To my sponsors BPO, DECISION IT, NTW and ZETHOS:

Thank you for believing with me that dreams remain possible in an intangible world.

To the good people at REPERKUT: Thank you for the support.

To Edgar Madruga, Fábio Rodrigues and Mauri Negruni:

thank you for your kind contribution.

To my team: Thank you for your patience.

... and David Read

Now I quite understand the expression “doting mother”.

Even without knowing anything about SPED, she is my biggest follower on Facebook.

Even without speaking English, she will be a great reader of this book, I’m pretty sure of that.

Therefore, I dedicate this work to her.

Haydée.

My mother.

Hoje eu entendo bem a expressão “mãe coruja”.

Mesmo sem entender nada de SPED, ela é minha maior

seguidora no Facebook.

Mesmo sem falar inglês, tenho certeza ela será uma grande leitora deste livro.

Portanto, eu dedico esta obra a ela.

Haydée.

Minha mãe.

Editorial coordination / Coordenação editorial

ROBERTO DIAS DUARTE

Project coordination / Coordenação de projeto

JULIANA ANDRADE

Review in Portuguese / Revisão em português

WAGNER FONSECA - LUCIANO GUIMARÃES

(REPERKUT COMUNICAÇÃO)

Translation / Tradução

LOGOTECNIA PRODUÇÕES EDITORIAIS

Diagramming / Diagramação

TALISSA MÓL

Technical Support / Apoio técnico

WAGNER SOARES

Cataloguing of Publication Data / Dados de Catalogação na Publicação

Duarte, Roberto Dias

Big Brother Tax/Roberto Dias Duarte;

ISBN: 978-85-63006-05-9

Bibliography/Bibliografia

1. Accounting/Contabilidade 2. Administration/Administração

3. Information system/Sistema de informação

CDD 658

CDU 658

Copyright © 2013 by Roberto Dias Duarte

All rights reserved/Todos os direitos reservados - IDEAS WORK LTDA - ME

CNPJ: 07.301.671/0001-31

No part of this publication may be reproduced without written permission of the publisher.

Proibida a reprodução total ou parcial, sem autorização por escrito da editora.

Printed in Brazil / Impresso no Brasil

INTRODUCTION

To the major part of the entrepreneurs and professionals involved with the Public System of Digital Bookkeeping (SPED), the predominant feeling is that small businesses began to be influenced by the new system only in 2013. For those observers, the impacts would be limited so far only to large corporations.

In fact, all Brazilian enterprises, whether formally constituted or not, have been object of a massive fiscal digital ecosystem, since the implementation of the first projects of SPED.

In practice, the way to build this ecosystem has been prepared since the 1970s, when the tax administrations of state and federal spheres formulated the bases of the Integrated National System of Economic and Fiscal Information (SINIEF).

The process started slowly, but has gained a deployment speed never seen before in our country, with the private sector and civil society representatives acting reactively, in general.

And that happens both from the standpoint of adapting the companies management to fiscal and labor tax compliance, as in the society representation before the Government to correct structural problems that impede the development of healthy entrepreneurship and undermine the global competitiveness of our nation.

Following, a detailed analysis of those aspects aims to awaken people who already undertake or want to undertake a business, and act professionally with the administration of an enterprise in Brazil. A more proactive attitude of those involved with SPED is essential for business continuity and the economic sustainability of the country. Only then risks will be mitigated and development opportunities actually seized.

As many people are still not familiar with the complex Brazilian regulatory framework, the PART 1 of this book presents some concepts and basic information of the operation in Brazil. The PART 2 covers the SPED and the impact caused in business. The PART 3 consists of charts that consolidate relevant information to the analysis of the Brazilian scenario.

PREFACE

Taxes for the world to understand

It was inevitable. The Public System of Digital Bookkeeping (SPED), of which subprojects began to be implemented in 2006 in Brazil, under understandable mistrust of most local businessmen at the time, has also attracted the attention of foreign companies interested in one of the most expressive Brics.

For a good part of those who see us from the outside and build an alleged corporate reality upon this general perception, we are still a nation dotted by exoticism. Some people still think monkeys and jaguars share the streets of big cities with the population, not to mention that they believe our capital is called Buenos Aires.

The real truth is that we live in an intricate tax jungle that changes at every moment, becoming more complex and treacherous to each provisional measure or new law introduced, which forces entrepreneurs to “kill a lion by day” as a famous popular saying tells. Coincidentally, the king of the jungle is the icon of the Treasury here.

Because of this whole scenario, responsible for bringing many Brazilian entrepreneurs to nervous and financial breakdowns, the corporations that have already invested in the country or that thought about doing it at some point, unfortunately find themselves grappling with an endless list of highly demotivating tax obligations.

Added to this problematic is the legal uncertainty that surrounds the decisions of our courts, with so diverse reasons that impede international corporations deciding quietly when they think about coming here.

The absurdities come to the point that many companies fail to inject significant resources in our economy because, for example, they would have to bear the harmful effects of double taxation. Not for lack of treaties in this regard, but the simple failure of the existing ones.

From the point of view of the geography and the diversity of laws, Brazil also creates barriers to foreigners. Even to the Europeans, historically surrounded by territorial and separatist disputes, it causes awkwardness how a confederate nation like ours can live with several different tax systems among the States.

Based on this thorough analysis and after writing five books to unravel the intricate ways of national tax to the Brazilian market, Professor Roberto Dias Duarte, warm and receptive as every person born in the Brazilian State of Minas Gerais, decided to open a window into the reality of this world.

By publishing a book in English, detailing the complex Brazilian tax system, he accepted the challenge to expose to foreign investors a “high resolution” photograph of this faulty DNA that Brazil carries since 1500.

For someone who has given over 400 lectures across the country and is one of the most required source of information by the national media on the topic, to explain the tax system and its characteristics runs into simplicity, the very thing our tax system most lacks.

And his direct and uncomplicated ways were the features that called our attention when we first met back in 2008, asking for an article to be published in a newsletter edited by our communications agency.

Used to support clients in fiscal, accounting, tax and IT areas, we summarized the content according to the available space and were impressed with his speed in interacting with the modifications suggested by us.

The result was a significant repercussion of this initial work, built by six hands, giving birth to a solid business partnership and friendship that fortunately endures still today.

We hope the readers of this book will also have good reasons to remember as remarkable and unforgettable this first contact with Professor Roberto and his own way of explaining even what seems inexplicable.

Wagner Fonseca and Luciano Guimarães

Journalists, specialized in tax and accounting segments

My dream, your dream, the dream of every Brazilian

Writing a text about Roberto Dias Duarte in one of his books is more than an honor, it is retribution.

We learn every day from people who think and do things in a different way than our own. That is very useful and pleasant. Living in an environment that promotes many alternatives is wonderful. In this regard, I believe that both Roberto and I are very glad to be able to take part in this wonderful moment in our country, with economic and social growth, besides the redesign of ancient practices.

When I mention the word “practices”, I am not only referring to what is or was done, but also and mainly to what we think and how we used to think. I can go even further, establishing as main factor the “how we used to think” until now and how we are going to think our social, economic and tributary relations from now on.

I first met Roberto Dias Duarte through the Internet. Via the web, I have heard about a man from Minas Gerais who was creating a blog and used to write a lot about the Public System of Digital Bookkeeping (SPED). Then, I thought: “The thing this guy is doing will work very well”. Other professionals have also done the same. We have exchanged some e-mails – maybe he won’t remember that – and we personally met some time ago in Belo Horizonte. It was a huge synergy of thoughts and opinions. We haven’t necessarily agreed to every point, but that was exactly the central idea to where we converged – to conciliate opinions and aggregate knowledge to both of us. We used to talk for long periods of time. When one interrupted the other, there was a great dispute for the last seconds, because each one wanted to finish his explanation of the idea. Always very friendly and respectful.

I have attended a public school. That was during the military dictatorship in Brazil, when the education was kind of monitored by the repression agents of the time. I was on the front line of the political opening in Brazil during General Figueiredo’s government, together with my fellow students who were very active in politics.

After the process of the political opening, we could talk about everything at home. Even about politics. We earned the freedom to criticize the government – from any time – due to the inflation, the cost of living, the highways or the nuclear plants, etc. We had the right to protest. That fact was so important to me that I still enjoy a good exchange of ideas. It doesn’t matter if I am part of the audience, supporting actor or protagonist. I want to exercise the right of creating my own opinions.

That fertile environment of ideas and compromised with improvements – from the political opening, democracy, and with the economic opening at the end of the nineties – has developed in many people the glimpse of a new political, economic and social moment. In its own speed, the Brazilian government started to implement policies for the poorer people to enter the labor market and, consequently, to obtain income and to consume. The country has changed a lot since the eighties.

Well, we are confronted today with another possibility to dream and do something better to society: the Public System of Digital Bookkeeping (SPED). The system is a radical change to the minds of many fiscal and accounting professionals. Those professionals have been performing the same routines in their offices for years. They have been providing their services without looking ahead and never realizing that everything could be different one day. It seems like a story to be told in a cartoon.

When somebody creates something that jeopardizes the stability of the galaxy, the knowledge supporting those professionals’ position in the market can’t be secured for much longer. It is necessary to renew things, to do again and in another way. Whenever is possible I compare SPED with the Brazilian electronic voting machines. Back in time, could somebody believe that we would do in Brazil something nobody in the world had ever done?

Despite the objectives, redundancies and lack of specifications about the requirements for the entries and the electronic invoice, the Public System of Digital Bookkeeping has brought to the companies a revision of concepts and processes never experienced before in the country. Basic concepts that had not been fulfilled since a long time for whatever reason started to be reviewed.

SPED’s main merit was not changing the legislation and, instead, exposing the fulfillment of fiscal obligations or its lack. After its implementation, a notable part of the entrepreneurs felt revolted and wanted to raise issues from the past (even the ones never attended by them).

When SPED and the tax authorities started to demand the fulfillment of the obligations, they gave birth to a new way of looking at processes that endangered the companies’ businesses. For example, the requirement of the source document to return a product (sale or purchase) has improved the financial control by the companies. As questioned by Roberto Dias Duarte, my colleague of lectures throughout Brazil: “Is this what SPED is all about?” The evident answer is no. That’s the implementation of the necessary control devices to a good business management.

Managers let the control escape from their hands because of details. I will try to explain – when the control devices of a company are subject or associated to people, they are under high suspicion. That way, even though the most perfect system of the world (ERP: Enterprise Resource Planning) could control a company, people would still have to possess a special password to perform certain tasks. Those tasks will have to be performed based on safe processes, with audit trails and in accordance to the company’s policy. In an innocent way, SPED demands the companies exactly this – control, process and audit trails. Can those demands be exaggerated in some way? Yes, but, generally speaking, SPED imposes a minimum level of control, always from the accounting or fiscal side.

Being transparent to the inspection agents feels too uncomfortable to some organizations, because it is performed by the tax authorities. In other words, if the tax authorities notice any lack of control in a company, that will always incur into some kind of penalty. More than that, the tax calendar is imposing. That is also an inconvenience, for the organizations have other priorities but are obliged to stick to the “novelties” brought by the tax calendar.

There it is another SPED’s demand, planning. If a company follows the tax authorities’ moves, it is able to broadly plan its fiscal projects, as well as the impacts of that systematic on the company’s activities. In this regards, we are walking again on the path of a good management. After all, planning suits to good results.

Before implementing the digital bookkeeping for ICMS/IPI, for example, large businesses did not have the slightest idea about the quantities and values of the merchandise owned by them and held by third parties (in other companies). Despite all the trouble to implement SPED, the system was the reason companies got better information about the processes responsible for remittances and returns that never came back.

