According to new rules on real-time invoice data reporting, every invoice issued by companies must be reported to the Hungarian tax authority, and with the introduction of XML-based invoices our perception of invoicing will significantly be increased and it can be placed on a digital foundation.
It is important that the companies assess the background processes and the economic impact related to the transition to e-invoicing. By using e-invoices, paper-based invoicing is no longer needed, no postage costs apply, and neither electronic signatures nor the transmission of invoices by email is needed. On the invoice recipient side, the processing of invoices can be automated, their processing for bookkeeping can even be done in possession of data reporting.
According to the new 3.0 NAV online invoice data reporting schema, the XML can be complemented by data that are deemed useful by the issuer and the recipient of the invoice in order to enhance the automated processing. However, the question as to which data-set, e.g. order numbers, delivery note numbers, or contract numbers will be needed at different companies to allow automation shall be answered at an individual level.
What opportunities can e-invoices offer to companies in practice?
Should the companies involved agree to the use of electronic invoicing, it is possible that they regard the invoice XML that shall be transmitted to the tax authority as an invoice. Thus, the invoices issued and data reporting will not be separated, all questions related to the invoices should be answered by both parties in this very process.
As it follows from the above, if XML=e-invoice, online invoice data reporting shall not only contain the mandatory data as referred to in the law on VAT but the complete data content of the invoice as well. In the case of online invoice data reporting, the issuer of the invoice shall indicate that they will transmit an electronic invoice. The question as to how the e-invoice shall be made available to the recipient of the invoice shall be answered by the parties and both parties shall accept this new method.
Additionally, it follows from the practice concerning XML=e-invoice that if an issued invoice XML does not contain the information required, or if the customer does not agree with the data content of the e-invoice, it will be required to modify the invoice XML. The technical cancellation presented in the online invoice data reporting cannot be applied in this case, since no difference between the e-invoice and the data reporting is allowed.
The authenticity requirement of the law on VAT shall also apply to e-invoices
The authenticity of the invoice and the fact that its data content cannot be modified are guaranteed in this very case of the e-invoice by an encryption algorithm, a hash code. The hash code generates a unique ID, a fingerprint from the given XML, based on its content. Should any changes occur in the given XML, modifying even a single character, will result in changing the hash code too. In the case of online invoice data reporting, the hash code generated from the XML shall also be transmitted to NAV. Thus, even electronic signatures that have most commonly been used so far for electronic invoices are not needed in the case of e-invoices created from XML. As a consequence, during a possible tax audit, the issuer of the invoice shall be required to present the XML as an invoice to the tax inspector and based on the hash code the tax authority can check whether the data content of the invoice has been damaged.
The recipient site of the e-invoice
In the practice of larger companies, it has not been unusual so far to strive for the use of e-invoices with the involvement of their suppliers, so that the processes related to the issuance and payment of invoices can run as quickly and transparently as possible.
Through machine to machine connection, even the recipients of invoices can download the invoice XML from the database of the tax authority. This also means that through the availability of the XML-file the material conditions of the right to tax deduction are met. Naturally, the data content can be received from the partner in other formats as well, e.g. as an invoice image in PDF-format; however, the right to tax deduction can only be exercised if the XML is presented, as a consequence of which a request for invoice data reporting will unavoidably be required. If the e-invoice is not downloaded, the right to VAT-deduction will also be violated.
This also means that the recipient side should also be prepared for invoice management by ensuring both the technical background and the required processes and data processing conditions.
Does XML-based electronic invoicing have any limitations?
The disadvantages of XML-based e-invoices seem to be quite limited as compared to their advantages. There are, however, three cases where this solution cannot be applied. These cases are as follows:
- In the case of electronic invoices issued for private entities. Names and addresses of private entities may not be provided during data reporting, but these are mandatory elements of invoices; thus, in the case of invoices issued for private entities, it is not possible to use NAV e-invoices.
- In cases where the size of data reporting exceeds 10 MB. In such cases, it is required to combine the invoice lines during the online invoice data reporting, which means that the content of the data reporting deviates from the invoice issued.
- This solution cannot be applied in the case of modifying invoices where the original invoice was not an electronic XML-invoice.
Archiving is important in the case of electronic invoices as well
You shall not forget about the archiving conditions either which, in the case of NAV e-invoices, will not deviate from the requirements that have been applied so far. It is still required to protect electronic invoices from erasure, destruction, accidental destruction, subsequent modification, and unauthorized access. However, it has to be emphasized that both issuers and recipients are required to keep both the XML and the related hash code. The tax authority provides only a platform for data exchange and for transmitting and receiving invoices. It will not, however, take over archiving requirements and will not assume responsibility for them. It is the issuer and the recipient of the invoice who shall remain responsible for this task, which they manage either by using their own systems or by finding a reliable external e-invoice archiving solution.
It pays off to enter into a written agreement with your partners on the introduction of e-invoices
Although, according to the law, it is not required that the parties enter into a written agreement on electronic invoicing when using NAV e-invoice XML – an agreement by words or conduct is sufficient –, it is still advised that the parties enter into a written agreement. This written agreement can be made either by concluding a contract or by exchanging e-mails where the parties agree that from that time on they shall regard the XML electronic invoice as an official tax document. It pays off to clarify precisely when they regard an e-invoice as received, and, additionally, how they shall proceed in cases when the system of the tax authority is not available at a particular point in time.
The NAV 3.0 XML-based e-invoicing method is a radically new opportunity as of January 2021. The new regulation can support the digitalization of companies, while automation in the medium run can reduce administrative burdens and costs. Therefore, it is advised to give careful consideration to the contracting, invoicing, financial and controlling processes, and partner management along with switching over to the new 3.0 version of the invoice data reporting.