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The Brazilian tax system scenario

The Brazilian tax system is composed of several taxes and accessory obligations, which makes it highly complex and generates elevated costs for companies to manage them. Additionally, tax system computerization has made  tax compliance much more dynamic and susceptible to risks as data is reconciled electronically almost in real time.

Sophistication of the electronic tax system

The tax payment and the acessory obligation compliance by companies in Brazil are managed by government bodies at three different levels:

  • Federal – The Brazilian Federal Revenue Service (RFB)
  • State – State Finance Department
  • Municipal – Municipal Finance Department

Payment and inspection

 

It is essential to have an integrated vision of the process and technical knowledge of business operations aiming to manage all the tax flow.

  • Understanding of the tax flow across the production, distribution and consumption chain should be gained;
  • Federal, state and/or municipal taxes are levied on each transactional event, which is associated to one or more accessory obligations;
  • Electronic monitoring and validation make the inspection process more effective and require increased attention by companies so as to ensure that no information is omitted or incorrectly transmitted;
  • Aspects that impact taxation vary according to the specifics of each business transaction.

 

The tax complexity in business transactions

Tax authorities’ actions

Electronically monitors and validates tax information and tax payment throughout the production chain, based on information reported by companies for each transactional event.

Electronic tax obligations

Files that detail the business transactions conducted; the information contained in these documents generate the tax obligations and should be reported to the tax authorities electronically for validation.

Inspection approach

Once information is received, the tax authorities may verify if the reported information is consistent with all reported information during the statute of limitation period (at least five years).

Electronic monitoring and validation

Flow of taxes in a business transaction and accounting processing

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