By Marcelo Blecher

Recently, the Special Secretariat of the Federal Revenue of Brazil published the 2020 Annual Inspection Report, which includes the results of the 2019 Inspection, as well as the action plan for the exercise of inspection for the year 2020.

The Annual Inspection Plan is prepared by the Inspection Sub-Secretariat of the Brazilian Federal Revenue Service, the body responsible for monitoring large taxpayers; promoting tax compliance; conducting research and selecting taxpayers to be inspected; and carrying out inspections, whether internal (review of declarations) or external (audits).

Below we present a brief summary of the main aspects of the results presented for 2019, as well as the main actions that should be adopted within the scope of the RFB in 2020.

In 2019 the tax credit constituted increased by 7.87% in relation to the year 2018, resulting in the value of R$ 201.66 billion.

Although the IRS has raised this amount, the degree of compliance with the assessments must also be verified, which measures the maintenance of the assessments made by the inspection. These assessments include assessments that were paid, in installments, in administrative collection and those forwarded for registration in Active Debt and the consequent collection in execution.

Below you can check the status of tax credits in 2019:

From the table above, it is possible to verify that most of the credits constituted by the RFB are pending judgment. Therefore, it is not possible to assertively analyze the degree of adherence of the assessments, since most of them are being discussed in the administrative and judicial spheres.

The fines in 2019 were mainly concentrated in industries and financial services. It is true that, together, the two sectors represent more than half of the total fines against legal entities.

For the year of 2020 The plan will continue to prioritize combating tax fraud, tax evasion and the ongoing process of verifying information provided in Digital Declarations and Records.

At this point, the RFB estimates that approximately R$191.30 billion in tax credits will be created for the current year.

Below, we highlight some measures that are included in the Inspection Plan for 2020.

the) Selection of audited taxpayers

The selection process prioritizes large and medium-sized legal entities and individuals with high net worth or income. This does not mean that other companies and individuals will be left out, as violations will also be verified, mainly due to inconsistencies in tax records and periodic declarations, since the Federal Revenue Service is capable of performing powerful electronic cross-checks that identify incorrect transactions.

The selection works as follows:

Taxpayers are selected one year before the tax proceedings are opened. The activities are carried out by teams of Tax Auditors, prioritizing specializations in the analyses. In addition, there is constant monitoring, as a way of evaluating new actions to be considered within the schedule.

b) Provision of information from other countries

Brazil is part of two financial information sharing agreements, one called FACTA (a bilateral agreement for sharing financial information with the United States) and the other called the Common Reporting Standard (“CRS”), a multilateral agreement signed with several countries.

In 2019, the IRS has already received information from several countries, with more than 60 thousand accounts in the USA alone and 860 thousand from 96 countries, a number that should increase in 2020, incorporating it into its database for future information cross-referencing.

w) Public Digital Bookkeeping System (SPED)

• eSocial and EFD-Reinf

In 2020, the obligation to submit this information is foreseen for the third group of companies, that is, individual employers, those opting for the Simples Nacional, individual rural producers and non-profit entities. It is important to note that the first and second groups are already required to submit this information.

Regarding EFD-Reinf, it will also enter the production environment for other business entities, and in 2020 the process of replacing DIRF with EFD-Reinf will begin.

• Electronic Service Invoice (NFS-e)

In 2020, the approval of the Complementary Bill (PLP 521/18) is expected, which establishes the NFS-e and the Invoice Management Committee.

• Tax Simplification

Simplification actions are being intensified, both due to the inclusion of municipalities involved in the NFS-e project, as well as the progress of state tax authorities encouraging the elimination of redundant declarations with SPED.

• Evolutionary Maintenance of Records

The forecast for 2020 contains actions to improve the functionalities of ECD, ECF, EFD Contributions and EFD ICMS-IPI accounting.

d) Review of the Declaration

The Inspection Plan foresees the improvement of the network parameters for 2020.

There are also plans to implement a summons center, enabling the sending of summons for Declarations included in specific operations, in addition to summons of third parties during the tax procedure and sending of letters for self-regulation.

Malha PJ will complete tax procedures and official launches for taxpayers who have not spontaneously regularized their operations: GILRAT, Falso Simples and Self-Employed.

e) Tax compliance – Self-regulation and monitoring of major taxpayers 

The Federal Revenue Service will continue to prioritize the largest taxpayers, in addition to considering the criteria of economic sectors, as well as economic groups. Therefore, the distribution will be made by the Special Coordination of Largest Taxpayers (“COMAC”), in the Regional Superintendencies of the Federal Revenue Service (“SRRF”), which will be distributed in Taxpayer Portfolios under the responsibility of a Tax Auditor or a Team led by him/her.

f)  Main operations that will be subject to inspection in 2020

The main operations targeted by the Inspection for the current year, so that taxpayers can carry out a self-assessment and be aware of their operations, always seeking greater security for their businesses, are:

• New tools to identify tax evasion: the Federal Revenue Service will improve cross-checks to identify taxpayers with assets abroad that have not been declared to the Brazilian tax authorities.
• Prevention of tax crimes: this is a project that aims to cancel CNPJs used in tax fraud.
• Omission of revenue from the sale of goods: differences between the declared gross revenue and the values of the tax documents issued by the Legal Entity will be verified.
• Misleading tax planning: corporate reorganizations carried out solely to reduce taxes will be investigated.
• Tax planning involving equity investment funds and disguised non-residents: 30% of the investment funds are sole proprietors for the purpose of abusive tax planning. Investment funds that are not characterized as investment entities, but rather for asset protection and deferral of tax payments, will be verified.
• Abusive international tax planning: Brazil has significant amounts of exports of commodities, but the largest buyers are located in tax havens or countries with favorable taxation, while the destinations of the products are the largest consumers. Thus, there is a transfer of operating profit to these countries with reduced taxation.
• Evasion in the cigarette, beverage and fuel sectors: in these sectors and in their respective production chains, situations have been identified in which taxpayers adopt behaviors to avoid paying taxes properly and, as a result, impose unfair competition on companies that comply with tax legislation.
• Social security evasion due to improper registration of an option for the Simples Nacional: companies that declare that they are opting for the Simples Nacional in GFIP when they are not will be identified. In 2019, the Federal Revenue Service constituted a total of R$$ 295 million in tax credits related to Social Security Contributions.
• Financing of special retirement: companies were identified whose employees were recognized as having the right to special retirement, without the paying source having contributed the additional amounts provided for in §6 of art. 57 of Law 8,212.
• Non-collection of Withholding Tax declared in DIRF: action was initiated to identify taxpayers who declared the withholding of tax in the Withholding Tax Declaration (DIRF), but without the respective collection.
• Omission of income earned from fixed income financial investments or Interest on Equity (JSCP)– Legal entities opting for Presumed Profit: from 2015 to 2017, 17,934 taxpayers were identified in the tax situation described above, totaling an initial value determined of R$1.6 billion.

More information can be found in full at report published by the Federal Revenue Service.

Our tax team remains available for any questions regarding the matter.