UNCLASSIFIED

12104/13 and ADD 1-3

2013/0213 (COD)

COM (2013) 449 final

And

SWD (2013) 225 final

And

SWD(2103) 222 final

And

SWD (2013) final

EXPLANATORY MEMORANDUM ON EUROPEAN COMMUNITY LEGISLATION

PROPOSAL FOR A DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON ELECTRONIC INVOICING IN PUBLIC PROCUREMENT

IMPLEMENTATION PLAN ACCOMPANYING A DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON ELECTRONIC INVOICING IN PUBLIC PROCUREMENT

IMPACT ASSESSMENT ACCOMPANYING A DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON ELECTRONIC INVOICING IN PUBLIC PROCUREMENT

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT

Submitted by the Cabinet Office on 2013

SUBJECT MATTER

  1. The EuropeanCommission proposes a directive by which it willrequest the relevant European standardisation organisation, the European Committee for Standardisation(“CEN”) to develop a technical standard for electronic invoices (“e-invoices”), to promote interoperability.Public authorities and certain “utilities” across the EU would then be required to accept e-invoices which comply with the new standard.However, economic operators (suppliers, service providers and contractors) would not be obliged to issue e-invoices, and e-invoices notcompliant with the new standard would still be permitted, as would paper invoices.
  2. The Commission has issued this e-invoicing proposal within a wider initiative on public procurement. Proposals to modernise the public and utilities procurement directives, plus a new directive on procurement of concessions, have been under negotiation during 2012 and 2013, and are expected to be adopted this autumn (2013).
  3. The modernised public and utilities directives will mandate e-communication / e-procurement up to contract award, (after a transposition period), for contracts fully subject to the procurement rules.However, the full benefits of “end-to-end” e-procurement will only be achieved ife-invoicing is also used; and the Commission considers some standardisation will be necessary to encourage cross-border invoicing. Hence the current proposal.
  4. There is existing European legislation on e-invoicing, related to VAT. This includes rules on equality of e-invoices compared with paper invoices. However these existing rules do not require public authorities or businesses to accept (or issue) e-invoices.
  5. The current e-invoicing proposal supplements, but does not amend or repeal, any existing rules governing e-invoicing or e-procurement. It would apply to invoices in respect of contracts awarded under the modernised public procurement directive, the modernised utilities procurement directive, and the existing defence and security public contracts directive.
  6. The Commission argues that although the benefits of e-invoicing are generally recognised in principle, and use of e-invoicing is increasing, lack of common standardsandinteroperability can hinder take-up, and stand in the way of cross-bordere-invoicing. In turn this may discourage cross-border public procurement. The Commission’s own Impact Assessment for the current e-invoicing proposal identifies 15 separate regional, industry and national e-invoicing standards in use in the EU (and there may be others, plus some under development), most of which are not natively interoperable. The Commission fears thesituation may get worse without central EU action.
  7. The Commission considers that a formal common standard for public sector e-invoicing which public authorities and utilities would be obliged to accept, but which would not be compulsory for economic operators to use, and which would still permit pre-existing solutions, strikes the best balance of encouraging a common standard whilst protecting existing investment in e-invoicing services and avoiding burdens on business.
  8. In the Commission’s view, a formal European standard wouldencourage take-up of public sector e-invoicing, and may also encourage moves towards convergence and interoperabilityby private sector e-invoicing users (who will of course be able to adopt this new standard if they so chose).

