As Brazil continues to expand its business-to-government regulatory requirements to affect an ever-growing list of business processes and units, Block K is presenting drastic challenges to manufacturing, inventory management, supply chain and accounting teams. Starting January 2016, companies with revenues over $300 Million Reais according to the most recent announcements by the SEFAZ (http://pesquisa.in.gov.br/imprensa/jsp/visualiza/index.jsp?jornal=1&pagina=18&data=08/10/2015) will have to submit monthly inventory and production reports. Further mandates will hit companies in January of 2017 and 2018. Those that have yet to start preparing for these new requirements are behind, as these mandates go beyond the need to produce new reports and require fundamental changes to the ways companies track their inventory and manufacturing.
Companies affected by these mandates include any industries where the composition of a product and the raw materials or components used within it are subject to specific industrial reports – whether that product is produced in house or by a third-party. Under Block K, companies have to provide detailed information regarding manufacturing, production and inventory control for each one of their business locations, following the specific rules for each region’s government administration – meaning that specific requirements may vary from facility to facility. So not only do companies need to update their cost accounting practices – many of which currently lack the detailed information needed – they also have to ensure their reports and processes adhere to each variation in local requirements.
Specific information required under Block K includes:
- Inventory/stock movement
- Raw materials/components used
- Components lost
- Finished products manufactured
- Bill of material
- ICMI tax collection
- IPI tax collection
- 3rd party manufacturing
Using this information, Brazil’s tax authority will be able to track the full product cycle in companies – from material orders (through SPED) to production (through Block K) to sales (through Electronic Nota Fiscal). Inconsistencies will result in fines, penalties and even business shut downs as e-invoicing and other operational services may be suspended.
Companies need to prepare now for this complex requirement that mandates the integration of multiple departments and processes – from supply chain management to inventory control to production to bookkeeping and accounting. The first step is to have your tax department check your local level requirements, as the mandates affect a complex array of industrial sectors and suppliers.