Is Your Company Prepared For an Audit in Brazil?

Spend Matters welcomes this guest article by Steve Sprague, vice president of product strategy at Invoiceware International.

The Latin American compliance landscape is already challenging for procurement and accounts payable specialists, and in Brazil, it’s now getting even tougher. With the move to Nota Fiscal v3.1 (NFe) on April 1, Brazil is making fundamental changes to its web services and reporting requirements, the largest change to the country’s compliance environment since 2010.

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Most notably for procurement and A/P teams is the requirement that companies collect, validate and archive NFe goods and CTe transportation XML documents from vendors for 5 years. Companies failing to produce this documentation when audited face severe penalties, roughly 500 Reais, or $175 USD, per invoice. If that doesn’t sound like much, consider that it’s not uncommon for companies to fail to audit and archive up to 200,000 invoices over the last 5 years. Now we’re talking about $35 million in fines. How would you explain that to your CFO?

Technically, this is not a new requirement under NFe. What is new is the government XML recovery service where companies can download their XML documents. We’ll examine the benefits of this service in the second article in this series. However, the implication is clear – Brazil has made this service available because it will begin strictly enforcing this requirement. With the recovery service, there is no excuse to not have all NFe and CTe data on-hand.

In an unsteady economy, Brazil is hopeful that increased audits and enforcement will generate increased tax revenue. The SEFAZ (Brazil’s tax authority) increased its revenue stream by about $58 billion in 2012 with real-time audits, and this archiving enforcement will further enhance these returns. For companies that are unprepared, the result will be hefty fines, and while helpful, the recovery service is limited to only a few thousand invoices per day. If the government decides to audit your company tomorrow, are you ready? Or do you still have millions of missing invoices to pull?

Most companies operating in Brazil are missing documentation from 2009-2012, and the Brazilian government can come in at any time and require documentation from that specific period. Consider that if your company is missing 500,000 XMLs, it would take more than 2 months to pull every single invoice from the government server working every single day under the current maximum downloads per day.

If you know you’re missing invoices, start this process today, before it’s too late. No solution can help you get around the daily download limits if you’re missing data; however, using the right solution can help you avoid future issues by integrating with the recovery XML solution to automate processes, validations and tax reporting. Stay tuned for the next article in this 2-part series to learn more.

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