SCRUTINY HISTORY

  1. There is no scrutiny history related to this specific proposal on e-invoicing, but there is history related to the current modernisation of the procurement directives, and on e-procurement issues.
  2. The Cabinet Office submitted an Explanatory Memo on 9299/12 COM(12) 179: “Communication on a Strategy for e-procurement”, on 19 June 2012. The Commons European Scrutiny Committee cleared it in report six as politically important on 27 June 2102. The Lords Select Committee on the European Union sifted this EM to sub-Committee B on 26 June 2012 and subsequently cleared it from Scrutiny.
  1. Other recent scrutiny related to public procurement includes:
  1. Cabinet Office submitted an EM on 17th January 2012 relating to: 18966/11 “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on public procurement”, also covering 18964/11 “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on procurement by entities operating in the water, energy, transport and postal services sectors” (the “utilities” proposal), plus an EM on 18960/11 “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the award of concession contracts”. The Commons European Scrutiny Committee recommended a Reasoned Opinion on subsidiarity (Report No 57 Session 2010/2012); the Reasoned Opinion motion was debated and agreed by the House of Commons on 6 March (Hansard 6 March 2012 Columns 749-767). European Scrutiny Committee cleared these as legally and politically important in report 12 on 17 June 2013, following correspondence between the chairman and Cabinet Office Ministers.
  2. The Lords Select Committee on the EU sifted these EMs to sub-committee B (Sift 1454 Session 10/12) and cleared them on 28 May 2012 following correspondence between Lords Roper and Boswell and the Minister for the Cabinet Office.

MINISTERIAL RESPONSIBILITY

  1. The Minister for the Cabinet Office has primary responsibility for this matter. The Secretary of State for Business Innovation and Skills is responsible for EU Single Market policy and has an interest in this matter due to the single market legal base of EU procurement Directives. The Commissioners for HMRC have responsibility for VAT-related legislation including VAT invoicing.

INTEREST OF THE DEVOLVED ADMINSTRATIONS

  1. International relations, including relations with the EU, are reserved matters under the Scotland Act 1998 and excepted matters under the Northern Ireland Act 1998.
  2. The development and application of public procurement policy and the implementation of public procurement legislation is a devolved matter in Scotland and Northern Ireland under the devolution settlements, and the Scottish and Northern Ireland devolved administrations have been consulted in the preparation of this Explanatory Memorandum.
  3. The current procurement and remedies directives have been implemented by Westminster for the Northern Ireland jurisdiction in addition to England and Wales, however this legislation is implemented with the consent and on behalf of the Northern Ireland Executive. In national law terms the Northern Ireland Executive is entitled to implement separately in Northern Ireland if it so chooses.
  4. The current procurement and remedies directives have been separately implemented in Scotland, and it is expected that Scotland will separately implement the modernised procurement rules and the e-invoicing directive

LEGAL AND PROCEDURAL ISSUES

The Legal Basis

  1. The legal basis of this proposal is Article 114 of the Treaty on the Functioning of the European Union (TFEU).

European Parliament procedure

  1. This proposal is subject to the Ordinary Legislative procedure.

Voting procedure

  1. This proposal is subject to Qualified Majority Voting.

Impact on United Kingdom Law

  1. The Commission proposes a directive with a Member State transposition deadline of 48 months from adoption. In the UK transposition will be by Statutory Instrument (under the European Communities Act 1972). It is not yet clear whether this would be best achieved by amendment to existing procurement or invoicing regulations, or by new regulation. Either way it is unlikely to require substantialamendment to, or repeal of, existing law.
  2. The Government will provide further information and updatesto Parliament during the negotiations where appropriate and when it decides on transposition.
  3. The Government expects that Scotland will separately implement in line with its devolved powers. No decision has yet been made as to whether Northern Ireland will wish to implement separately, or whether it will be content for a legislative instrument covering England, Wales and Northern Ireland
  4. There is existing EU and national law on VAT invoicing, including specific requirements for electronic VAT e-invoicing, coveringsuch matters as what information must be included in a valid VAT invoice, and electronic security and archive requirements for VAT invoices. The current proposal will not amend or repeal those directives and national rules, whoseprovisions will continue toapply,as and where relevant,to any invoice covered by the newdirective.

