The Importance of Rejecting Chilean Electronic Invoices
The first electronic invoicing model was piloted by Chile in 2003, with the idea of increasing competitiveness and efficiency of the market, improving compliance, administration, payment, and taxation processes, as well as strengthening taxation control. Many foreign companies are not accustomed to this system but essentially it requires companies to issue digital invoices through an online system which is connected to the tax office. Today, most Latin American countries use this system.
In 2014, a new law came into effect (Law No. 20,727), requiring that all Chilean companies use electronic invoices by January 2018. The same law also required companies to use electronic tax documents such as invoice settlements, debit and credit notes, and purchase invoices.
The benefits of this new regulation are the following:
- It avoids the falsification of invoices and therefore, the fraudulent use of VAT credit.
- Saves time and money for taxpayers.
- Eliminates the risk of losing documents.
- It provides a digital storage of tax documents (DTE’s) in the IRS electronic files.
- It allows the assignment of invoices through a simple manner and online (Factoring).
- Improves the speed and consistency of the billing process.
- Improves trustworthiness and transparency of companies.
- It allows companies to defer the payment of VAT made through internet from the 12th to the 20th of each month.
- It avoids the obligation to physically stamp invoices and all other tax documents in the offices of the SII (as now there are no physical paper copies).
8 days to Reject an Invoice:
With the implementation of electronic invoicing for all companies in Chile, there has been another important consequence which is the possibility of using the invoice as indisputable evidence that a service or sale has been provided to a customer, and therefore, that a debt is owed to the provider.
An electronic invoice can be used and an “executive title” that proves the existence of a debt. This means it has the same legal value as a cheque, a promissory note signed before notary, or a sentence issued by a judge. However, to be considered, the receiver or payer must not have rejected the invoice within the 8 day limit established by the law.
From a practical standpoint, this has been problematic for companies who were not aware how invoices could be used to prove the existence of a debt. Since many companies are not aware of the importance of accepting or rejecting invoicing, they have not put in place the proper checks and balances to ensure only valid invoices are being accepted. This can have significant consequences for a company.
A large company who receives invoices from various providers could easily accept all the incoming invoices assuming they are correct only to find out later that a service was not provided. In addition, there are many companies who use external accounting agencies who are not involved in the day-to-day operations who could also overlook an invoice that was not valid, or no services were provided.
For this reason, companies must be very aware of the 8-day deadline and understand the legal reasons as to why it can legally accept or reject an invoice. The consequences mean that companies could be on the hook to pay for services that were not provided with little legal recourse.
From a legal perspective, an invoice will be considered accepted by the tax office if it is not rejected within the 8 days for the following reasons: because of the invoice’s contents (there is a mistake) or the goods or services were not delivered or only partially delivered.
For companies to reject an invoice, they should use the following procedures:
- Returning the invoice and the related documentation, if applicable, at the time of the invoice’s delivery, or
- Making a claim against the invoices due to the contents (there is a mistake) or the goods or services were not delivered or only partially delivered. This should be done within eight calendar days following the receipt of the invoice. In this case, the claim must be brought to the attention of the issuer of the invoice by certified mail, or by any other reliable means. This needs to be done in conjunction with returning the invoice and the applicable documents, or together with the request for issuing the corresponding credit note through the online system.
It is important to note that the Chilean tax office has added that the date in which this 8 day starts is once the tax office has received a copy (Circular No 4 from January 11, 2017) of the invoice. This should all be done automatically, online, so at least in theory, the tax office should immediately receive an electronic invoice copy at the same time as the company.
This is an important issue for companies because an invoice that is not rejected within the 8 days means that the seller (who is providing the invoice) can cede the invoice to a third party to collect the payment (factoring). Even if the services were not actuarily delivered. Companies operating in Chile must have a good understanding of the importance of accepting an invoice or rejecting it within the 8-day period. They must also understand the reasons that can be used to reject an invoice. This means that companies must have good processes in place regarding tracking incoming invoices.
We strongly suggest companies take the following actions –
- Reviewing who within the company receives notifications through the online system.
- Have regular reviews of the processes with the chosen person so that they understand the importance and how the system works.
- Put in place some type of procedure so that invoices can be reviewed quickly, determine if the invoices are valid, and approved or rejected depending on the circumstances.
Ax Legal is a legal and business advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.
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