Still about the benefits to the companies – and in that particular item it’s possible to add a general benefit to the society –, I highlight the drastic reduction of paper to store the organization’s accounting and fiscal information. In a time when even the phone book has disappeared from homes and offices, it is a nonsense using paper to press books that could be used in the future.

Therefore, SPED has also brought that improvement to the work environment. It can seem a really tiny derivate, but it was so important it got noticed by several publications: the adoption of SPED has substantially reduced the space used to store fiscal and accounting documents and books. I still accredit SPED for one more advantage: a cleaner printing technology, since it doesn’t use carbonless paper to print the electronic invoice (fewer copies, which means less paper).

A significant gain to the tax authorities and the society is the acquisition of an environment which is much more democratic in terms of competition. After all, if public managers actually execute their auditing tasks and consequently remove all the fraudulent, malicious and unfairly competitive companies from the market, we will have a new business scenario in the medium term.

Once the Brazilian tax burden is on the verge of absurdity, the temptation to evade tax is very present. In some cases, especially with small companies, the risk can compensate some eventual loss here and there. With the information technology working in favor of tax authorities, what fiscal agents used to check by sample is now fully examined by intelligent systems and data crossing in order to search for evidences of fraud against the public treasury.

A higher perception of monitoring tends to minimize or even eliminate those ancient practices. Once the resources embezzled from companies can’t be part of their regular asset anymore, becoming a source for dubious deals, not only the business environment keeps sanitized. By reducing the origin of those resources, the society itself is benefited.

Brazil still has an unavoidable commitment. The tax reform will undoubtedly be the greatest legacy any statesman could leave his country. Nowadays, companies come to Brazil looking for investment opportunities, but they panic in the moment they examine the tax and fiscal liabilities of the country.

When we talk about the bookkeeping process during meetings, eyes widen up and everyone looks at the exit door, as if wanting to escape. Besides the heavy tax burden, the accessory obligations are numerous, absurd and repetitive. All of that reflects in the goods and services cost, because we know that, beyond profit, the price contains cost (direct or indirect). With more expensive products in a globalized market, the loss of opportunities is equally distributed to everyone in society.

Everybody loses if a foreign company stops investing here because of bureaucracy, including those people who would never hear of the company that would generate wealth and pay their taxes on time. Even boys and girls from public schools will suffer the consequences of the lack of investment in the country, because the lower collected taxes will not be enough to maintain and improve public services.

We have currently in Brazil more than 80 taxes, and most of them are generated from the use of public services. However, there are about 12 taxes at the municipal, state and federal areas. In comparison to other countries, the amount is high. Besides that, the form companies have to prove the calculation of such complex taxes demands a lot of effort, generating even higher costs.

In such a complex and expensive scenario for all of us (taxpayers), a novelty emerged, to which Roberto and I have high, but distinct, expectations. It’s about the communication of the taxes in the tax document (coupon or electronic invoice). Once most taxes are embedded in the value of products and services, the consumers end up without a clue about the taxation they pay when buying something in Brazil. Since the first of June, 2013, that is an obligatory information when selling to consumers.

With the disclosure of that information, Roberto expects the citizen can start to effectively reflect upon his contribution to the public treasury. In other words, when people notice they are contributing to the State (in all spheres) with approximately 30% of the transaction when buying a new car, for example, that fact can generate two (or more) actions from the consumers’ side: mobilization to demand tax reduction or even the demand for a significant improvement of the public services provided by the State.

On the other side, my expectation arrives a little earlier than Roberto’s: “Will there be any change in terms of consumer’s behavior?”. It’s obvious that the consumer is going to consider the detailed amounts when buying a new car. However, the consumer performs a much higher volume of operations every day at department stores, gas stations, supermarkets, restaurants, drugstores, etc.

In that regard, the consumer’s behavior is of importance to me. Will they wait for the coupon’s emission, for whatever reason – to check the taxes paid or to be sure the taxes highlighted in the issued document will be effectively given to the State? That new mindset, that taxes are the society’s financial resources, must be common in Brazil.

A modern society strives for knowledge. We are living in the Age of Knowledge and I frankly dislike the idea that companies spend so many resources with their employees to determine taxes that could be simpler, more efficiently computed and better applied. That is the common dream of all citizens living in Brazil. Without any doubt, we want a fairer, freer and more democratic society where the economy is strong. We don’t want to be stuck in the past. We want to contemplate the opportunities for future development with responsibility and democracy. Regarding that desire, I have a great working partner with me every day: Professor Roberto Dias Duarte.

Mauro Negruni

Founding partner and services director at Decision IT

Big Brother Tax

This book is a gift to the entrepreneur, investor or executive who does not speak Portuguese as native language and is interested in working or investing in Brazil. It breaks the language barrier by providing, in English, all the knowledge and competence of the expert and writer Roberto Dias, author of major works on taxes and SPED in Brazil.

Understanding the Brazilian law is no easy task for Brazilians and local businessmen, much less for the stranger who ventures in these lands or must be present in the country. With the positive exposure of Brazil, one of the BRIC countries – Brazil, Russia, India and China – in a turbulent international season, many investors need to understand the laws, taxes, SPED, among other items, to then feel the least comfortable to perform such actions.

The author, Roberto Dias, demonstrates in his books, blogs and articles his competence in the matter, presenting numbers, websites, examples, laws and more, so that the reader begins questioning and thus understanding how to manage business in this land where the government can have a strong visibility of the company, its revenues, costs and taxes.

The author uses the allusion to the BIG BROTHER tax to signal that the government is aware and “watching” everything and everyone more closely in a country once known as the paradise of tax evasion, with fraudulent inspections and the “Brazilian knack”. If people persist in maintaining that ancient behavior, they will get caught by inspections, increasingly more serious, fair and necessary to the growth of the country, without prejudice to the honest taxpayers.

The book addresses important issues, the understanding of the Brazilian Federal Structure and the origins of laws, and covers the understanding of taxes and duties, their types and the identification of the relevant laws in the code, facilitating the quick access to them. The SPED, focal point of the work, explains this important milestone of the Brazilian law, showing its evolution, motives and an insight into the future – What’s next? Important insights for the entrepreneur to survive and prepare.

The SPED has the support of the pioneering Electronic Invoice (NF-e) which allowed the government to generate information in real time about billings and, therefore, its taxes. Roberto Dias is going to comment on the history of this project and the advantages of having the electronic invoice in the country to audit companies.

Regarding the growth of formal entrepreneurship in Brazil, the author presents statistics and arguments that demonstrate the importance of small business, analyzing the tax created for this type of companies, which facilitates the calculation and payment, enabling those companies to stay alive.

Analyzing the fiscal environment and the taxes, considered one of the highest in the world, the author brilliantly presents studies showing the high rates levied in the country, obstacles to the entrepreneurship and the growth of organizations, addressing the accessory obligations imposed on businesses in general and the question of cumulative tax.

The existing bureaucracy in Brazil is another obstacle raised by the author. This need for calculations and generation of obligations/information does not only ask for, but requires the existence of an ERP in organizations. Managing a business is no longer a job that could be done once by amateurs, it requires professional management now. The ERP is the basis for this management, and also provides information to the SPED. The importance of those management systems is such due to the difficulty of providing detailed information by the accounting companies, once responsible to send their customers data to the tax authorities. As Roberto Dias points out with excellence, the opportunities for technology companies are open, since less than 1% of organizations uses ERPs.

This book is undoubtedly a masterpiece of an expert in the field who can clearly and accurately pass on his knowledge and support the readers with their decision making. If the subject is not easy, the author transforms its reading into something simple and didactic.

I congratulate my friend Roberto Dias for this contribution to the country and the world.

Valmir Neves

CEO and President of Zethos

The cost of learning

Brazil has been noted for the excellence in the development of technologies for electronic registration of information and crossing of accounting and tax data. Indeed, the SPED’s creation and the greater integration between States and Union increased the siege in the war against tax evasion, boosting government revenue and enhancing the competitive landscape of companies operating within the legal precepts.

Unfortunately, the government will to strengthen its tax collecting intelligence did not reflect itself in actions to untangle the entrepreneur’s life. Understanding and applying the complex Brazilian tax system and adapting to the constant changes in the law are not simple tasks. And they are expensive. Very expensive. On the top of the high tax burden, companies are forced to invest heavily in learning to stay updated.

As brilliantly exposed by the author Roberto Dias Duarte in this work, “we certainly can say that our tax and labor system is the most expensive in the world for business”.

The tax consultancy, not the one aimed at planning but to the mere definition of procedures, is already part of the daily routine of the manager in Brazil. Expenses generated by rework or fines due to errors are also not rare events. However, nothing is more costly than the time entrepreneurs spend to understand and decide, sometimes facing contradictory opinions, for the adoption of tax rates and other practices related to taxes, rather than engaging in the production or marketing of their goods and services.

It is already difficult for the national entrepreneur, but even worse for foreign investors. This is the importance of “Big Brother Tax”, to decipher in a simple and objective way the tangle of acronyms and normative statements to which the companies operating in the country are subjected, clearing to the eyes of the lay reader the horizon of opportunities in the Brazilian market.

BPO Brasil is proud to support this project.

Eduardo Amaral

CEO BPO Brasil

The story of "The Roasted Pigs" has been used a lot to explain the Brazilian tax system in a metaphorical way. I believe reading this tale can save much time in searching the explanation for why such a complex system still survives in the country.

Once upon a time, there was a fire in the woods where some pigs lived. They got roasted by the fire. The people there, used to eat raw meat, tasted roast pork for the first time and found it was delicious. Then, every time they wanted to eat roast pork, they set fire to a forest until they noticed they discovered a new method.

But the important thing to be told is what happened when they tried to change the system to deploy a new one. Things haven't been going well all the time. Sometimes the animals got totally burned or remained partially raw — it was impossible to use them. As it was a procedure mounted on large scale, everybody was very worried. If the system failed, the incurred losses were also big. Millions of people ate roast beef and many other millions took care of this task. Therefore, the System simply must not fail. But, interestingly, the larger the operation, the more it seemed to fail and cause bigger losses.

Because of the deficiencies, the complaints increased. The need for a profound reform of the system was already a widespread call. It was so much so, that many congresses, seminars, conferences and workshops were held to find the solution. But they couldn't improve the mechanism, because the congresses, seminars, conferences and workshops repeated themselves the following year. And so on.

According to experts, the causes of the System failure should be attributed to the indiscipline of the pigs that didn't stay where they should be, the fire's fickle nature, so difficult to control, or even the trees, too green; the moisture of the earth, the weather information service that didn't foresee the correct place, time and quality of the rain, or...

As seen, the causes were difficult to determine because, in fact, the System of roasting pigs was very complex. They had built a large structure; large machinery with numerous variables had been institutionalized. There were many individuals dedicated to set the fire — the incendiary were experts in different sectors (north, west zone, etc.); there were incendiaries of the night and the day, specialized in mornings and afternoons, incendiaries of summer and winter (with legal disputes on autumn and spring). There were wind specialists. There was a general director of Roasting and Roasted Food, a director of Igneous Techniques (with a General Council of Advisors), a general manager of Inflammable Forestry, a National Commission for Professional Training in Pigology, a Superior Institute of Alimentary Culture and Techniques and the Advisor Bureau of Igneous Operative Reforms.

The Bureau was so big it had one reform inspector for approximately 7,000 pigs. And it was precisely the Bureau that promoted annual congresses, seminars, conferences and workshops. But that only seemed to increase the Bureau's bureaucracy.

