Taxtech is a rare term, clouded by its multiple membership in the fintech, legaltech and SaaS sectors, but now the regulatory changes in progress and to come could accelerate an explosion of this market in France. Among these, the implementation of mandatory electronic invoicing for business-to-business transactions from 2024, accompanied by a set of reforms such as ongoing transactional controls.
Still in its infancy in its B2B sense, some great fundraisers are already taking place in taxtech B2C, like the Berlin-based Taxfix, which raised 65 million euros in series C in 2020, or the French Climb ( ex-TacoTax), having managed a funding round of up to 10 million euros at the start of the year. These are sufficiently strong signals that the digitization of the tax administration, which has favored the emergence of technological solutions to support individuals in the face of the Leviathan, is likely to generate as many, or even more, solutions to support legal persons.
If markets like fintech or regtech have become promising thanks to reforms like that of open banking in Europe, a similar development is in full swing concerning taxation.
So far, VAT regulations have not yet massively transitioned to digital. Apart from a few pioneering countries like Italy, which opted for mandatory electronic invoicing in 2019, European tax administrations have been reluctant to impose innovative solutions based on technology. Nevertheless, the moult has already started well.
In a more general context, the proactive digital approach of the authorities since the outbreak of the pandemic with the vaccination pass, has demonstrated that such an approach could be crowned with success. At European level, with the successful coordination, in less than a year, of automatically verifiable and legally recognized COVID-19 vaccination certificates not only in the EU but in around 60 countries, the authorities have gained a great deal of confidence in their capacity to be able to drive development and technical standardization through joint projects with the private sector.
More specifically, with regard to taxation, the example of Latin America, a world pioneer in electronic invoicing, has profoundly contributed to changing the way European governments look at the digitization of taxes.
The exchanges of B2B and B2C commercial data in South America having been radically transformed by the implementation of continuous transactional controls, publishers and operators have succeeded in entering markets hitherto dominated by traditional EDI solutions because the latter struggled to adapt to this new chessboard, driven by regulatory dynamics.
Electronic invoicing: the test of fire
As mentioned above, to date tax regulations in Europe have evolved slowly in relation to digitalization. Nevertheless, the entry into force of compulsory electronic invoicing for the 3.8 million companies in France is a test of fire concerning the emergence of a taxtech market in France.
First, the invoice occupies a prominent place among the documents. Data has a commercial, tax, customs, legal, accounting and financial function and the modification of the way it is exchanged radically transforms the context of the integration of data between companies.
Also, not only does this reform intend to fill a VAT gap linked to fraud, but it will allow the collection of useful information for decision-making in the macro-economic framework. Apart from fiscal instruments such as the policy of varying VAT rates to support certain activities or sectors, the authorities can use modern data analysis techniques to better understand the value of companies' stocks, the evolution of prices for consumers, payment terms for SMEs, developments in competition, etc.
Generally well received by companies (84% perceive the reform as an opportunity according to the FIFG), electronic invoicing does not leave them without questions.
If according to the FIFG 71% of large companies believe that electronic invoicing will be easy to set up, according to Ernst & Young, 95% of them fear that the interconnectivity of tax administrations, linked to digitization, will exposes you to an increased risk of non-compliance or multidimensional and international litigation related to taxation. Faced with this fear, accounting and legal professionals will have the task of supporting companies in the implementation of this “new” taxation.
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