Outside of North America, the e-billing process—that of creating, submitting, auditing, correcting and approving invoices—is subject to much more stringent regulatory and reporting requirements. This is most associated with Europe, where legal electronic billing (“e-Billing”) falls under the broader regulatory rubric of either the United Kingdom or the Model European Union electronic invoicing.
However, timekeepers, attorneys and corporate legal operations overseers in Latin America, EMEA and Asia-Pacific must also track regulatory developments as they pertain to the inclusion of value-added taxes (VAT), data-privacy and cross-border transaction laws and other country-specific regulations. As a result, for corporations and law firms, legal e-billing involves considerations of accounting, taxes, corporate governance, customs and the protection of personal data (data privacy).
While a detailed discussion of applicable regulation is outside the scope or authority of this report, the following covers the important areas clients must consider as they develop their legal e-billing programs.
As well recognized by the European business community—and increasingly appreciated in the other regions of the world--the most complex aspects of electronic invoicing are the regulations controlling Value Added Tax (VAT). To focus on Europe as illustrative here, , corporate law departments and law firms must meet the standards set forth in the European Commission’s Directive on the Common System of Value Added Tax, and its subsequent amendments (respectively, 2006/112/EC and 2010/45/EU). These requirements are oriented towards the ability for tax authorities to ensure proper compliance with applicable VAT regulations, and apply equally to law departments and their law firms.
For intra-community legal services, local jurisdiction and VAT liability is determined by “place of supply” rules. Generally, these hold that local VAT rules apply in the country in which services were actually provided (i.e., the client location.) Importantly, law firms have particular reporting requirements related to the place, type and value of services provided to their client. Hence, keeping an eye on the bouncing ball is a necessary skill here.
Three core requirements--authenticity, integrity, and legibility—mandated in Europe establish a basic framework, and serve as excellent best practices to follow elsewhere as functional requirements for a compliant legal e-billing system.
Authenticity relates to assuring the accurate and traceable identification of the parties, and all transaction information required to audit VAT compliance. The content of an electronic invoice (including credit notes or other supplemental billing documents) must (or should, depending on the country or regional rule) provide:
Integrity of content drives how law departments design the mode of transmission and the archival storage of the electronic invoice data. Integrity requires the ability to prove a continuous chain of custody. This includes a transmission method that ensures the invoice cannot be altered in any manner from the time of creation through expiration of the archive period. In particular, this immutability standard requires that no cost adjustments be made to an invoice; that any changes be made through associated credit notes.
Legibility relates to the ability to render an electronic invoice that is readable by humans. Both supplier and customer must maintain software that is capable of rendering a formatted representation of the invoice from the underlying electronic data. Legibility almost always is a precondition for acceptance by the recipient and auditability. Legibility of an electronic invoice can be achieved either because the file format was meant to enable human-readability in connection with desktop software, or through the application of viewer software in case of invoice formats meant for machine-to-machine communications. Importantly, the system must provide assurance that no alternations are introduced through the conversion from digital to human-readable format. Legibility must be maintained up to the end of the required storage period. The ability to produce evidence of legibility must be distinct from the methods used to demonstrate authenticity and integrity, although they can certainly be part of the same integrated system or solution.