The creation of new woods and forests had been projected following the latest technical indications (in regions selected according to a certain direction, in a place the wind blew no more than three hours and with a reduced air moisture percentage).

There were millions of people working in the preparation of the woods that would soon be burnt. There were experts in Europe and the United States studying the importation of the finest woods, trees, seeds, to produce the best and most powerful fire. They also studied operative ideas (e.g., making holes to collect the pigs). There were huge facilities to keep the pigs before the fire, engines to let them out at the appropriate time, specialists in pig nutrition, etc.

There were stables for pigs and their constructions, teachers training experts in building stables for pigs, universities preparing teachers to train experts in building stables for pigs, researchers providing the fruit of their labor to the universities preparing teachers to train experts in building stables for pigs, foundations that supported the researchers who gave the fruit of their work to the universities to prepare teachers to train experts in building stables for pigs, etc.

The solutions suggested by the congress were, for example, to apply the fire triangularly, taking into account the speed of the South Wind, to release the pigs 15 minutes before the forest's pro-middle fire reached 47 degrees. Others said it was necessary to place large fans to guide the fire's direction, and so on. And it is not necessary to say that only few experts agreed with each other and they had their own research and data to prove their own statements.

One day, an incendiary of the category SW/DMRS (Incendiary of Woods Specialist in Southwest, Day, Morning, with Degree in Rainy Summer) called John Common Sense said the problem was easy to solve. According to him, everything consisted primarily in cleaning and cutting the chosen pig in a proper way, putting it subsequently in a metal frame or cage over coals, until the effect of the heat, and not the flames, roasted it.

Aware of it, the general director of Roasting called him to question about the strange things he had been talking about and, after hearing it, he said:

"What you are saying is OK, but only in theory. It's not going to work in reality. Even worse, it's impracticable. Let's see. How would you adapt the wind technicians into this new reality suggested by you?"

"I don't know," John answered.

"What are you going to do with the incendiaries of multiple specialties?"

"I don't know."

"And the specialists in seeds, in woods? And the designers of seven floors stables, with their automatic cleaning and perfuming machines?"

"I don't know."

"And the people who lived abroad for years to specialize and whose education cost so much to the country? Is it fair for them to clean piggies?"

"I don't know."

"And those who had been specializing for all those years in participating of congresses and seminars to the Reform and Improvement of the System? If your idea solves everything, what do I do to them?"

"I don't know."

"Do you understand now that your solution is not what everybody needs? If everything was so simple, don't you believe that our specialists had not found the solution already? Think about it! Which authors talk about it? Which authority can assess your suggestion? You certainly realize I cannot tell the wind engineers they should substitute the flames by little coals! What do I do with the woods already prepared to be burnt, which only have wood suitable for fire-on-set, where the trees don't produce fruits and the lack of leaves makes it useless to create shade? What do I do? Tell me.”

"I don't know."

"What do I do with the Writing Commission of Roasted Programs, with their Departments of Classification and Selection of Pigs, with the Functional Architecture of Stables, Statistics, Population, and everything else?"

"I don't know."

"Tell me. The engineer in Pigology, Mr. J. C. of Figuration, isn't he an extraordinary scientific personality?"

"Yes, it seems so."

"Well, the sheer fact the System disposes of valuable and extraordinary engineers of Pigology indicates that the System is good. And what do I do with such valuable people?"

"I don't know."

"Do you see that? You have to bring solutions to certain problems. For example, how to produce better wind technicians, how to recruit more West incendiaries in a shorter period of time, which is our greatest difficulty, how to build eight floors stables instead of the current seven floors stables. You have to improve what we already have, not to change it. Bring me a proposal to reduce the costs of the scholarships given, or show me how to make a good review to the deep analysis of the Roasting Reform problem. That is what we need. That is what the country needs. You lack wisdom, common sense! Tell me, for example, what do I do with my good friend and relative, the president of the Commission for the Study of Utilization of the Former Woods' Waste?"

“I’m really perplexed,” John said.“Well, now that you know the problem better, don’t tell you can fix everything. Now you see the problem is more serious and not so simple than you imagined. People from below and from outside say they can fix everything. But they need to be inside to know the problems and the difficulties. Now, between us, I recommend you don’t insist on your idea, because it could bring problems to you in your function. I don’t talk because of me! It’s for your own good, because I understand you and your opinion, but you know you can find another superior with a less understanding attitude. You know how they can be, don’t you?”

Poor John Common Sense, he didn’t say anything else. He left without saying good-bye, a little scared and confused, with the feeling of walking with his head down. Nobody saw him again. Nobody knew where he had gone. This is why they say those tasks of reform and improvement of the System lack the common sense.

I - FEDERATIVE STRUCTURE

Brazil is a federal presidential constitutional republic consisting of 26 States, the Federal District and 5,565 municipalities organized into three branches: the Legislature, the Executive and the Judiciary. The President of the Republic combines the functions of Head of State and Government.

The Legislature, in turn, is exercised by the National Congress, which is divided into two houses: the Chamber of Deputies, with seats distributed according to the population of each State, and the Senate, where each federal unit is represented by three members.

The Judiciary in Brazil is divided into four jurisdictional areas: the Common Court, the Labor Court, the Electoral Court and Military Court. Each comprises two indentations and a higher instance. The highest sphere of the Judiciary, the Supreme Federal Court judges actions on the Constitutional Law.

The highest organ of the Union and the civil courts, the Supreme Court is over the regional federal courts, as institutions of second indentation, and federal judges in each State forming the organs of first indentation.

While the Federal Court judges public law matters relating to the Union, the State Court, through the Courts of Justice, decides on private and public law concerning public administration of the State to which it belongs.

The Labor, Elections and Military Courts have as maximum organs the Superior Labor Court, the Superior Electoral Court and the Superior Military Court, and there are still the Federal Regional Courts.

The Brazilian federative units are subnational entities with autonomous government, law and tax collection, and their executive power is exercised by a governor. Each State has a single chamber Legislative Assembly with State legislators.

The Federal District’s features are common to the Member States and municipalities, but can be divided into administrative regions. On the other hand, it is able to collect taxes in the same way of a State or municipality.

Territorial constituencies with legal personality and a certain administrative autonomy, municipalities are the smallest independent units of the Federation, each with its own Organic Law that defines the political organization, but always limited by the Federal Constitution.

The municipalities have only the executive power, exercised by the mayor, and the legislature, headquartered in the City Hall. The judiciary is organized in form of districts that span multiple municipalities or part of a densely populated locality. So, there is no specific judiciary to each municipality.

II - SOURCES OF TRIBUTARY LAW

The law is the primary and immediate source of the Tributary Law in Brazil and its hierarchical levels are:

The Federal Constitution (FC), a sovereign source that overlaps the others and with which they must harmonize.

The Complementary Law deals with matters reserved by the Constitution, as general rules of Tributary Law, conflicts of jurisdiction and the power to tax limitations.

Common Law: edited by the Union, the States and municipalities according to their skills. An example is the National Tax Code (NTC), established by the Common Law No. 5.172/66, with this status.

Delegated Law: in the same hierarchical level of the common law, prepared by the President, by delegation from Congress.

Provisional Measures: equivalent to the common law at its hierarchical level, they are issued by the President in case of relevance and urgency. Their legal effects are immediate, but if they are not converted into law within thirty days, they lose effectiveness from editing.

Legislative Decree: act of exclusive competence of the National Congress, it ratifies treaties and international conventions.

Resolutions: promulgated by the Bureau of the Senate with the force of common law, they deal with matters specifically outlined in the Constitution.

Then, there are the secondary sources of the Brazilian Tributary Law — acts of the lower hierarchy, subordinate to the law, as defined in the NTC: “Article 100. The following are complementary standards of laws, international treaties and conventions and decrees:

I - the normative acts issued by the administrative authorities;

II - the decisions of individuals or collective bodies of the administrative jurisdiction, to which the law confers normative effectiveness;

III - practices repeatedly observed by the administrative authorities;

IV - the covenants celebrated between the Union, the States, the Federal District and the municipalities.”

Thus, secondary sources are regulatory decrees, ministerial instructions, circulars, directives, orders and normative acts of the administrative authorities.

The role of the Federal Constitution regarding the National Tax System is essential to define the tributary power of the political entities of the Federation (Union, States, Federal District and municipalities) to conceptualize the general principles and requirements of Tributary Law, to establish limitations to power to tax, as well as the division of tax revenues and compulsory bindings.

Any State activity is regulated by legal rules. Ordinary citizens are allowed to do whatever the law does not prohibit. However, the public administrator is only allowed to do what the law expressly authorizes.

The Constitution determines which taxes are responsibility of each political entity, and these can only set those expressly provided for in the text of Magna Carta. There is only one exception with reference to the residual jurisdiction of the Union to institute other taxes,

“only if they are non-cumulative and do not have taxable event or calculation base described in the Constitution; extraordinary taxes, on the verge or in case of foreign war, understood or not by its power to tax, which will be abolished gradually ceased the causes of its creation”.

The National Tax Code establishes the general rules of Tributary Law required by the Constitution and regulates tax rules applicable throughout the national territory.

I - TAXES

The word “tribute” derives from the Latin tributum, and concerns what is delivered to the State for duty. The Internal Revenue Code defines it:

“Article 3. Tribute is every compulsory pecuniary payment, in currency or whose value it can express, that does not constitute sanction of an illicit act, established by law and charged by fully bound administrative activity.”

In other words, tribute is every compulsory payment to the State in money, but the law may permit it to be done with something of equivalent value to money; it is not penalty for breach, and only the instrument of fine is considered a pecuniary sanction arising from illicit acts; there is no tribute in the law that institutes it and its collection must be performed as required by law.

The classification of tribute species established by the Federal Constitution:

“Article 145. The Union, the States, the Federal District and the municipalities may institute the following tributes:

I – taxes;

II – fees, due to the exercise of the police power or the actual or potential use of specific and divisible public services, rendered to the taxpayer or made available to them;

III - benefit resulting from public works.”

(...)

“Article 148. The Union may institute compulsory loans by complementary law:

I - To meet extraordinary expenses resulting from public calamity, foreign war or its imminence;

II - In case of public investment of urgency and national interest, subject to the provisions of art. 150, III ‘b’.

(...)

Article 149. It competes solely to the Union to institute social contributions of intervention in the economic domain and of the interest of professional or economic categories, as an instrument of its operations in the respective areas, (...)”

Therefore, the tributes in Brazil are divided into: Taxes, Special Contributions, Contributions of Benefit and Compulsory Loans.

Taxes

Taxes are not related tributes. To collect them, the State does not need to provide consideration for services or work for the taxpayer. If this gets any advantage, it will be indirect, resulting from the realization of the common good.

Fees and contributions of benefit

Related tributes are those whose collection is justified by the existence of a particular activity of the State, geared directly to the individual who paid the tribute, benefiting the payer in some way. In other words, there is the requirement for State consideration.

The fees and contributions for benefit are included in this case, and the State can collect them if a given public service — such as garbage collection, treated water supply, issuance of a passport or the execution of a public work — results in direct benefit to the individual.

Compulsory loans and special contributions

The Federal Constitution provides other two tax figures that fit perfectly the definition of tax described above and are treated as if they were taxes: the compulsory loans and special contributions.

The power to create them is exclusive of the Union. However, there is the possibility of Member States and municipalities to “establish social contribution deducted from their servers, to fund welfare systems and social assistance to their own benefit,” (FC, art. 149, § 1).