Application to Gibraltar

  1. This directive, if adopted, will apply to Gibraltar, and require to be transposed by the Government of Gibraltar.

Fundamental rights analysis

  1. This proposal is primarily intended to place obligations on public bodies and utilities, and it affects their commercial and economic relationship with legal or natural persons (economic operators) who have contracts with those public bodies or utilities. It may also influence the commercial decisions of economic operators, and of businesses which offer e-invoicing software, solutions or services, but it does not place direct requirements on them. It does not impose restrictions or obligations on citizens. The proposal does not create or require the creation of criminal offences or the imposition of criminal sanctions.

EUROPEAN ECONOMIC AREA

  1. The single market and public procurement acquis generally applies to the EEA.

SUBSIDIARITY

  1. The United Kingdom has accepted that Community legislation in the field of public procurement and in the field of e-invoicing is consistent with the principle of subsidiarity. These rules are related to the single market and a matter on which EU legislation is appropriate in principle. There is no specific reason to now retract from that position, nor is there any reason to consider that the current proposal breaches the principles of subsidiarity. The Commission’s own impact assessment points outs that different e-invoicing standards, solutions and initiatives across Member States may hinder the cross-border user of e-invoicing, and addressing this issue require coordinated EU action. This can potentially be achieved by EU action but not by individual Member States. Thecurrent proposal does not impose specific obligations on Member States, beyond those appropriate and necessary for the purposes of the directive, or affect the internal governance or structures of Member States.Therefore this proposal does not raise subsidiarity (or proportionality) concerns.
  2. European rules governing public procurement and related matters fall within the area of shared competence (they do not fall either into the field of exclusive Community competence, or decisions reserved exclusively for Member States).

POLICY IMPLICATIONS

  1. The principle that there should be a coordination of rules in the European Community governing procurement by public bodies and utilities has long been enshrined in European public procurement legislation. TheGovernment supports coordinated rules for public procurement, in support of the Single Market and to promote value for money in public procurement. Coordinated EU rules on VAT, and on VAT invoicing are also of long standing and important to the single market.
  2. The Government recognises that public sector e-invoicing saves time and money for all parties and should be encouraged. The “Information Economy Strategy” published in June 2013, states:

“Government also wants to make it easier for its suppliers once they have won contracts, by encouraging the use of electronic invoicing. Our aim is for central Government to use electronic invoicing for all transactions. Some local authorities and NHS trusts are already using e-invoicing, and have realised significant efficiency savings as a result. Government will not mandate suppliers at this stage, but will look at ways to spread best practice, and will track progress with a view to taking action if required at a later date.

For UK businesses, particularly small and medium sized enterprises, to realise the full benefits of e-invoicing, it is important that the systems are easy to install and use, and pricing is flexible enough to suit the needs of diverse businesses. E-invoicing providers have committed to looking at ways to improve interoperability and accessibility of e-invoicing for SMEs, including through the Business Application Software Developers Association interoperability charter.”

