice through e-invoicing or e-reporting for B2C, export and intra-Community supply, it should not be that difficult to provide e-reporting on invoice level for invoice process statuses. Indeed, the tax authority is thinking about a unique invoice ID mechanism which would be necessary to allow VAT matching per invoice.”

“The tax authority has forecasted a workshop dedicated to co-build this e-reporting solution. The tax authority really shows that they don’t want to enforce something from their castle and say ‘this is how it works’, but they actually want to have a discussion with companies and other stakeholders to see what is important for them. Therefore, it is not defined 100% yet, which is not a bad thing I would say.”

E-reporting is also on the agenda of the European Commission. In the July Tax Package they stated that they even want a (real-time) reporting solution for cross border transactions, what do you think of this idea?

“I think it is good that TAXUD steps in on this subject, because it is something that we asked for years now on EMSFEI. Unfortunately, maybe it is a little bit too late for a harmonised e-reporting system in the EU now because many countries are already implementing their own solutions. What we have always said is that it is important to harmonize e-reporting in Europe, knowing that all countries have in general the same target. Based on first implementations, it remains a need to support harmonization with guidance and best practices, including the level of data really necessary for VAT control. In addition, as cross border is always out of e-reporting scopes, there remains also a need to define it at this level. So, my advice would be: don’t add complexity to complexity as we have so many examples of what to do and what not to do. Inventory practices and give guidance for new implementations. ”

Since France has been working closely together with Germany on the Factur-X/ZUGFeRD model, are you aware of any German plans to implement mandatory e-invoicing for B2B transactions?

“The information I have is that it is not on the agenda for this moment. There are initiatives on the state level, but because Germany is a federal state even B2G is complex as it has to be adopted at the state level (17 times including the federal level). In fact, they are trying to further develop e-invoicing, but on a voluntary basis. Regarding ZUGFeRD, they started this project before us, but with the release of ZUGFeRD 2.1, it is strictly the same as Factur-X. It is a joint project and a good example of operational collaboration between France and Germany in Europe. I believe ZUGFeRD is significatively developed on B2B. However, it is not still the case for B2G. This also has to do with the fact that only since December 2020 mandatory B2G e-invoicing was implemented on the federal level. So, that’s a beginning. They certainly have to experience the reality and they have to face the acceptance of SMEs. In Germany like in France (and other EU member states), SMEs have difficulties to provide fully structured invoices. A hybrid invoice, providing a full PDF presentation with a core invoice dataset, is certainly the more pragmatic alternative to a simple PDF and fully structured e-invoice, giving quite the same value for process automation and VAT control.”

What would you say to companies to encourage them to make use of e-invoicing?

“[laughing] It’s different now in France because in fact we now say it will become mandatory in 2 years, so it’s time to move on, knowing that it will start with an obligation for all to accept e-invoices on day 1. However, before, the message was different. Before, we tried to encourage the buyers by telling them they can benefit from automation and process acceleration, because when the invoice process is accelerated, the buyers are able to pay earlier and then get rebates from dynamic discounting or propose reverse factoring. On the supplier side the main benefit is to know if the invoice is processed, approved (or not) in order to manage cash collection. The sooner the better. We now have invoice response messages, ready to be deployed, which is key added value for suppliers. And then, it is really a shared benefit.”

“In short, our message was ‘Hey Mister buyer, if you want to reap the benefits from e-invoicing you need to get the supplier on board. Once you have the suppliers, you need to provide them with feedback on the transaction. Just do that and don’t make your supplier an externalization of your own information system. Take into consideration what he is able to provide, don’t forget you are not his only customer and give him added values in return.’ This is the complexity of the job, to say that you need to work together, to share your process on a common core set of invoice data if you want to have the benefits of e-invoicing. Luckily, the situation has changed because it will become mandatory with minimum common practices and some flexibility to address sectorial complexity or full integration. So basically, all stakeholders will have to make use of e-invoicing, for their benefit first.”

We would like to thank Cyrille again for his time and for giving his perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via info@summitto.com

[1] They account for ~10-15% of the e-invoices that are sent today, and if we include PDF then this figure would be around 30%.