Special contributions can be social and of interest to professional and economic categories.

Social contributions

They are the source of financing the social security system, by virtue of services rendered by the State arising out of constitutional social rights. In Brazil, we have the Civil Service Asset Formation Program (Pasep), the Contribution to Social Security Financing (Cofins), the Social Contribution on Net Corporate Profits (CSLL), in addition to social security, such as those for employees, employers and autonomous to the INSS.

Contributions of interest of professional categories

Instituted to legally regulated professions in order to fund the activities of control, supervision and discipline of professional practice.

Contributions of interest of economic categories

They are compulsorily collected from employers and employees to benefit agencies to defend their interests - unions and educational and social service institutions (Senai, Sebrae and Sesi, among others).

Compulsory loan

The most relevant and differentiating aspect of this tributary specie is the future tax refund of the amount collected. However, it also requires the ability to pay and a supplementary law to establish it. Only the Union may institute it (FC, art. 148, heading) and still in one of the following hypotheses envisaged in the Constitution:

a) “to meet extraordinary expenses resulting from public calamity, foreign war or its imminence” (FC, art. 148, I);

b) “In case of public investment and urgent national interest”, in which case it can only be claimed in the year following the publication of the respective law (FC, art. 148, II).

TRIBUTES LIST

Federal taxes:

. Tax on the Import of Foreign Products (II)

. Tax on the Export of National or Nationalized Goods (IE)

. Tax on Income and Earnings of Any Nature (IR)

. Tax on Industrialized Products (IPI)

. Tax on Credit Operations, Exchange and Insurance or relating to Bonds and Securities (IOF)

. Rural Land Tax (ITR)

State taxes:

. Tax on the Operations relating to the Circulation of Merchandise and Interstate and Intermunicipal Transportation Services and Communications (ICMS)

. Tax on the Property of Automotive Vehicles (IPVA)

. Tax on Property Transmission Causa Mortis and Donation of any Assets and Rights (ITCMD)

Municipal taxes:

. Tax on Urban Land and Property (IPTU)

. Tax on Services of Any Nature (ISS)

. Transmission Tax Inter Vivos, in any way, by costly act of Real Estate (ITBI)

Without regulation

Wealth tax (IGF): Provided in the Constitution, the IGF does not exist in practice because although the Magna Carta gives skills for creating taxes, this step always depends in Brazil on Supplementary Law.

Fees

. Fee for the Authorization of Foreign Work

. Fee for the in loco Evaluation of Education Institutions and Graduation Courses (Law 10.870/2004)

. Fee for Conformity Assessment (Law 12.545/2011 - art. 13)

. Fee for Classification, Inspection and Supervision of Animal and Vegetable Products or of Consumption in Agricultural Activities (Law 1.899/1981)

. Fee for Garbage Collection

. Fee for Fire Fighting

. Fee for Public Conservation and Cleansing

. Fee for Environmental Control and Monitoring - TCFA (Law 10.165/2000)

. Fee for Control and Supervision of Chemicals (Law 10.357/2001 - art. 16)

.Fee for Issuing Document (in the level of the municipality, the State and the Union)

. Fee for the Inspection of Civil Aviation - TFAC (Law 11.292/2006)

. Fee for the Inspection of National Water Agency - ANA (art. 13 and 14 of MP 437/2008)

. Inspection Fee CVM - Brazilian Securities Commission (Law 7.940/1989)

. Inspection Fee for Sweepstakes, Giveaways and Contests (art. 50 of the MP 2158-35/2001)

. Inspection Fee for Sanitary Surveillance (Law 9.782/1999 - art. 23)

. Inspection Fee for Products Managed by the Brazilian Army - TFPC (Law 10.834/2003)

. Inspection Fee for the Insurance and Reinsurance Markets, Accumulation and Open Pension Funds (Law 12.249/2010 - art. 48-59)

. Annual Licensing Fee for Vehicles (Law 9.503/1997 - art. 130)

. Fee for the License, Inspection and Control of Nuclear and Radioactive Materials and its Facilities (Law 9.765/1998)

. License Fee for Operation and Municipal Permit

. Fee for Mineral Research DNPM (Ministerial Decree 503/1999)

. Fee for Administrative Services - TSA - Free Economic Zone of Manaus (Law 9.960/2000)

. Fee for Metrological Services (Law 9.933/1999 - art. 11)

. Fees to the National Petroleum Council (CNP)

. Fee for Grant and Inspection - Electricity (Law 9.427/1996 - art. 11, paragraph I, and Articles 12 and 13)

. Fee for Grant - Community Radio (Law 9.612/1998 - art. 24, and Decree 2.615/1998 - art. 7:42)

. Fee for Grant- Waterway and Land Transportation (Law 10.233/2001 - art. 77, sections II and III, the art. 97, IV)

. Fee for Supplementary Health - ANS (Law 9.961/2000 - art. 18)

. Fee for Siscomex Utilization (IN 680/2006 - Art. 13)

. Fee for Mercante Utilization (Decree 5.324/2004)

. Fee for the Registry of Trade (Boards of Trade)

. Judicial fees

. Procedural fees of the Administrative Council for Economic Defense - CADE (Law 12.529/2011 - art. 23)

OTHER TRIBUTES

. National Institute of Social Security (INSS) - autonomous and entrepreneurs

. National Institute of Social Security (INSS) employees

. National Institute of Social Security (INSS) employers

. Contribution to the Social Integration Program (PIS) and Civil Service Asset Formation Program (Pasep)

. Additional Freight for Merchant Marine Renewal - AFRMM (Law 10.893/2004)

. Contribution to the Directorate of Ports and Coasts - DPC (Law 5.461/1968)

. Contribution to the National Fund for Scientific and Technological Development - FNDCT (Law 10.168/2000)

. Contribution to the National Fund for Education Development (FNDE), also called “Education Allowance” (Decree 6.003/2006)

. Contribution to the Fund for Assistance to Rural Workers (Funrural)

. Contribution to the National Institute of Colonization and Agrarian Reform - INCRA (Law 2.613/1955)

. Contribution to the Occupational Accident Insurance (SAT)

. Contribution to the Brazilian Service of Support for Small Business - Sebrae (Law 8.029/1990)

. Contribution to the National Service of Commercial Learning - Senac (Law 8.621/1946)

. Contribution to the National Service of Learning in Transport - Senat (Law 8.706/1993)

. Contribution to the National Service of Industrial Learning - Senai (Law 4.048/1942)

. Contribution to the National Service of Rural Learning - Senar (Law 8.315/1991)

. Contribution to the Social Service of Industry - Sesi (Law 9.403/1946)

. Contribution to the Social Service of Commerce - SESC (Law 9.853/1946)

. Contribution to the Social Service of Cooperatives - Sescoop (MP 1.715-2/1998 - art. 9, I)

. Contribution to the Social Services of Transport - Sest (Law 8.706/1993)

. Confederate Labor Contribution (employees)

. Confederate Patronal Contribution (employers)

. Contribution for Intervention in the Economic Domain - CIDE Fuels (Law 10.336/2001)

. Contribution for Intervention in the Economic Domain - CIDE Remittances Abroad (Law 10.168/2000)

. Contribution for Social and Educational Assistance to Professional Athletes - FAAP (Decree 6.297/2007)

. Contribution to Costs of Public Lighting Service (Constitutional Amendment 39/2002).

. Contribution to the Development of the National Film Industry - Condecine (Provisional 2228-1/2001 - art. 32, and Law 10.454/2002)

. Contribution to the Public Broadcasting Investment (Law 11.652/2008 - art. 32)

. Social Security Contribution on Gross Revenue - CPRB (Law 12.546/2011 - art. 8)

. Labor Union Contribution

. Patronal Union Contribution

. Additional Social Contribution to the Reinstatement of Inflationary Losses of FGTS (Complementary Law 110/2001)

. Social Contribution for Social Security Financing (Cofins)

. Social Contribution on Net Profits (CSLL)

. Contributions to Professional Supervisory Bodies (Order of Lawyers of Brazil - OAB, Regional Accounting Council - CRC; Regional Council of Engineering, Architecture and Agronomy - Crea; Regional Council of Realtors - Creci; Regional Board of Administration - CRA, etc.)

. Contributions of Benefit: asphalt, paving, sewage, water supply, sewage system, etc.

. Airway Fund - Faer (Decree Law 1.305/1974)

. Fund to Combat Poverty (EC 31/2000 - Art. 82)

. Telecommunications Supervision Fund - FISTEL (Law 5.070/1966 with new provisions of Law 9.472/1997)

. Guarantee Fund for Employees (FGTS)

. Fund for Universal Telecommunications Services - Fust (Law 9.998/2000 - art. 6)

. Special Fund for Development and Improvement of Audit Activities - Fundaf (Law 1.437/1975 - art. 6, and art. 10 of IN SRF 180/2002)

. Fund for the Technological Development of Telecommunications - Funttel (Law 10.052/2000)

Principal and accessory obligation

The tax liability is divided between principal and accessory. The first arises from the occurrence of the triggering event and its purpose is to pay tribute or financial penalty. It ceases to exist with the credit arising from them.

The accessory obligation stems from legislation, aiming to equip the tax administration with information of revenue or surveillance interest. Example: Filing the income tax.

II - FORMS OF TAXATION

Presumptive Profit

It is a form of simplified taxation of Income Tax (IR) and Social Contribution on Net Income (CSLL). The rate of each tax (15% or 25% of IR and 9% of CSLL) focuses on revenue based on percentage of presumption variable (1.6% to 32% of revenues, depending on the activity).

This type of taxation is advantageous for companies with profit margins higher than presumed. Another deciding factor is that companies opting for Presumptive Profit cannot take advantage of the credits of PIS and Cofins in the non-cumulative system, although paying PIS and Cofins of lower rates. There are restrictions on revenue and activity for a company to opt for this type of taxation.

Taxable Profit

It is the net income of the calculation period adjusted for additions, deletions or compensation determined or authorized by the tax rules. Thus, taxes are calculated from the net income by applying the different specific tax rules. In such cases, the amount of accessory obligations is bigger.

Estimated Profit

The profit estimation is a way of determining the calculation basis of the Income Tax used by the taxing authority or the taxpayer. It is applied by the tax authority when a company fails to comply with legal accessory obligations relating to the determination of Taxable or Presumptive Profit, as appropriate.

Own Estimation

As a general rule, the estimation of the profit tax is applied by the fiscal agent. However, since January 1, 1995, if the gross income is known, the taxpayer may undertake the estimation and effect the payment of taxes based on Estimated Profit (Law No. 8.981/95, art. 47, § § 1 and 2, law No. 9.430/96, art. 1).

Simples Nacional

Simplified tax regime created by the Complementary Law No. 123, from December 14, 2006, it is applicable to Micro-enterprises (ME) and Small Enterprises (EPP), since July 1, 2007.

The entities that can opt for this system are the legal entities earning in each calendar year a gross income equal to or less than R$ 360,000.00 (ME). In the case of an EPP, it is the businessman, the legal entity or its equivalent with a gross annual revenue exceeding R$ 360,000.00 and less than or equal to

R$ 3,600,000.00.

