2016 Outlook for Brazil Business-to-Government Compliance: Audit Surge Anticipated Amidst Changing Standards
When Brazil announced its e-invoicing mandate in 2008, such strict and comprehensive regulatory measures were unprecedented. However, Brazil set the stage for business-to-government compliance initiatives, with 10 countries in Latin America plus others worldwide now enforcing similar measures. As we approach 2016, what should companies operating in Brazil know? Here’s a look ahead.
Audits expected to increase
Nota Fiscal (NFe) has now been enforced in Brazil for five years, giving the government ampleamounts of financial data from companies operating there. With all of this information, the Secretaria de Estados da Fazenda (SEFAZ), Brazil’s tax authority, has more opportunities than ever to identify errors and discrepancies, and has garnered valuable insights that will help it to better detect fraud and omissions. Armed with all of this data, expect Brazil to ramp up audits and penalties this year.
Inventory management now affected
Brazil’s Block K mandate goes into effect on February 1, 2016, requiring companies to submit monthly inventory and production reports. This initiative represents a significant challenge to manufacturing, inventory management, supply chain and accounting teams, requiring fundamental changes to operational processes. Specifically, companies have to report details on each and every raw material or component used in a product, including inventory movement, components used/lost, finished products manufactured and more – information that is lacking in many current cost accounting structures.
With the enforcement of Block K, SEFAZ will now have full visibility into a product’s life cycle, from material orders (through Inbound Nota Fiscal) to production (through Block K) to sales (through Electronic Nota Fiscal). Inconsistencies will result in fines, penalties and even operational shut downs.
eSocial implementation ramps up
Under the eSocial mandate, employers throughout Brazil are responsible for submitting all labor, social security, tax and fiscal information related to hiring and employment practices. This includes wages, hiring and contract details, warnings and suspensions, medical leave, etc. When fully implemented, all personnel information will be transmitted online, giving multiple government agencies information pertinent to their inspection scope. Much like Block K does for inventory management, eSocial requires a significant shift in the way companies document and process information on their labor force.
With its e-invoicing mandates setting the standard for similar regulations worldwide, Brazil has realized significant increases in its tax revenues – $58 billion in 2012 alone. In 2016, expect Brazil to increase its revenues even further with enhanced audits and changing standards that affect even more business processes. For a full look at what to expect in Brazil in 2016, download our 2016 Brazil Checklist of Mandates.