  1. The UK’s encouragement of interoperability mirrors the aim of the proposed new directive. The Government’sapproach of expecting authorities to accept e-invoices, whilst encouraging, but not obliging suppliers to submit e-invoices, is similar to the Commission’s proposed approach. Therefore the current EU proposal is consistent with the Government’s existing direction of travel.
  2. However, as the Commission notes, there is already a raft of data standards for e-invoicing across the EU, and it is not axiomatic that the best means of achieving interoperability is to add another data standard, even if its acceptance by public authorities and utilities becomes mandatory in due course. The new standard could become just another one among many, and contribute to rather than address the problem. This may be a particular risk if the new standard allows different interpretations, or has significant incompatibility with commonly-used existing e-invoicing standards and solutions. So we will wish to ensure that this Commission proposal actually helps to achieve efficient e-invoicing and does not inadvertently create barriers or difficulties.
  3. In line with the policy outlined above it can be expected that UK public bodies will increasingly adopt e-invoicing over the next few years, before the current draft directive has been adopted, and before the new CEN-developed standard has been accepted. It is therefore important that this directive does not create difficulties or significant incompatibilitieswith UK e-invoicing implementation already in place.
  4. Standards proposed and adopted by the EU should be fit for purpose in assisting interoperability; should not create avoidable difficulties for authorities, suppliers or e-invoicing solution providers; not introduce incompatibilities or conflicts with existing e-procurement or e-invoicing practice; and the requirement of the directive should be unambiguous.UKe-invoicing interests should be encouraged to contribute fully to the CEN technical “workshop” developing the new standard. There is also existing work on e-invoicing standards elsewhere in the world; the EU and CEN should take this account in developing a new European standard, (bearing in mind that public procurement obligations extend beyond the EU to other signatories to the Government Procurement Agreement).
  5. Ideally, an e-invoice produced by any system or service should be machine-readable by other systems, requiring neither human intervention nor intermediate electronic translation. As the Recitals to the proposed directive point out, full interoperability covers data content, data format and data transmission. Agreed data semantics is a necessary, but is not necessarily a sufficient condition, for full interoperability. The draft directive requires that authorities do not refuse to accept electronic invoices which comply with the standard, but this could create potential issues if an invoice is not compatible with format and transmission standards and protocols used by authorities. This issue may need to be addressed during the negotiations.
  6. The CEN standard and supporting material should provide sufficient formatting details and data-type definitions to facilitate genuine interoperability between systems which adhere to the standard.
  7. Although pre-award procurement differs from invoicing, there will normally be common semantic elements through various parts of the end-to-end procurement process; for example, the identity and other information about the contracting authority and the economic operator. The whole procurement “lifecycle” should be seen as stages in a coherent process, not as a series of independent activities, and data standards throughout the procurement process should reflect that coherence. This should be reflected in the formal CEN standard.
  8. The draft directive requires that the new standard guarantees personal data protection in accordance with Directive 95/46/EC (data protection directive). Accepting that some invoices may contain information which can identify individual persons, and therefore need to be handled in accordance with data protection requirements, it is not clear that a standard for a semantic data model can “guarantee personal data protection”. Protection of personal data depends largely on the behaviour and characteristics of persons and systems which transmit, receive,process, and store data, not on the semantic data model to which that data conforms. The Government willseek clarification of what the Commission intends, and what this will mean in practice for users of the new e-invoicing standard. And any data protection requirements should be proportionate to the actual risks; over-onerous obligations would add costs and be counter-productive to effective e-invoicing.
  9. The directive would only apply to invoices in respect of contracts which are subject to the new (modernised) public procurement, utilities procurement, and the defence and security public contracts directives. Some contracts, because of their subject matter or value, are wholly outside the procurement rules and therefore clearly not subject to this e-invoicing directive either. However, the scopemay require some further clarification in respect of those contracts which are not fully subject to the public procurement and utilities directives, (for example service contracts falling under the “light touch” regime).
  10. If the modernised public procurement directives are adopted in autumn this year as expected, the deadline for full e-communication under those directives will be the first half of 2018.
  11. If the current e-invoicing proposal is agreed and adopted within the next year or so, the 48 month deadline for acceptance of standards compliant by Member States might also fall within the first half of 2018.
  12. Aligning the dates of full e-communication and obligatory e-invoicing makes sense in principle, but it may put pressure on procuring bodies to adopt both in a short timescale. This may necessitate central information and assistance.
  13. The draft proposal requires Member States to transpose the directive within four years of adoption but sets no specific timescales by which CEN is to develop, and the EU is to accept,the e-invoicing standard. Contracting authorities, economic operators and providers of e-invoicing solutions and services will need sufficient time to gear-up between EU adoption of an e-invoicing standard and the requirement to acceptit. The European Commissions’ request to CEN should have detailed terms of reference, and a suitable firm date by which CEN is requested to produce a final draft standard. The directive should make provision if for any reason the CEN standard is delayed beyond that date.
  14. Unlike the procurement rules, the e-invoicing proposal does not provide for specific remedies for economic operators if authorities and utilities breach the directive. In the UK consideration will need to be given in transposing the directive to the extent to which obligations will be enforced in order to comply with the UK’s obligation to ensure compliant e-invoices are accepted.

CONSULTATION