Posted on August 22, 2024
While the global economy is becoming increasingly interconnected, the need for standardized financial processes has never been greater. Continuous Transaction Controls offer a relatively new approach to transaction data reporting and verification that promises to streamline tax compliance and bolster financial integrity.
Definition of CTCs
Continuous transaction controls (CTCs) represent a transformative shift in financial procedures, requiring the mandatory reporting and verification of transaction data, such as invoice information, by tax authorities through e-invoicing or real-time transaction listings.
These controls empower tax administrations to access and scrutinize business operations from a company’s management system, facilitating detailed record-keeping for VAT regulatory audits.
The core goals of CTCs include combating tax evasion, enhancing tax collection, and minimizing fraud.
Benefits of CTCs for the tax administration
By leveraging CTCs, tax administrations can accurately and promptly identify transactions subject to taxation, thereby narrowing the VAT gap between expected and actual collections.
CTCs enable proactive monitoring of business activities, guaranteeing a thorough understanding of local tax regulations. This ongoing monitoring also helps to reconcile discrepancies in VAT declaration and remittance.
Centralized and decentralized CTC models around the globe
Various countries have adopted centralized or decentralized models of CTCs. For instance, Mexico and Chile mandate businesses to settle invoices through a tax administration system prior to transmission to buyers, while others such as Guatemala and Panama employ unique versions of the clearance model. European countries such as Italy and Romania have also embraced CTC solutions, following the successful implementations in Latin America.
France will enforce electronic invoicing and reporting for every transaction starting September 2026. This involves utilizing a centralized digital invoicing system or authorized service providers. The operational models in France may either be centralized CTC if connected to the official platform or decentralized if intermediated by certified providers.
Hungary introduced a real-time invoice reporting (RTIR) CTC model in 2018, where taxable entities report invoice data promptly to the tax authority’s online system.
Electronic invoicing itself is not rigorously controlled in the Hungarian model. Nonetheless, suppliers are required to swiftly declare a part of the e-document to the tax administration in a specified format after the issuance and reception. Subsequently, the tax authority verifies each transaction to approve or decline it.
Germany has implemented the B2G e-invoicing mandate in 2020 and plans to adopt a countrywide CTC model by 2028. For now, B2B electronic invoicing still stays facultative.
In Poland, the proposed KSeF platform will require invoice validation at the time of issuance. Additionally, the Ministry of Finance has proposed new implementation dates for this requirement:
- February 1, 2026, for entities with annual turnovers exceeding 200 million PLN
- April 1, 2026, for all other entities.
PEPPOL CTC model
The PEPPOL network is an international platform for the easy interchange of electronic documents, which is widely adopted by countries such as Sweden, Finland, and Norway. To exchange digital invoices and other documents, members must use a PEPPOL Service Provider or PEPPOL Access Point. The PEPPOL network keeps improving and strives to become the universal B2B transaction standard. Employing the four-corner model, senders and receivers engage with their service providers autonomously, separately from the tax administration’s supervision.
In systems utilizing the PEPPOL network with an integrated reporting component, often referred to as the ‘five corner model,’ the fifth corner serves as the channel through which transaction data is transmitted to tax agencies in real-time, thereby enhancing business automation and tax administration control.
Multiple local vendors or one technology provider?
Keeping up with diverse tax regulations across jurisdictions can be daunting, prompting many multinational corporations to seek CTC solutions from reliable vendors. Utilizing a single technology partner streamlines compliance efforts, ensuring adherence to local obligations globally.
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