The Simples Nacional entails the monthly payment, through a single document collection, of the following taxes:

. Income Tax of Legal Entities (IRPJ)

. Tax on Industrialized Products (IPI)

. Social Contribution on Net Profits (CSLL)

. Contribution for Social Security Financing (Cofins)

. Contribution for PIS/Pasep

. Patronal Social Security Contribution (CPP)

.Tax on the Operations relating to the Circulation of Merchandise and Interstate and Intermunicipal Transportation Services and Communications (ICMS)

. Tax on Services of Any Nature (ISS)

Individual Micro-entrepreneur

The individual micro-entrepreneur (MEI) is a special regime introduced by the Complementary Law No. 128 of 19/12/2008, to legalize the people working on their own. To be a individual micro-entrepreneur, it is necessary to invoice a limit of R$ 60,000.00 per year and have no participation in another company.

The MEI can hire an employee. It will be also framed in the Simples Nacional and be exempt from federal taxes (Income Tax, PIS, Cofins, IPI and CSLL). Thus, they only pay the fixed monthly amount of R$ 34.90 (commerce or industry), R$ 38.90 (service render) or R$ 39.90 (trade and services), which will be allocated to Social Security and ICMS or ISS. Those amounts will be adjusted annually in accordance with the minimum wage.

CHAPTER 4

INTERNAL REVENUE SERVICE OF BRAZIL (RFB)

It is a specific and singular organ under the Ministry of Finance, with essential functions for the State to fulfill its objectives. It is responsible for the administration of taxes of Union competence, including social security, and those levied on foreign trade, covering a significant part of the social contributions of the Country.

RFB also assists the Federal Executive in the formulation of tax policy, as well as working to prevent and combat crimes such as tax evasion, smuggling, embezzlement, piracy, trade fraud, drugs and endangered animals trafficking and other unlawful acts related to international trade.

State tax authorities and the Federal District

The State Secretaries of Finance (Sefaz, Sefa or SEF), State Departments of Revenue (SER), State Secretaries of Taxation (SET) or the State Department of Finance (Sefin) are designed to plan, coordinate, implement and evaluate tax and fiscal policy as well as managing the financial resources necessary to achieve the objectives of the state government.

They are:

1. Acre (AC) – Sefaz/AC: www.sefaz.ac.gov.br

2. Alagoas (AL) – Sefaz/AL: www.sefaz.al.gov.br

3. Amazonas (AM) – Sefaz/AM: www.sefaz.am.gov.br

4. Amapá (AP) – SRE/AP: www.sefaz.ap.gov.br

5. Bahia (BA) – Sefaz/BA: www.sefaz.ba.gov.br

6. Ceará (CE) – Sefaz/CE: www.sefaz.ce.gov.br

7. Distrito Federal (DF) – SEF/DF: www.sefp.df.gov.br

8. Espírito Santo (ES) – Sefaz/ES: http://internet.Sefaz.es.gov.br

9. Goiás (GO) – Sefaz/GO: www.sefaz.go.gov.br

10. Maranhão (MA) – Sefaz/MA: www.sefaz.ma.gov.br

11. Minas Gerais (MG) – SEF/MG: www.fazenda.mg.gov.br

12. Mato Grosso do Sul (MS) – Sefaz/MS: www.Sefaz.ms.gov.br

13. Mato Grosso (MT) – Sefaz/MT: http://www.Sefaz.mt.gov.br

14. Pará (PA) – Sefa/PA: www.sefa.pa.gov.br

15. Paraíba (PB) – SER/PB: www.receita.pb.gov.br

16. Pernambuco (PE) – Sefaz/PE: www.sefaz.pe.gov.br

17. Piauí (PI) – Sefaz/PI: www.sefaz.pi.gov.br

18. Paraná (PR) – Sefa/PR: www.fazenda.pr.gov.br

19. Rio de Janeiro (RJ) – Sefaz/RJ: www.fazenda.rj.gov.br

20. Rio Grande do Norte (RN) – SET/RN: http://www.set.rn.gov.br

21. Rondônia (RO) – Sefin/RO: www.portal.sefin.ro.gov.br

22. Roraima (RR) – Sefaz/RR: www.sefaz.rr.gov.br

23. Rio Grande do Sul (RS) – Sefaz/RS: www.sefaz.rs.gov.br

24. Santa Catarina (SC) – SEF/SC: www.sef.sc.gov.br

25. Sergipe (SE) – Sefaz/SE: www.sefaz.se.gov.br

26. São Paulo (SP) – Sefaz/SP: www.fazenda.sp.gov.br

27. Tocantins (TO) – Sefaz/TO: www.sefaz.to.gov.br

Confaz

Integrated and constituted by the Minister of Finance and the Secretaries of Finance or Taxation of each State and Federal District, the National Council of Financial Policy (Confaz) is a deliberative organ established as a result of provisions in the Federal Constitution, with the main mission to promote the improvement of fiscal federalism and tax harmonization among the States.

To achieve this goal, the Secretaries of Finance of all States maintain a Permanent Technical Committee (Cotepe), which meets regularly to discuss issues of common interest in public finance so that they can be decided at the regular meetings of the Confaz.

Such decisions are operationalized through agreements, protocols, settings, studies and working groups, dealing in general with granting or revocation of the ICMS tax benefits, operational procedures to be followed by taxpayers, as well as setting the policy of Internal and External Public Debt in collaboration with the National Monetary Council.

Chaired by the Minister of Finance or an indicated representative, the Confaz regular meetings are held quarterly, with the participation of representatives of the General-Attorney of the National Treasury (PGFN), the Federal Revenue Service (SRF) and the Secretariat of the National Treasury (STN).

STEERING COMMITTE OF THE “SIMPLES NACIONAL”

The CGSN aims to manage and regulate the tax aspects of the National Statute of the Micro and Small Company, pursuant to art. 2 of Complementary Law No. 123 of December 14, 2006.

BRIEF HISTORY

The Public System of Digital Bookkeeping is a natural evolution of the Integrated National System of Economic and Fiscal Information (SINIEF) established in the second half of the twentieth century, in 1970, by an agreement signed by the minister and secretaries of Finance or secretaries of Finance of the States and the Federal District. In this agreement, the signatories undertake to incorporate the terms of SINIEF into their respective taxation laws.

Two goals were also explicitly defined by the Agreement:

“Art. 1. The Integrated National System of Economic and Fiscal Information aims to:

I - collect and exchange information of economic and fiscal nature among the signatories;

II - simplify the compliance by taxpayers...”

Starting from SINIEF, national standards were established for tax and fiscal controls that are now part of everyday business, for example: Registration of Taxpayers, National Classification of Economic and Fiscal Activities (CNAE), Tax Code of Operations and Services and Tax Situation Code, tax documents (invoices, tax coupons etc.), and tax books (record of inputs, outputs, Production and Inventory Control, Inventory, IPI and ICMS calculation etc.).

“Art. 2. For the implementation of the system referred to in the preceding article, the following measures will be adopted:

I - Definition of basic data of the respective Taxpayers Register;

II - Establishment of the National Code of Economic Activities;

III - Establishment of Classification Code of Tax Situations, Operations and Services;

IV - Unification of tax documents and books;

V - Establishment of the Information Guide and Tax Calculation;

VI - Establishment of referring relation to outputs of goods.”

Already in the twenty-first century, the Electronic Invoice (NF-e), the Electronic Bill of Lading (CT-e) and the Digital Fiscal Bookkeeping of ICMS and IPI (EFD-ICMS/IPI), which are components of SPED, have their origin in SINIEF enhancements, namely:

. Adjust SINIEF 07, 2005: established the NF-e.

. Adjust SINIEF 09, 2007: established the CT-e.

. Adjust SINIEF 02, 2009: tacitly revoked the ICMS Agreement No. 143 of December 15, 2006, and established the EFD-ICMS/IPI.

Previously in 2003, the Constitutional Amendment No. 42 has reinforced the need for integration between the tax collection offices and determined to the tax administrations of the Union, the States, the Federal District and municipalities to operate in an integrated manner, sharing information.

“The tax administrations of the Union, the States, the Federal District and Municipalities, essential activities to the functioning of the State, performed by servers of specific careers, will have priority resources to carry out its activities and will act in an integrated manner, including sharing records and tax information, as provided by law or agreement.”

Later, in 2007, SPED was officially created by the Presidential Decree No. 6022. The responsibility for its administration was in charge of the Internal Revenue Service, with the participation of the tax administrations of the States, the Federal District and the municipalities, as well as other agencies with legal authority to regulate, standardize, control and supervision entrepreneurs and business companies.

However, the objectives of SPED have not been fully defined in Decree No. 6022, which simply defines it as:

“instrument that unifies the activities of receipt, validation, storage and authentication of books and documents comprising the commercial and fiscal bookkeeping of entrepreneurs and entrepreneurial companies through a computerized single flow of information.”

Nevertheless, even before the publication of the Decree, the three goals of SPED were defined in the project portal:

“To promote the integration of tax collecting offices through the standardization and sharing of financial and fiscal information, subject to the legal restrictions.

To rationalize and standardize the accessory obligations to taxpayers, with the establishment of a single transmission of distinct accessory obligations of different regulatory agencies.

To expedite the identification of illegal tax, with an improvement of the process control, a quicker access to information and a more effective operations oversight with data intersection and electronic audit.”

In addition to the Presidential Decree, the Law No. 9779 of 1999 provided basis for other components of SPED, like Digital Tax Bookkeeping of Contributions (EFD-Contribuições) and Digital Accounting Bookkeeping (ECD). Article 16 of the Law states that:

“it is the Internal Revenue Service’s responsibility to decide about accessory obligations concerning taxes and contributions managed by it, establishing inclusive manner, terms and conditions for its fulfillment and the respective responsible for it.”

ECD has its origin in the RFB Normative Instruction No. 787 of 2007, which created a accounting bookkeeping for tax and social security purposes, including Daily and Auxiliary books, Accounting Ledger and Balance Sheets.

On the other hand, EFD-Contribuições was established in 2010 through normative instruction of Revenue Service of Brazil (RFB; Receita Federal do Brasil), originally to control the calculation of PIS/Pasep and Cofins, and had its scope expanded with the creation of Social Security Contribution on revenue. Currently, RFB Normative Instruction No. 1252 of 2012 is the standard that defines the parameters for the EFD-Contribuições, including the mandatory criteria. It is important to note that small businesses were expressly included in the monthly transmission process of EFD-Contribuições, while the ones who have opted for Simples Nacional were dispensed:

“Art. 4. Required to adopt and notarize the EFD-Contribuições, pursuant to art. 16 of Law No. 9779 of January 19, 1999 and art. 2 of Decree No. 6022 of 2007:

(...)

regarding Contribution to PIS/Pasep and Cofins referring to the taxable events occurred from January 1, 2013, the other legal entities subject to Income Tax taxation based on Presumptive or Estimated Profit;

(...)

Art. 5. Exempted from submission of EFD-Contribuições are:

I - Micro-enterprises (ME) and Small Enterprises (EPP) framed in the Unified Special Regime of Taxes and Contributions Collection payable by Micro and Small Enterprises (Simples Nacional), established by the Complementary Law No. 123 of December 14, 2006, for the periods covered by this Regime;”

PROJECTS UNDER IMPLEMENTATION

Scheduled for 2014, the Social Digital Fiscal Bookkeeping (eSocial) is a new component of SPED and will cover payroll and labor, social security and tax issues relating to labor ties. In addition to meeting the demands for information from the RFB, this project includes the Ministry of Labor and Employment (MTE), the National Institute of Social Security (INSS), Caixa Econômica Federal (CEF) and the Board of Trustees of the Mandatory Fund for Unemployment Benefit (FGTS) and the Labor Court.

According to official information released on the National Portal of SPED, the information of eSocial comprise currently:

“Labor events - information derived from the legal relationship between the employee and the employer, such as admissions, temporary absences, prior notices, occupational accidents communications, etc.

