Spend Matters welcomes a guest post from Steve Sprague of Invoiceware International. This is the first in a five-part series on Latin America e-invoicing.
This year is going to be a complex one for companies operating in Latin America. And I am not talking about the quest for the World Cup. I am talking about the continued expansion of the Latin America electronic invoicing mandates. There were a lot of announcements from the local tax authorities from May to Dec. 2013 that are all taking effect during 2014. This article will cover the key issues to know in the mandate countries, as well as provide the view from Account Payables. Often we just look at these from a compliance perspective, but for this article, I wanted to look at the issue through the Shared Services department.
So on to Brazil. Last July, the Brazilian tax authority, known as the SEFAZ, released one of the largest changes in Brazil Nota Fiscal since 2010. While there have been many changes every year, this is the most comprehensive. Here’s what you need to be aware of from a legislative and implementation perspective:
- Version 2.0 of the NFe schema for goods will no longer be supported as of December 2014. All companies will need to transition to version 3.1 Schema.
- Contingency – the process that allows your suppliers to ship even when the SEFAZ systems or their internal network is down – is changing. The government is releasing a concept called Virtual Servers.
- CTe – Freight Documents must also be validated for all types of transportation, now including Road and Multi-Modal.
- MDFe - Used as an aggregation document for a truck load with multiple CTe, and used by companies doing their own shipments or by trucking contractors not affiliated with a larger third-party logistics company.
- Service invoices are still managed at the city level, not state or federal, and each city can have different requirements.
- Manifestacao do Destinatario: Manifest of reception is required in certain industries such as oil and gas, and the state of Rio Grande del Sul for invoices over 100,000 Reais. They are automated messages back to the SEFAZ confirming the awareness of a supplier NFe and the accuracy of the goods received. One of key benefits of voluntarily doing the Destinatario is you can use the process to download the XML from the government if your supplier doesn’t send it to you or it is lost. Additionally, once accepted, the supplier can no longer cancel or change the message. There are limitations on how often you can use this and where. But an interesting concept arises – the Brazil government could be the supplier e-invoicing network in Brazil. This concept already works at the Web Service activated cities, where you as a buyer can use a web service to download all the service invoices registered to you in a specific city.
Here’s the Account Payables perspective. You should view Account Payables Nota Fiscal in two phases: okay to deduct, and okay to pay. The former is what the government requires you to do. You should be collecting the XML Nota Fiscal from your suppliers, validating they are accurate and registered, and archiving them for 5 years. The average penalty for not having the XML during an audit varies by state, but the penalty averages 500 Reais per XML. You should also be collecting the CTe (as of December 2013) and MDFe (June 2014), validating they are accurate and registered, and archiving them for five years.
“Okay to pay” is what you should be doing if you have decent volume of inbound invoices. Remember that your supplier must make the XML available to you, and a PDF replica of the exact XML version called a DANFe is on the truck that will arrive at your warehouse. Leading companies are asking for the XML to be sent as soon as the truck leaves the warehouse. They can then bounce the XML up against the Purchase Order. And if there are issues, they can inform the supplier.
Remember, if the XML is wrong in any way – the standard process in Brazil is to turn the truck around. You should not accept goods that have an inaccurate Nota Fiscal. If you do, the liability is now on you to get your supplier to adjust the XML via cancel/resend update version or correct via a registered CCe or Credit Note. This step not only helps from an audit perspective, it also helps to lower the cost of Inbound Receiving and invoice processing. There is no data entry of the DANFe at the warehouse.
Understand that while there is no validation of service invoices, they can be the most complex to manage from an Accounts Payable perspective because there are three types of cities to consider:
- Fully Automated – Web Service available (primarily the larger cities - Sao Paulo, Rio), where you can download the XML from the city solution.
- Partially Automated – Standardized Extract available. However, one must download off the site and upload to an extract program
- Manual – There are many municipalities that are still manual and have no current form of automation. You still get PDFs.
It is important to understand the number of cities you will have to manage. Remember, it is all about where your supplier is registered (if they are a Sao Paulo company, then the service invoice will go through Sao Paulo city; if they are a Rio based company then the service invoice will go through Rio). Some companies I have spoken with have over 70 cities that they have to manage.
Make sure you understand the impact of version 3.1 on the company. All organizations will have to upgrade the eBilling side and their ERP system. This is a perfect opportunity to also implement the Account Payable automation. If you have to do a project anyway, you might as well do it correctly. Also of note: you could start to receive both 2.0 XML and 3.1 XML from your suppliers as early as June 2014. Remember, it is up to your supplier to decide when they transition to the new XML schema with all having to move by December of 2014.
Many organizations have implemented the eBilling legislation for Nota Fiscal from as far back as 2007. However, they have either been unaware of the Account Payables requirements or have been doing the activity manually. I have talked to organizations that have upwards of 20 individuals focused on Brazil inbound Nota Fiscal processing. They perform data entry tasks manually, archiving manually, 3 Way Match manually, dispute management manually, and spend weeks at the end of the month reconciling incorrect information to ensure their SPED reports are correct. Companies can reduce the cost and time associated with all of these tasks by upwards for 40%. Brazil is an unavoidable project for your organization, so make sure your business processes are considered in the project.