Continuous Transaction Controls 

What are continuous transaction controls?

Continuous transaction controls (CTC) enable enforcement agencies, such as tax authorities, to collect data on business activity in their countries. Unlike traditional invoice reporting, data are obtained directly from business transaction processes or data management systems in real time or near real time.

CTC addresses the inefficiencies that have always characterized the use of retrospective audits, in which auditors obtain information about transactions long after they have been completed. In traditional audits, they must also rely on data stored by the companies they want to audit. Continuous transaction controls remove the reliance on historical evidence records by allowing tax authorities to collect relevant information in the form of a dynamic business transaction record.

Although some countries still use post-audit models, very many countries have begun to adopt different CTC-models. Although not a rule, geographic location can influence market patterns in CTC models from region to region.

Clearance model

In 2002, we saw countries like Mexico and Chile introduce certain requirements for taxpayers. Companies had to "clear" or "authorize" invoices through tax service platforms before they could send them to the final recipient (buyer). This CTC-model quickly gained a large following, with most Latin American countries deciding to adopt it. However, each country implemented its own variant of this CTC-model.

Some countries, such as Mexico, Guatemala and Panama, have delegated billing verification to Accredited PAC (Sp. Proveedor Autorizado de Certificación) service providers instead of local tax authorities.

Pre-clearance or hard-clearance models require invoices to be approved by local government agencies before being sent to the buyer. Other countries such as Chile and Peru have opted for post-clearance or soft-clearance models. This allows taxpayers to provide tax invoices to the buyer before sending them to the tax authority for approval shortly thereafter.

The clearance model has spread to other countries such as India, Saudi Arabia and some countries in Southeast Asia.

Interoperability

Also called a 4-angle model, the main peculiarity of interoperability is that taxpayers use a service provider to exchange e-invoices. Moreover, service providers can agree among themselves what formats they exchange, resulting in open networks with many interoperable formats and service providers.

Interoperability is not considered a CTC-model because tax invoice verification occurs months or even years after the transactions. The main purpose of the interoperability model is to facilitate business automation and digitization.

Peppol and CTC

Peppol is a network that enables the electronic exchange of various documents, including e-invoices. Taxpayers must use the services of a Peppol service provider or Peppol Access Point to exchange documents within the Peppol network (a 4-corner model). Access Points are service providers that can generate, send and process the Peppol BIS format, based on UBL 2.1 or CII.

The main difference between Peppol and the interoperability model is that the exchange mechanism is regulated by Peppol, so service providers can only exchange documents in the Peppol BIS format. Although invoice exchange via Peppol is mandatory in some countries (e.g., Sweden, Finland, Norway), it is not considered a CTC model because no tax authority controls are involved.

Peppol CTC is the advanced version of the current Peppol 4 corners model. In this CTC model, Peppol Access Points report transaction data in real time to tax authorities or through official platforms. This is an excellent model to enable both automation for companies and more control over the economy for tax authorities.

Centralized model

Since the publication of the EU Procurement Directive requiring public authorities to accept e-invoices, many European countries have introduced new requirements. Mandatory e-invoicing of suppliers to public authorities (B2G) is becoming commonplace in the EU.

Belgium, France, Italy, Portugal and Spain are just a few markets that have already set up infrastructure to receive invoices on behalf of public buyers receiving. Some countries have selected Peppol as the mandatory exchange mechanism within the centralized model. In these cases, the mandatory platform in the country receives Peppol invoices on behalf of each public entity.

In 2018, Italy went even further and obtained an EU Commission delegation to make e-invoicing mandatory in the corporate sector. Every company in Italy is now required to send FatturaPA e-invoices to SDI so that SDI can deliver the invoice to the buyer. This led to a successful reduction in tax evasion and increased opportunities to strengthen the economy, inspiring other European countries to implement similar models for the same result.Now Poland plans to implement this model nationally starting in 2023.

Real-time invoice reporting model (RTIR).

RTIR is a model established in Hungary and South Korea, where there are no rules regarding invoice exchange. Nevertheless, the supplier must report part of the invoice to its tax authority in real time after it is sent to the buyer. The e-invoice must be in the mandatory format and contain certain information, such as the document type, name and VAT number of the trading parties and VAT amounts.

Meet the requirements for continuous transaction controls

If you do business in markets that have already adopted continuous transaction controls, it is important to note that not all CTC-compliance solutions are the same. Researching the options available for your key markets will ensure that you find the right solution for your business. For those who have not yet faced CTC , it is never too early to explore solutions that can help you comply with future regulations.