Payroll;

Labor lawsuits;

Retention of social security contributions;

Some replaced social security contributions as the ones applied on the trade of rural production, sport events, work cooperatives, provision of services with labor transfer, sponsorships to sports associations that maintain professional football teams, etc.”

The National Association of Federal Tax Auditors of Brazil (ANFIP), a civil organization representing RFB auditors, has positioned itself as a major disseminator of eSocial, assuming publicly that role.

Such support is quite aligned with the positioning of ANFIP on the subject. According to the organization’s president, Álvaro Solon de France, the Brazilian Social Security is the largest system of income distribution in the world, as highlighted in an article of his authorship:

“A study of ANFIP has already showed that the benefits distributed among the 30 million Brazilians by the Social Security inject into the economy of 70% of the municipalities more capital than the municipalities receive from the FPM, the Municipalities Participation Fund.

Well, the Social Security revenue was the highlight of the collection of 2012. With an increase of 5.6% compared to 2011, Social Security has contributed with R$ 310.6 billion for the

trillionaire landmark. The data emphasize the greatness of the social security system and highlights the importance of full employment, the formal one with a contract which guarantees the protection of Social Security to the employee.

It’s important to note that the increase of social security revenue was recorded amid of constant tax relieves, especially of the payroll. Then, it’s worth warning: the Brazilian Social Security is the largest system of income distribution in the world and its revenues cannot be used to close accounts of the financial banking. The Social Security is a patrimony of all Brazilians and must be treated as such and defended by everyone.”

In another article celebrating the 90th anniversary of Social Security completed on January 24, 2013, Solon raises the social security system to the level of solidarity promoter between people and generations and social justice. He also reinforces the idea that Social Security is essential in the fight against poverty:

“A research carried out by the Institute of Applied Economic Research (IPEA) unmistakably demonstrates that social security benefits are key weapon in fighting poverty and improving income distribution, comparable to the impacts of social programs. In rural households, the income of those living in households with seniors is 44% higher than in households without elderly, because of retirement. In the countryside, 82% of children are poor in houses without retirees. But, in households with elderly, the proportion of poor children drops to 68%. The retirement of elderly sustains or helps supporting about 2 million families in rural areas, according to a 2005 survey. In summary, social security benefits were central for 24 million people to overcome poverty line.”

The understanding of the ANFIP president is that eSocial will contribute to the financial health of the social security system, besides benefiting workers in other respects. According to him, more “fragile” professional from the standpoint of social security will be greatly advantaged:

“The Impact of eSocial is great for rural workers, for example, because they have a huge difficulty proving their rural activity for retirement. All the digitized information make the worker’s life so much easier.”

So, it seems the main target of the eSocial is the social security revenues. Studies of the Brazilian RFB show the alarming indicator that about 30% of self-employed and domestic workers act informally. Being that the very RFB estimates annual losses of R$ 3.5 billion:

“Results of inspections ended in 2010 on the difference in values of social security contributions due, informed in payroll and not declared in GFIP: R$ 3.556.082.242,60.”

The Digital Bookkeeping of Income Tax of Legal Entities (EFD-IRPJ), currently in process of definition, is an evolution of e-Lalur, and according to information from the RFB on the SPED Portal, it is planned for 2014:

“The project initially called e-Lalur (Electronic Book for Bookkeeping and Calculation of Income Tax and Social Contribution on Net Income of Legal Entities Taxed by the Taxable Income) has a new name: EFD-IRPJ (Digital Bookkeeping - IRPJ).

The name was changed because, in addition to encompass e-Lalur, there will be records for calculation of income tax and social contribution taxes for companies taxed on presumptive and estimated profit. There will also be information of immune and exempt companies, as well as records regarding economic and general information sheets of DIPJ, therefore generating the extinction of DIPJ.”

Another project in the pipeline is the Consumer Electronic Invoice, which is already being tested in six States. The NFC-e, as it is known, represents an evolution of the electronic invoice.

It has the same NF-e principles: use of digital certificate for legal validity; accompanied by DANFE, an auxiliary printed document representing the digital original, and a series of contingency procedures.

The first NFC-e was issued by the company Casa das Correias on March 1, 2013, and was authorized by the Finance Department of the State of Amazonas. The following entities participate in the pilot project: technical representatives of the Finance Departments of Acre, Amazonas, Mato Grosso, Maranhão, Sergipe, Rio Grande do Norte and Rio Grande do Sul, in addition to the Data Processing Company of the State of Rio Grande do Sul (Procergs), Internal Revenue Service, Federal Data Processing (Serpro) and around 35 volunteer companies in the retail sector.

THE SCOPE OF THE ELECTRONIC INVOICE

There are other SPED components that go beyond the scope of this approach. But the electronic invoice is in many ways the most successful project of the Public System of Digital Bookkeeping. In terms of scope, for example, it encompasses the highest number of emitters - 905,734 (as of February 22, 2013); against 17,957 emitters of Electronic Bill of Lading (CT-e) - data of February 22, 2013; 158,620 participants of Digital Accounting Bookkeeping (ECD); 422,518 of Digital Tax Bookkeeping of ICMS/IPI (EFD-ICMS/IPI) and 171,260 of EFD-Contribuições.

NF-e was also the first SPED project established by a standard of 2005. In parallel, the EFD-ICMS/IPI was established in 2006, and the CT-e and ECD in 2007 and EFD-Contribuições in 2010.

Its obligatoriness schedule has also been exemplary. Gradually, economic sectors have replaced the invoices on paper for digital documents, a process that has been developing for more than five years.

Today, practically the whole industrial sector, wholesale and international trade use this virtual document. Additionally, interstate transactions focused on public administration are documented by the Electronic Invoice. The States and the Federal District were involved and were able to adjust the deadlines to the regional peculiarities.

The information contained in the issued Electronic Invoices are feeding a massive database whose relevance was defined by Eudaldo Almeida, General Coordinator of the National Meeting of State Tax Coordinators and Administrators - ENCAT:

“NF-e formed a rich database updated all the time and its importance is far beyond tax issues and it represents the largest source of information on the movement of goods in our country. It will surely provide to the public power and the academy to conduct studies on possibilities of tax reform and simulate the possible outcomes, as well as economic and social studies, about use of roads, ports, railways, among many other possibilities. This way, I think the aggregated data, i.e., that preserve the secrecy tax, will soon be available to various studies that will contribute to the economic growth of Brazil.”

The project continues to evolve. Since July 2012, for example, the old “Letters of Correction” on paper were replaced by the electronic Letter of Correction (CC-e). This process is part of a digital model of events control of the NF-e announced more than two years ago, aiming to monitor cancellations, changes (via CC-e), passages in tax stations and other events that came recently into operation.

Through the NF-e Portal or systems connected to the electronic services of the tax authorities, and regarding the operation relative of the electronic invoice, the recipients of the goods will be able to acknowledge, confirm, ignore and register the non-performance. That set of procedures is known as Recipient Manifestation.

Each of those situations has its purpose. “Ignoring”, for example, informs the Finance Department that the NF-e issued to the taxpayer was not requested by him. That is, some operational error occurred by the issuer or it may be a fraudulent operation. The record of “non-performance” says the operation has been requested but did not actually happen.

Finally, the evolution of the NF-e is an ongoing process, but we can say that this is the project closest to the fulfillment of the fundamental goals of SPED: to integrate the tax collecting offices; to rationalize and standardize the accessory obligations; to expedite the identification of illicit tax.

THE RFB INSPECTION OF COMPANIES

In early 2013, the RFB has put into operation a system of inspection of the corporate taxpayer. With this, companies active in the country will be informed about inconsistencies in the calculation and payment of federal taxes. A significant increase in spontaneous revenues is expected with that measure, as stated by Carlos Roberto Occaso, undersecretary of Collection of RFB:

“With the perception that the RFB has a rigorous conference of the declared taxes, we can increase the spontaneous collection. And an inspection will influence the future procedure of the taxpayer.”

More than expected, the inspections deployment reflects actions defined by the strategic map of the federal tax authority for the period from 2012 to 2015. The results defined for the entity were clearly determined in the plan available at the RFB website:

“1) To approximate the effective collection to the potential collection;

2) To increase the spontaneous fulfillment of tax and customs obligations;

3) To contribute to the strengthening of foreign trade and the protection of society;

4) To increase the perception of fairness in the performance of the institution;

5) To strengthen the image of the institution in society.”

Of the 11 macro internal processes identified by the strategic plan, there are four highlighted by their relevance in achieving the results:

“1) Reducing the time between the expiration of the tax and its collection

2) Increasing the perception of risk and the fiscal presence

3) Increasing the safety and effectiveness of customs procedures

4) Reducing the tax and customs litigation”

The processes related to the elevation of risk perception and fiscal presence have significant impact, both in approximating the effective revenue to the potential as in raising the spontaneous fulfillment of tax and customs obligations.

“Fiscal presence” was clearly defined by Ernesto Silva Nobre as:

“a measure of the RFB performance, usually calculated by the inspection range index, i.e., the proportion of taxpayers audited in a given segment.”

Likewise, the perception of risk was also conceptualized:

“it is the subjective probability that the taxpayer gives to the chance to be inspected, if he breaches the law. This subjective probability is not confused with the real probability of being inspected (that the taxpayer is unaware of).”

Nobre establishes a correlation between perceived risk and fiscal presence, arguing that the rise of the second tends to raise the first. However, he highlights the difficulty of characterizing this correlation, and even the possibility that it will not occur in certain situations, as he exemplifies:

“Considering that the amount of inspectors is fixed, an increase in the fiscal presence from 1% to 2% equates to make inspections in half the time: more superficial inspections, therefore. This can even lead to a reduction of the perceived risk, if the taxpayer assesses that, if supervised (which is rare), only a small portion of their tax evasion will be detected.”

In order to get an idea of what would represent a revelant increase of fiscal presence, Nobre also explains that tax procedures involving different taxpayers should consume 200 hours of tax audit, the mid size, 140 hours, other legal entities, 110 hours, and individuals 60 hours. Considering the annual hours actually devoted to inspection activities, an RFB auditor performs from 11 to 21 fiscal procedures per year.

Based on the about 12,000 federal auditors in effective exercise and the amount of 4 million companies opting for Simples Nacional, 965,000 framed as Presumptive Profit, about 150,000 as Taxable Income and just over 10,000 in a regime of differentiated monitoring by RFB, one can understand the difficulty of increasing fiscal presence in all companies. This still disregards the 3 million individual micro-entrepreneurs.

Therefore, the fiscal presence through public servers tends to focus on large taxpayers. This work should be specialized and conducted with more planning, as Nobre concludes:

“By understanding how the tax planning works for each economic sector and with every tribute, specializing auditors in specific areas of knowledge, making the exchange of information with other tax administrations, national or foreign, we’ll adopt the best way to combat tax evasion, making use of tools and instruments capable of neutralizing those huge evasions.”

However, smaller companies will be targeted by systems known as “Fine Mesh”, with crossed information between diverse data sources providing subsidies to detect evidence of fraud and evasion.

Therefore, even before the actual deployment of this inspection system for companies, it is possible to notice in recent years a real decrease in the production of goods and services not reported to the government in order to evade taxes, contributions to social security, disobey labor laws and avoid other formality costs. This informal economy, which has accounted for 21% of national production in 2003, fell to 16.8% in 2011, according to studies by the Fundação Getúlio Vargas (FGV).

Overall, however, the RFB has acted strongly to approximate the effective collection to the potential one. SPED is today one of the main instruments toward this goal.

