The Evolution of Electronic Invoice Exchange: A Comparison of 4-Corner, 5-Corner, and 6-Corner Models

With the upcoming mandatory eInvoicing requirement in the B2B sector and the planned electronic VAT reporting system in Germany, it is more important than ever to be familiar with and understand the various models and approaches that could theoretically be applied in the design of the German eInvoicing and reporting system:

• 4-Corner Model
• 5-Corner Model
• 6-Corner Model

Although largely ignored by much of the German business community to date, these three approaches have not only been well-known in digital circles for several years. They are currently also the subject of sometimes heated expert discussions between

• the federal government, represented by the Federal Ministry of Finance (BMF),
• various organizations and trade associations, such as the German Taxpayers’ Association (Bund der Steuerzahler Deutschland e.V.) and the Federal Chamber of Tax Consultants, the Federal Association of Local Government Associations, as well as the German Tax Union (Deutsche Steuer-Gewerkschaft e.V.), the German Trade Union Federation (Deutscher Gewerkschaftsbund), the German Association of Tax Consultants (Deutscher Steuerberaterverband e.V.), and Prof. Dr. Dirk Kiesewetter from Julius Maximilian University of Würzburg, Prof. Dr. Gregor Kirchhof from the University of Augsburg, Prof. Dr. Christine Osterloh-Konrad from the University of Tübingen, and Prof. Dr. Christoph Spengel from the University of Mannheim, as well as the ZIA Zentraler Immobilien Ausschuss e.V.,
• and the technical service providers, also known as eInvoicing providers.

The bone of contention: While the federal government wants to begin the transition to eInvoicing as quickly as possible—and thus move ever closer to a digital VAT reporting system—the majority of associations currently still harbor what amounts to full-blown skepticism toward digitization. No wonder, given the widespread fear of potentially costly IT investments and additional bureaucratic burdens for the German economy, which is already strained by the pandemic, inflation, and the energy crisis.

At the same time, experienced providers and eInvoicing networks like TRAFFIQX are tirelessly warning against simply watching and waiting as current developments unfold. Because once The eInvoicing requirement is enacted, as in the Growth Opportunities Act, the countdown begins. And it will likely happen quite quickly: According to the currently favored timeline, the requirement will take effect as early as January 1, 2025—just under a year from now.

By then at the latest, every company that receives B2B invoices will have to find a solution as quickly as possible to meet the legal obligation to be able to receive “genuine” electronic invoices—and always with the knowledge in mind that simply receiving them is far from enough. Digital transmission in electronic form will also eventually become mandatory, albeit with a slight delay.

What does this have to do with the various exchange systems for electronic invoices? A great deal!

After all, the transition to purely electronic invoice exchange in the German and European economies represents the key technology necessary for the EU member states’ actual target: closing the excessive VAT gap caused by analog VAT fraud. A phenomenon costing billions that could finally be resolved with the help of “Continuous Transaction Controls” (CTC)—that is, a digital reporting system for VAT control—based on electronic invoice exchange.

The key point: once electronic invoicing is mandatorily implemented, the required tax data can be “extracted” quickly, easily, and with minimal resource expenditure by the tax authorities within the framework of a 5- or 6-corner model—while the business sector bears the cost of the technological transition.

Basics of Electronic Invoice Exchange

In this article, we therefore explain the respective advantages and disadvantages for SMEs and the mandatory adjustments to the new regulations. To this end, we examine the differences and similarities between the 4-corner, 5-corner, and 6-corner models, which are relevant for affected companies in Germany. We explain the technical aspects and highlight how these models relate to the upcoming eInvoicing requirement and the planned electronic VAT reporting system in Germany.

4-Corner Model

The 4-Corner model is the traditional model for electronic invoice exchange in the Peppol network.

The four corners consist of the invoice sender, its service provider, the invoice recipient’s service provider, and the invoice recipient itself.

1. C1 – Invoice Sender
2. The company that issues the invoice.
3. C2 – Sender’s Service Provider
4. A service provider that accepts and forwards the sender’s invoice.
5. C3 – Receiver’s Service Provider
6. A service provider that receives the invoice and forwards it to the receiver.
7. C4 – Invoice Receiver
8. The company that receives the invoice.