In order for the investor to be able to understand the foundations of a tax planning in Brazil it is important that we show how the inspections in the country are carried out. This international accounting study collaborates with the economic and tributary planning and avoids tax problems that can delay or interrupt the services of a foreign company in Brazil.

Willing to clarify how a tax inspection works in Brazil we present this article, about how the Inspection Subsecretary (Sufis, the Subsecretaria de Fiscalização) of the Brazil Federal Revenue Special Secretary (Secretaria Especial da Receita Federal do Brasil) operates thoroughly in the work processes of the value chain of the Federal Revenue, about its responsibilities in a way that it can establish an efficient inspection that minimizes the possibilities of frauds of national and international companies. Such responsibilities are:

• To monitor big contributors;
• To promote tax compliance;
• To carry out the research and selection of passive subjects to be inspected;
• To promote inspection, be it internal (review of returns) or external (auditories) in nature.

These are some references between tributary administrations inside and outside of the country; the Federal Revenue Inspection operates with the objective of guaranteeing the revenue necessary for the operation of the State and of fighting tax evasion and the other tributary transgressions.

In order to reach this goal, all actions are conditioned to the tripod:

• To provide the best technological tools;
• To continually train each professional who operates in the respective work processes;
• To spread the knowledge produced within the organization.

Such efforts are potentialized in order to allow the Federal Revenue inspector, who’s a tributary authority designated by the National Tributary Code (Código Tributário Nacional), to have full conditions to carry out their institutional mission in favor of the Brazilian State.

The 2019 Annual Inspection Plan, in its 5th edition, intends to, in a transparent manner, account society for the main numbers and actions performed by the Federal Revenue inspection in 2018 and the initiatives that will be carried out in 2019.

2018 tax analysis that are influencing tax planning for 2019 and 2020.

Tributary credit constituted by the Federal Revenue in 2018

The amount of tributary credit recovered by the Inspection in 2018 was of R$ 186.93 billion, surpassing in 25.1% the official assessment estimate for the year, which was of R$ 149.34 billion.

This number, however, is 9.2% smaller than the one from 2017 (R$ 205.87 billion) in Brazil.

When we evaluate the plurennial inspection strategy of the last 4 years and compare it to the immediately previous period, we verify a growth of 15.84% in the Federal Revenue fines, which shows a growth sustained on the Inspection’s ability to fight tax evasion in Brazil.

Tax fines since 2010

It is observed that, of the assessments (inspection fines) fulfilled in 2010, only 7.34% of the quantities of processes were deemed unfounded until December 2018 and, in terms of values, the unfounded processes make up for 22.30% of the total. It is important to stress that, in relation to the processes formalized in 2010, 11.35% (number of processes) and 15.42% (values) still await a decision by the public departments of administrative judgment.

The analysis of the adhesion degree in more recent years, such as 2016, 2017 and 2018, although published here for transparency purposes, is not, at this moment, sufficient for conclusions about the adhesion degree, since 67.22%, 79.17% and 43.90% of the processes formalized in those years, respectively, still await a decision. In the case of 2018, the percentage of processes still being judged is influenced downwards due to a significant volume of the processes still being within the deadline of charging or impugnation (51.7%).

Federal Revenue Inspectors

The improvement of the adhesion degree is reached mainly due to the growing quality of the assessments performed by the Federal Revenue Inspectors, who commit themselves to the tributary credit until the final stages of the contentious process, preparing allowances for the operation of the PGFN (Procuradoria Geral da Fazenda Nacional; the National Treasury General Attorney) together with the Conselho Administrativo de Recursos Fiscais (CARF; the Administrative Council of Tax Appeals), and due to the following up of the decisions taken by the Taxation and Contentious Sub Secretary.

A 15-year analysis in Brazil

In a deeper analysis of the notifications of infractions issued from 2004 to 2018 in values higher than R$ 200 million, including all situations of the Tributary Credit positioned in February 2019, both at the Federal Revenue and the National Treasury Attorney, we have the evolution below, shown in percentages.

Following is the graphic representation of the situations of the previous table:

The evolution of the adhesion degree becomes quite clear when all the history of the Tributary Credit is analyzed, especially after 2008. As such, we have a percentage higher than 40% of the total paid Tributary Credit, in installments or with warranties, and still, from the approximately 60% remaining ones, we have over 50% still having chances of being converted to income of the government, since they are already at the administrative charging situation, under analysis or suspended by court decisions.

Financial result of the fines in 2018

The indirect financial result of the Inspection, in 2018, was of R$ 1.46 trillion, that is, the spontaneous (or induced) revenue itself due to the risk perception about the non-compliance of the tributary norm.

Due to the regulatory law of the fiscal-administrative process, the suspension of the chargeability of the tributary credit arising from the tributary entry, following timely presentation of the impugnation by the contributor, and the inability of the judiciary power to process and judge again what was already decided in an administrative process, there is, in this model adopted by Brazil, a considerable delay in order for the tributary credit to be settled by the payment. Under the current model, the final decision about the entry depends on the conclusion of the administrative process, upon definite decision to be issued by CARF and, in the vast majority of cases, on its rediscussion before the judiciary power, which delays the collection of the tax fines.

Of the total number of fines in 2018, 17.5% of the fulfilled entries were paid or split in installments, representing 0.86% of the amount of entered tributary credit.

Tributary credit by field or professional occupation

When it comes to legal entities, fines concentrate on the industrial sector, with entries of R$ 84.22 billion.

Regarding inspection of natural persons, the fines concentrate on the contributors whose main stated occupations were owner and company leader (R$ 2.68 billion).

Entries of procedures of inspection by the main taxes in 2018

Considering only the procedures of external inspection (does not include crosshairs), five taxes (IRPJ, CSLL, COFINS, IRRF and CP PATRONAL) corresponded, in 2018, to 82.6% of the entered credit. In 2017, this percentage corresponded to 83%.

Evolution of the quality of inspection selection

The increase of 3.24 percentage points of the inspection accuracy degree starting in 2010, when the selection procedures of passive subjects were carried out in an exclusively local manner, made it possible  that in 2018 approximately 275 more external auditories were finished with a result..

Inspection with a focus on contributors with a bigger contributive capacity

With the review of the process of selecting contributors with a higher contributive capacity since 2010, which allowed for greater specialization of the Inspectors responsible for determining who will be the passive subjects to be inspected and of those who carry out the procedures of external auditory, it was possible to identify and act with a greater deal of precision in large schemes of evasion embodied in abusive tax planning.

Inspection of the great contributors is the main priority of the Federal Revenue

Arising from an operation focused on recovering tributary credits of bigger relevance, and from a consistent process of training and development of technological tools, the results from 2010 on show a consistent evolution on the operation of the Federal Revenue Inspection of great contributors.

With this analysis, we can evaluate that auditory in Brazil has been more accurate, leaving little room for frauds in the future. It is raising international trust in Brazil for the negotiation between other countries in the whole world.

If you, investor, entrepreneur or businessperson and intends to begin commercial operations in Brazil, talk to the Europartner team and have a complete international accounting advice with experience in Brazil.

Our accounting team has been in Brazil for over 15 years assisting companies from Europe, North America and Asia in establishing themselves in Brazil. Send an e-mail with your doubts, we’ll be in touch.