In practice, SPED acts increasing enormously the risk perception of taxpayers, since all enterprise information is transmitted electronically to the RFB, regarding the registration of customers, suppliers and products; tax documents of sale, tax calculation, inventory and soon also in labor and social security.

This provision of information, specifically by SPED, has been happening since the first NF-e was issued in 2005. Since 2007, the data flow is growing in proportion to the number of companies transmitting information directly via EFD-ICMS/IPI, EFD-Contribuições and other SPED projects.

Finally, it is worth noting that even the developments of the informal economy are mapped by digital tax information of the ecosystem. Once the purchases of small and “informal” companies are made with companies that already issue NF-e, data on these business transactions now make up the inspection system, either through a CNPJ or CPF.

General overview of SPED

A little history

Contrary to the weather forecast in some live news channels, the day of October 19, 2006 dawned with no rain and some level of clarity. The sun was not so generous. It seemed not to agree to be an accomplice of the announcements that would be made at the meeting at Avenida Loureiro da Silva, 445 (first perimeter) in Porto Alegre. The address houses the headquarters of the Ministry of Finance of the State of Rio Grande do Sul. Many agencies of that office are located there, too.

The building has an auditorium on the 11th floor, which housed the first public meeting on the Public System of Digital Bookkeeping (SPED) in fact , although being named as “2nd SPED Seminar opened to the Companies providing Service in Information Technology and Communications”.

To the surprise of many participants, the auditorium was not completely full. Maybe because of the lack of publicizing or the apprehension of many people in going to the meeting without further information available on the topic being presented. I remember clearly that I was sitting right in the middle of the auditorium. I preferred to choose a place with a good view to the audience, but that also made it hard for me to go out during the event. I was afraid I was going to get bothered by the topic and that was a strategy not to leave during the event.

When the event organized by the team of the IRS started, I directed all my attention to the discussion table and did not listened to what my colleague in the seat beside me was saying. I believed from the first moment that the Public System of Digital Bookkeeping was a milestone for the Brazilian society and, thus, I kept my full attention until the lunch break.

When we returned from lunch, it was time for the presentation on the Digital Bookkeeping (ECD) , Digital Bookkeeping, to be made by the auditor of the IRS at the time , Márcio Tonelli. I thought: “It's the accounting right after lunch. I'll fall asleep”. On the contrary. The lecture was delivered in the same tone of the ones in the morning about the Electronic Invoice (at the time, pilot project of the Finance Department of the State of Rio Grande do Sul) . I had no time to pay attention on the presentations and make all the notes I'd have liked to. You can add to this Tonelli's voice tone. Nobody was able to wink a little longer, they were all with wide open eyes and ears.

That Thursday became part of the Brazilian history. It was a work session that inaugurated the SPED. Rio Grande do Sul (and maybe Porto Alegre was chosen because of that) had the NF-e project in full development.

The States who probably most suffered the impact of SPED at that moment were those who were further advanced in projects as the NF-e and the implementation of the Act COTEPE 35/2005 , which also foresaw the implementation of digital tax books within the scope of the Tax on Goods and Services (ICMS) .

The first conflict of interests of the agencies had been soon pacified: who will pay for the national project? The Federal Revenue of Brazil would fund it and therefore assume the role of manager. However, not everything came out as planned. The Federal District and the Finance Department of the State of Pernambuco resisted the national project. According to the information within the Working Group of EFD-ICMS/IPI (march/2013), the entry of those two federal units is still unknown. In other words, there was no prediction of the units adhesion to the domestic environment, situation that remains until today.

Why a national environment?

Since its initial conception, the Public System of Digital Bookkeeping was thought in terms of national dimensions. Although the decision seem obvious, it's necessary to clarify some facts and to keep some considerations latent. In terms of taxes, Brazil has in its legal system an autonomy forecast for the States to legislate on their taxes, almost at will. Thus, a federated unit may require differently the countless accessory obligations in relation to other States.

Whenever we think of Brazil, we have to take into account not only its continental dimensions, but also its culture and local interests. With SPED, it's not different. Countless are the common information in the digital books, according to its purpose. For example, the registry C100 in EFD-ICMS/IPI has virtually all the general, common information of an invoice (electronic or otherwise).

Other data also related to the tax document will be represented in other registries. However, the essence of the specification and the use of registries (and their information) is nationally established, in other words, for all units of the Federation participating of the project. There is not a registry C100 for one unit of the Federation and another version of the same registry in another. Some state Finance Departments even exempt some registries that does not need bookkeeping in their judgment.

For the whole system to function, it's necessary to maintain this standard. That is no easy task, for sure. I have witnessed in some meetings discussions on the usefulness of some registries. That results from the way the project is being conducted. In other words, the best way is to exhaust the issues and debates about the questions and specific needs before presenting a new version of the Practical Guide to the society. Over time, that systematic has shown itself very useful. That was how the Digital Bookkeeping and the Electronic Tax Documents won the support of the accounting people and many entrepreneurs.

The practice of the Agreement, however, did not resolve all differences. Then, new information was required in obligations outside the national environment of SPED. It's a shame that even today the Finance Departments have not assumed their role in preserving the investment, public from one side (SPED's environment) and private from the other (tax management systems). Even after many years of adherence to SPED, the States have been publishing demand measures on the Agreement ICMS 57/1995 - SINTEGRA , new information in obligations with different denominations, but all similar, as GIAs (DIME, DAPI, GIAPR, etc.).

At the federal level, which theoretically should be easier, since there should be a standardized guidance, it is not unusual to have summonses requiring the submission of information on paper or obligation layouts prior to SPED (IN 86/2001 or accounting information by the Regulatory Guide of Digital Archives (Manad) , Regulatory Instruction MPS/SRP 12/2006).

Every effort of the society to pay their tributes and demonstrate its accuracy should always be a simple task. With the automation levels currently offered by the information technology, it's possible to reduce the effort in an organized and safe way. For example, there are systems of the kind 'task automator', some experts in the areas of tax/accounting.

The current tax burden in Brazil is not acceptable. The fiscal war between the Federal States either. The fiscal ceremony is not worthy to the people who operates it. There is a lot of manual and little intellectual labor. Who determines the tax values will have then to inform them in varied obligations. In other words, there is much more work in keeping the information in the state systems than in performing the calculation of the tax. In this sense, the Public System of Digital Bookkeeping offers a more than helpful and rational possibility, presents a modern and safe systematic.

After all, what is the SPED (and what it is not)?

According to the Decree 6.022/2007, the Public System of Digital Bookkeeping (SPED) is an instrument of the society to perform the bookkeeping of accounting and tax information in a standardized and unified way. However, not only companies, but also unions and employers in general will have a place to their information in that new environment.

So it is understood that, over time, all obligations of companies and other entities, state or private, should migrate to the unique environment of SPED. That view not only allows long term planning, but also suggests a future of stability in the companies tax environment; after all, having the gradual elimination of accessory obligations is a longtime yearning. Therefore, the replacement of many obligations by more complete and fewer books is very welcome.

After those brief considerations on the implementation of the SPED project, we can conceptualize it in practice. We could say it is a repository of tax, accounting, property and labor relations (social security) information, imposed by State and especially federal tax authorities to audit, science and control of State powers constituted over operations of companies and their agencies (State).

The paradigm: not changing any existing tax regulation

An intriguing aspect of the SPED project is the premise of not changing any fiscal, tax, accounting or property legislation. The “happy” idea had a leading role in its implementation and has established itself as a very effective strategy. The SPED has not brought any discussion of legal nature, because the condition for its implantation was prepared in a gradual and simple way.

One example of the application of that strategy was the use only of the compliance of the legislation applicable to each situation. Several questions were made about the form of bookkeeping in the digital mean, because, from the advent of SPED, the data not booked before or booked in a summarized form was now informed with levels of detail never seen before in companies. That detailing level turned out to bring a review of the business practices that could at any time be subject of questioning by the tax authorities. At that stage, there were still those who doubted the effective applicability of specific regulations and the project as a whole.

Although a myth had been generated in the first contact moments with the SPED bookkeeping, the fact is it just applied concepts or requirements that were not observed by many institutions.

It was like that in almost all cases of implantation of bookkeeping. Each new obligation generated new pleasant surprises, or not. The strict compliance of the ruling tax legislation was effectively the novelty: whether because of the proposed layout or the validation rules in the Validator and Signer Program (PVA).

Projects or subprojects in the SPED environment

At the Public System of Digital Bookkeeping there is a framework not fully broken. Until the publication of the integration manual of the so called eSocial (the denominations will be actually known from the legal acts), the SPED has in its scope, in chronological order:

1.Electronic Invoice

The electronic invoice was the first project under the SPED. Maybe it was the lack of a better planning, but as the Finance Departments of the Federate States were to launch their projects, that one received absolute priority to integrate with the others in order to replace them.

The years 2005/2006 were tough for the teams involved with “SPED”, both for state and private institutions, even although it was not its “Christian name” (introduced only in 2007). Many discussions and tests were presented and also conducted in blogs on the subject.

The electronic invoice consists in issuing tax documents only in digital media and with prior authorization of the competent tax authorities (State). That document is the most dynamic example of the suppression of conventional media by the digital environment. In that case, it was not just about switching the paper by the digital medium. The paradigm was another one: whether the tax authority should allow or not the issue of a tax document. In short, the tax authorities will be aware prior to the taxpayer of the completion of a transaction in which he/she is a passive or active member (transmitting or receiving the document).

That generates a range of possibilities of cargo tracking, including by the tax offices that can register the times of transit cargo, routes and other travel information. Then, other “encapsulated” documents came along the lines of the electronic invoice: Electronic Bill of Lading (CT-e ), cargo manifest, manifestation of the consignee, etc. The latter in particular is a revolution that emerges from the digital world of SPED – it is the manifestation of the consignee of the cargo or tax document offering (or not) the agreement to the transaction.

In short, the electronic invoice brought to the business environment a B2B (business to business) relationship with the use of the tax document itself.

2.EFD-Fiscal (ICMS/IPI) – Fiscal bookkeeping of ICMS/IPI books

The EFD-Fiscal was so called because the federal tax authority longed for just one digital book for ICMS, IPI, PIS/Pasep and Cofins. However, during the implementation of the project, it was found that the practice would eventually take down the efforts of unification and simplification of tax records. Two books were necessary; one for the ICMS/IPI, which has as triggering event the movement of goods (as Complementary Law 87/1996), and another one for social contributions levied on the income. There was no way to reconcile the two demands.

The book of ICMS/IPI created by the ICMS Agreement 143/2006 had a great point in its favor, as it had already predecessors, as Sintegra and the paper books themselves, each with its depth. That way, even for the inexperienced ones, there was the relief to consult the tax regulations applied to the conventional books. The EFD-ICMS/IPI books must contain all issues and receipts of tax documents.

In the digital book are the books of registry, input, output, and also calculation of ICMS, ICMS-ST and IPI . As all Finance Departments of the 26 States and the Federal District are agents of this bookkeeping, there are discussions about bookkeeping records and settlement documents and situations between them until today.

3.EFD-Contribuições (EFD-Contributions)

With the withdrawal of the bookkeeping of social contributions PIS/Pasep and Cofins from the digital book of EFD-Fiscal, there was the need to create another digital book with an adequate vision for the bookkeeping of PIS/Pasep and Cofins as Normative Instruction 1.052/2010. First, the book was named EFD-PIS/Cofins. That name was closely linked to the ordinary term of the Statement of Verification of Social Contributions (Dacon) , established by the IN SRF 387 of January 20, 2004.

