E-invoicing has fundamentally changed what “compliance” means in the world of VAT. Here’s why.
For decades, VAT (or GST, in countries such as India) compliance relied on methods that assumed tax authorities could not examine every transaction. When conducting an audit, they therefore used indirect techniques, such as:
1. Statistical Comparisons
Tax authorities would compare large-scale figures—for example:
- accounting turnover vs. VAT turnover for the same period,
- taxable accounts-payable amounts (including reverse-charge items) vs. declared VAT.
When discrepancies exceeded a certain threshold—commonly 3% to 5%, depending on the country—authorities assumed something was wrong. If a taxpayer could not justify the difference, an assessment was issued, usually using a worst-case scenario calculation under the principle of fraud prevention.
A short anecdote on this topic: I recall a VAT inspection in South Africa, where the fully year accounting was compared between statutory accounts and VAT returns. At the end of it, the entirety of VAT was effectively reconciled, except…50,000.00 USD approximately. Those 50k represented 1.9% of total turnover. The inspector concluded “I think that’s fine…2% difference is below our threshold”. And the audit report was green.
2. Sample-Based Audits
Inspectors often requested a sample of 100 to 200 invoices, reviewed them in detail, and—if errors were found—extrapolated the VAT impact to the entire year.
In this system, companies were penalized not for individual errors, but for lacking a robust, demonstrably reliable VAT process.
Compliance in the Pre–E-Invoicing World
Historically, compliance meant proving that:
- a process existed,
- it was consistently applied,
- and exceptions did not occur.
Fraud, in turn, was identified using the ECJ’s “knew or should have known” standard (see Kittel & Recolta). In simple terms, if the taxpayer could have known, given their processes, that something was suspicious, they were deemed complicit—even if they chose not to look closely.
But e-invoicing has made this world obsolete. Europeans, fasten your seat belts, we bring you to the next 5 years future.
The E-Invoicing future
With e-invoicing, tax authorities effectively create a digital twin of the taxpayer’s ERP, updated in near real time. They can query every issued or received invoice—complete with line-level detail—and run automated analyses instantly.
This new capability allows them to compare, for example:
- revenue vs. VAT-declared turnover,
- expenses vs. statutory classifications,
- your declared sales to a customer vs. that customer’s declared purchases,
- VAT charged vs. the nature of goods and services sold,
- and much more.
In this environment, imagination is the only limit. With data-intelligence platforms and AI tools (e.g., Palantir), tax authorities can build automated anomaly-detection systems that scan everything, continuously.
From Sampling to Full Visibility
In this new world, the idea that a process is “95% accurate” is no longer meaningful. If your business issues 30,000 invoices per month and only 20 contain errors, those 20 will be automatically detected. Imagine for a minute the situation above described in South Africa, under e-invoicing…
This is the essence of Continuous Transaction Controls (CTC)—a core concept in the Peppol framework and now central to modern e-invoicing.
The key word, of course, is continuous. Now you understand it better…
What Compliance Means Now
Under e-invoicing, simply having a good process is no longer enough.
CTC-compliance requires your own VAT and Indirect Tax functions to operate continuous transaction control internally—every day.
This is where FINCARGO comes in.
At FINCARGO, we do more than implement e-invoicing or e-delivery solutions. We monitor and manage continuous transaction controls on behalf of our clients—daily, hourly. Our mission is not just to transmit your data, but to ensure you remain truly CTC-compliant.
Best regards, and good luck to all,
November 2025, The FINCARGO Team