Globally, countries have been implementing Continuous Tax Control (“CTC”) systems to automate tax reporting and ensure that all tax revenue appropriately due to the government is paid to the government. First implemented in South America in the early 2000’s, the automation of submission of tax information and the resulting collection of tax revenue has been viewed as a major success and is rapidly spreading around the globe.
CTC and The Issue
CTC systems require taxpayers to submit information on a sales or service transaction to a platform designated by the tax authority. The CTC system returns (among other things) a transaction ID and approval number for the transaction. Transactional information replaces the need to provide periodic reports to the government on tax collection, and allows the government to tell the taxpayer what they owe to the government based on the data received.
Once a CTC transaction is approved, the only mechanism to change an invoice transaction is through the submission of a Credit Memo. What this means to legal ebilling is that client review of an invoice must occur prior to submission to the CTC system, or a Credit Memo will be required.
Ebilling Solution and Additional Issue
The legal ebilling industry, which previous to CTC had its own workflow for invoice submission and payment, has been wrestling with how to fit CTC requirements into the ebilling workflow.
Without getting too far into the weeds, today the predominant solution is to have firms submit a pro forma invoice[1] to the ebilling vendor system. Upon submission, it passes through bill review to determine whether there are any errors that require correction. Once errors have been corrected and/or the invoice is approved, the pro forma invoice can be put to final in the law firm system and submitted to the tax authority. This allows for certainty that the instrument submitted to the CTC system is compliant with the client’s billing requirements and, as such, should not require additional and time-consuming correction using a Credit Memo.
But use of a pro forma invoice causes a workflow problem for law firms. The month end workflow requires any invoices that have not been put to final to be released back into the unbilled population. This means that any pro forma invoice submitted to the ebilling vendor system that is not resolved by month’s end potentially goes back into the unbilled population. The workflows are not compatible.
Additional Changes Needed
I believe the solution also requires changes in law firm’s time and billing//financial systems, not just in the law firm and the ebilling vendor system workflow.
I propose that, in the law firm’s time and billing//financial system, a status for invoices be created that is understood to associate with invoices and their line items (1) that have not yet been put to final; (2) that have been submitted to the client’s ebilling vendor system for review; and (3) that have not yet been submitted to the required CTC system.
In addition, if the client’s review finds issues, there needs to be a mechanism to support editing the invoice and its line items that prevents anything else from being be included in the revision process. What this means is that if, after the proforma invoice is generated, line items are added which fall within the invoice start and end dates, they are restricted from the corrected invoice produced; only line items associated with the original pro forma invoice end up in the corrected invoice put to final.
By making these additional changes on the time and billing//financial system side, I believe the workflow can be much more straight-forward for law firm billers.
[1] A pro forma invoice is a draft bill, one that has not yet been marked as final.