More than seven years after Brazil rolled out SPED — the Sistema Público de Escrituração Digital, a nationwide digital-bookkeeping regime that requires companies to file their tax and accounting records electronically with Receita Federal (Brazil’s federal tax authority, roughly its IRS) — it is still striking how many companies of every size lack databases organized well enough to produce their mandatory filings correctly.
Even large companies with mature IT management rely on their defined inbound and outbound processes and on however they happen to store electronic invoices. (For Receita Federal, the printed invoice summary — the DANFE — has no legal value; it is the underlying XML files that must be kept digitally for five years.) The real problem is that, in recent months, Receita Federal has begun cross-checking data electronically and is now notifying companies of countless inconsistencies in their filings — catching business owners by surprise and forcing them to rethink their processes.
Although Receita Federal lets companies automate the validation and verification of electronic tax documents, many seem so consumed by the complexity of generating their SPED files that they neglect to clean up their databases and stored digital archives. The “Malha Fina” for small and mid-sized companies — the tax authority’s automated net that flags inconsistencies, akin to an audit dragnet — has already begun, and Receita is maturing its processing routines to catch discrepancies in the filings of large companies too.
The surprise that was announced in advance
To make things worse, with the electronic notifications Receita has started sending, many owners are only now realizing they should have verified and stored every XML — not only for the electronic invoices they issued and “received,” but also those issued against them (for many reasons, a large share never reach the company correctly). Because Receita Federal provides the tools to validate, monitor, and formally disavow operations for every invoice issued against a company’s CNPJ (its federal tax ID), the excuse “I never got the XML” or “I didn’t make that purchase” will not protect anyone. Rarer still are the owners who have automated “recipient acknowledgment” — the control that lets a company formally accept or reject invoices issued against its tax ID — for their own issued invoices.
The false comfort of outsourcing
The situation is worse at smaller companies, or those that outsource their accounting. Many accounting firms have not modernized and fail to communicate with their clients. I keep meeting owners with a “false comfort,” assuming the third party — their accountants, or their accounting-and-tax BPO providers (outsourced bookkeeping firms) — is responsible for the “quality” of this data.
Maturity is governing the process, not filing the obligation
Curiously, it is Receita itself that will drive this search for maturity in managing documents and producing filings. I believe that, in the medium term, the sector will consolidate and only the best service providers will survive. What matters here is pinning down what “maturity” means: enterprise management software correctly configured and integrated with tax modules or solutions that enable a mature process of tax governance and fiscal compliance — not merely the correct handling of documents and generation of filings, but control over the entire process.
Unfortunately, several tax-consulting firms have done a disservice, working improperly on the recovery of taxes “forgotten” by business owners — a good example being ICMS refunds (ICMS is Brazil’s state-level value-added tax on goods) under the tax-substitution regime, or Substituição Tributária, a mechanism in which one party prepays the tax owed by others down the chain; CAT 17/99 is the São Paulo ruling that governs such refunds, which matter most to companies with interstate operations. In my view, there is a “win-win” only in the short term: for some of these consultancies, correctly configuring the tax software and automating the generation of these refunds — however important — is not encouraged, because it means lost revenue for that advisory line over the medium and long term.
Given that Receita Federal’s stated main interest is not to punish business owners but to educate them to pay their taxes properly, I have to admit our government is on the right track: the owners who grasp the direct and indirect benefits of this process — and who don’t postpone investing in technology and in service from honest firms that care about their clients’ tax literacy — will not only benefit, but will turn fiscal management into a competitive advantage for their business.