Driven by the requirements of Receita Federal (Brazil’s federal tax authority, roughly its IRS), ten years into the SPED project — Brazil’s nationwide digital-bookkeeping regime and its various phases of electronic tax filings — communication barriers between some of the departments essential to producing those filings have become common in the corporate world. This piece sets out to discuss the gap between IT and Tax departments, and to provoke reflection on it.
Of SPED’s many stages, the one that best illustrates this communication gap was the rollout of the electronic invoice (nota fiscal eletrônica, or NF-e — a government-cleared digital invoice) and the successive improvements to control and manage these digital documents. Especially with the launch of SPED Fiscal (the tax-ledger module of SPED) and Receita’s announcement that, from 2016, the corporate “Malha Fina” — its automated net for cross-checking these databases — would begin, the subject became unavoidable between the two areas (a point confirmed by Receita’s Coordinator-General of Auditing on “TV Receita” in December 2015).
“The bare minimum” as policy
ERP software vendors implemented electronic-invoice issuance as their clients became required to issue them; but even over the years, controlling the receipt of suppliers’ NF-e, and the various controls Receita made available, were features whose development was delegated to third parties or, in some cases, built only to the essentials. Domestic ERP vendors — those whose policy is to build features to meet Brazilian legislation at the federal and state levels — traditionally do the “bare minimum” in their products.
This dynamic between the software vendors and the expectations created by Receita itself — in terms of the controls available to tax departments — is perhaps the single biggest driver of the communication difficulties with technology teams. Unfortunately, few CIOs dig deep enough into tax matters to understand the many possibilities for protection and fiscal compliance that Receita has enabled — often through controls that are still optional for most sectors, such as “recipient acknowledgment” of invoices received from suppliers.
The cost of not talking: the case of fake invoices
Today, any sizeable, reputable company is exposed to having its CNPJ (its federal tax ID) used to issue electronic invoices without its knowledge — like the ones that all but sank Trendbank, an investment-fund manager brought down after being tied to securities backed by “notas frias” (fake, or “cold,” invoices) issued against large companies. The “recipient acknowledgment” control Receita provides would have been enough to shield the company whose tax ID was misused, while also giving Receita a spontaneous report to investigate such crimes.
Despite these benefits, most current solutions offer only manual controls for these functions, even though the process can be fully automated — leaving only invoices with errors, discrepancies, or “suspicions” to be checked by hand. Given that large companies have already adopted these solutions and built manual controls for recipient acknowledgment, a curious barrier to innovation emerges: though it looks like a simple matter to revisit the processes and systems in use, it isn’t — precisely because of the technology and processes already in place.
Faced with so many priorities imposed on the CIO and technology teams, tax departments become hostages to “IT priorities.”
Hostages to IT priorities
Smaller companies that put this off and are only now addressing it have, when they choose the right vendor, benefited from having no legacy processes for these controls. At larger companies, innovation depends on a strong partnership between CIOs and Tax Directors, because the necessary change often requires reassessing current vendors — always a delicate matter, given the constant flow of new controls and changes to filings and the resulting dependence on incumbent suppliers.
Companies that have handled this well chose to dedicate one or more technology professionals full-time to the tax departments, turning them into business consultants devoted to these matters. But this model has only worked when the chosen professional has the right profile for innovation, because they must become a mediator between the two areas — with the training and autonomy needed to propose changes and improvements to systems and processes.