Dacon was created by the need to demonstrate the source of credits to regulating agencies and also for the taxpayer to perform his/her billing statement, after all, it was necessary so that the tax calculation was legally filed by the taxpayer. With this, the Dacon was born as a spreadsheet (in a typical RFB program), with summarized information and without any proof of operations.

When the layout of EFD-PIS/Cofins was published, there was a real frenzy among the companies tax operators, since they soon realized the level of information was different from that required in Dacon; it was much more detailed. Soon after its admission to the production environment, that book gained a new name.

The EFD-Contribuições was born from the immediate need of the bookkeeping of a new tax: the Social Security Contribution on Gross Revenue (Normative Instruction 1.252/2012). That was an old dream of the government, to reduce taxes on the payroll and to collect the equivalent amount of revenue. In that context, the EFD-Contribuições won the so called “Block P”, where were sat also the releases of some industries and service companies (Law 12.546/2011).

4.ECD – bookkeeping (with corporate and tax effects) and FCONT

As much as it has been traumatic, the “Accounting SPED” left the paper to arrive at the digital world from the Normative Instruction 787/2007. There were (and there are still today) professionals who were not updated with the doctrine or with current legislation and continued “fighting” with the rules. After all, many thought: “Why changing everything that has been done the same way for so many years?” But it was necessary to change. The world was imposing changes that, if were not the ones desired by the project, at least caused us to move towards the possible.

The Law 11.638/2007 was a real “thorn in the side” of ECD. Its publication full of inconsistencies, lacking foresight and at the end of the year 2007, transpired all the turbulence of the moment of the untimely adoption of IFRS, International Financial Reporting Standards. Not even the IRS knew exactly how to deal with the new scenario. After all, most companies in Brazil done their accounting in order to attend the tax authorities and that paradigm has been broken all of a sudden. Having two accounting criteria, corporate and fiscal, brought a new complexity to the accounting documents. That was when the Transitional Tax Regime appeared, the so called RTT .

In short, it is a book that allows people to perform a new calculation of income and property effects (balance sheet) like the IFRS was not adopted. In theory, it would be simple. It did not happen at the time, because there was a lack of information on the implementation and enforcement.

Thus, the end of RTT and consequently the end of FCONT are expected (Normative Instruction 949/2009). The federal tax authorities have already mentioned the creation of a new Bookkeeping (Normative Instruction 1.353) responsible for the end of the Statement of Income Tax of Legal Entities (DIPJ), for the entrance of the Book of Taxable Income in the digital medium (Lalur ), as well as the demonstration of the calculation of the Social Contribution on Net Profits (CSLL).

Systems view X accounting and tax view

I am also a victim of my creations. As a systems analyst, I have always worked with systems and, therefore, I must surrender to the critic: the systems designed to meet the organizations needs do not consider the specific demands of Brazilian tax or accounting administration. After many years working only with tax systems, I finally realized that we are suffering what the systems imposed to us (especially those that exceed or do not contemplate a tax scenario like the Brazilian one).

To meet the Brazilian reality, the systems must abide by the tax regulations. Without failing to meet the organizations goals, systems should not ignore the tax regulations. It's a rough life condition in Brazil. We know that, in order to meet the needs of companies and also of SPED, the system will be greatly larger and more complex than just to attend the business of the companies.

For many systems, it is impossible to return to the previous month to reclassify, alter or adjust information that already composed the “month-end financial close”. The other day, I heard a systems consultant saying: “The past belongs to God”. That can have much effect on the domestic environment of companies. However, contextualizing it with the ceremonials and possible demands of tax authorities, it seems to me no laudable strategy. Fiscally speaking, the figure of “past is past” does not exist. Rather, it is the past that “condemn us” very often.

In essence, the alert is worthy to suggest that we, systems analysts, think also in the tax environment of the systems we build or deploy, since they form the natural basis for the generation of information to SPED and the organizations themselves.

Relationship between management systems and digital books

It is common to acquire a system of the category called ERP (Enterprise Resource Planning), a system integrated in its modules, and believe that the problems related to the Public System of Digital Bookkeeping are over. Note that the systems developed to operate in different business segments often need adjustments in their functionality and to meet the company's business. That means that the generalist essence of the ERP system will not have the features to suit a segment or a particular company. That is absolutely normal and I do not criticize any company that develops such a system. What can't be seen as reality is to believe that, because the maintenance contract signed between the parties includes the forecast of meeting tax demands, the ERP system should provide any and all situations in the way that users want.

A classic example of distinct view between enterprise application systems and the fiscal framework is a possible (or systematic) exchange of item codes. If a company needs to change the codes of their registered items, they will do it at the time and in the way that suits them best. It's a business decision. But, fiscally, we know there are many impacts. Let us look, for example, all documents issued with a code and description in the past and try to reassemble them with current information. Did we reach our goal?

I propose below a systematic overview of information sources, systems used, legal processes and publications in the environment of SPED and legacy obligations (to be suppressed by the use of SPED).

Figure 2: Overview of Relationship between Systems and Processes. Source: Prepared by the author.

Advantages of the Public System of Digital Bookkeeping

The Public System of Digital Bookkeeping brought undoubtedly a new paradigm for the Brazilian fiscal, accounting and equity scenario. This paradigm is composed of three essential items for a system to work: integration, information and control.

To the extent that many state officials have now access to detailed information about the companies operations and might check them almost in real time, the pillar of the integration between the agents was reached. Currently, companies have the authorization on conducting operations, after the science of tax authorities. This was perhaps the biggest question of the society: will the tax authorities will be able to enter the system? Will it be a bottleneck for the operations of my company?

The qualification of the information was another achieved paradigm, perhaps the most laborious of all, since it brought to the SPED environment a strict observance of the tax regulations. Requirements established a long time ago, and which companies did not observe in detriment of agility, simplicity or ease in their favor, gained visibility in the organizational environment.

With its intervention, especially in the case of electronic events (invoice, bill of lading, among others), the tax authority passed its view on operations to the reality of the companies. Thereafter, the systems mission to control operations and reconcile them at some point became even clearer.

Situations not previously thought were now a target for questioning in order to seek its primary concept, since it's only possible to control what you know. Then, many systems analysts started to understand the meaning of some accounting and tax instructions to deploy them in systems and business processes. That way, the internal systems have become the representatives of SPED in the organizations environmental - and will be for a long time.

Far in the future, the use of paper shall be totally abolished in the organizations. There are numerous initiatives to reduce its use in various environments. In this requirement, the Public System of Digital Bookkeeping is very reputable, as it generated precedents in the country and abroad as an environmentally friendly project, eliminating the use of many tons of paper per year by making digital what once had been printed. Besides the use of paper itself, the books production process and custody in gigantic places had been eliminated, since the maintenance of the documents required by the statutory limitation period involves a large investment in guarding those volumes that were physical and not digital.

In my view, the biggest gain of SPED was the appropriation by tax authorities of the current information on market and government environment. This brought to the fiscal scene requirements of impartiality, neutrality, integrity and agility to the tax authorities.

Therefore, all market operators can compete on fair conditions and their skills are the real differentials. The situations “in gray area” of the past are impractical in the SPED environment because the system is greater than the agents, the routines are stronger than the “knacks” and adjustments require explanations.

Mauro Negruni

Founding partner and services director at Decision IT

ENTREPRENEURSHIP IN BRAZIL

The cliché “Brazil is a entrepreneur country” propagated by the media leaves no doubt: entrepreneurship is fashionable. The Global Entrepreneurship Monitor (GEM) research analyzed the topic in over 80 countries and supports that thesis.

One of the most important points of the study, the largest on the entrepreneurial dynamic in the world, is the Rate of Early Stage Entrepreneurship (TEA), the proportion of people aged between 18 and 64 years conducting new businesses, i.e., under 42 months of existence.

In Brazil, TEA was 17.5% in 2010, the most significant since the beginning of the research in the country, as it shows that 21.1 million Brazilians were in command of entrepreneurial activities.

Another study mentioned earlier, conducted by Fundação Getúlio Vargas (FGV) and disclosed by the Brazilian Institute for Ethical Competition (Etco), estimated the informality index as 18.3% of the Gross Domestic Product, value that would have corresponded to R$ 663.4 billion in 2011. To get an idea of how large this problem still is, the informal economy in the country is equivalent to Argentina.

In 2003, the production of goods and services not reported to the government to deliberately evade taxes and social security contributions, circumvent labor laws and avoid costs of compliance with standards represented 21% of the GDP; in recent years, the index has fallen but is far from the international average, which is 10%.

IBGE data from 2009 indicate that Brazil had 4,846,639 companies. Since that same year, with the creation of the Individual Micro-Entrepreneur (MEI), the migration process to the formal economy is accelerating, initially with just over 77,000 businesses legalized as MEI. The number rose to 810,000 in 2010 and to 1.7 million the following year. In 2012, it would be more than 2 million. Thus, the estimative indicate there is still something between 10 and 20 million entrepreneurs acting in the informal economy.

THE IMPORTANCE OF SMALL BUSINESSES

The total number of micro and small enterprises (MPE) in Brazil was 6,120,927, according to 2010 data from the Ministry of Labour and Employment (MTE). That year, figures from the same source found that this kind of enterprise employed (with contract) 14,710,631 professionals from a total of 34,725,249.

Other IBGE indicators also from 2010 found that the MPEs accounted for 99% of formal companies, 25% of the GDP, 51.6% of employees in formal companies and 39.7% of wages paid.

More recently, in August 2012, they already accounted for 97.4% of the jobs, according to MTE data analyzed by Sebrae. Unarguably, the figures prove that small businesses are of highest relevance for the nation.

The Simples Nacional is a differential tax regime created by the Complementary Law No. 123, 2006, applicable to Micro-enterprises (ME) and Small Enterprises (EPP), since July 1, 2007. In 2010 there were 3.7 million companies opting for Simples Nacional according to RFB data.

The formal entrepreneurship has been growing significantly in the country. Moreover, the trend is to increase the growth rate of small businesses. According to Data Popular data, class C accounts for 53.9% of the Brazilian population and will represent 58% in 2014. This segment consumed in 2011 no less than R$ 1 trillion. The most interesting is that 51% of people in the new middle class want to have their own business.

THE FISCAL AND TAX ENVIRONMENT

Brazilian entrepreneurs undergo an anachronistic tax system, extremely complex, quite not transparent and unfair. There are many indicators proving this scenario. We occupy the last position in a ranking of 183 countries surveyed by the World Bank, in conjunction with PricewaterhouseCoopers (PwC), regarding the cost of tax and labor compliance.

The report named Paying Taxes analyzes the taxes and contributions that a medium-size company must pay, in addition to measuring the administrative cost of this, plus the labor charges paid by the employer, as well as other taxes and fees at federal, state or municipal levels.

The Paying Taxes, which uses a “model company” as a case study, measures tax and labor costs and how they affect corporate earnings. That is, it effectively verifies what is spent to fulfill the standards, with the payment of taxes or administrative expenses for the maintenance of tax and labor compliance.

Tax experts from several different companies (including PwC) calculated the owed taxes and contributions, based on the facts of the standardized case study. They also considered the frequency of payments, as well as the time needed to comply with the laws in each country.

The goal was to make the data comparable across the analyzed countries, which required the standardization of parameters. It was considered, for example, a limited liability company, with industrial activities and retail trade; without international trade; not working with products subject to special regimes and having 60 employees. Numerous other profiles were also defined in order to ensure the accuracy of the survey.

The study measured three indicators:

1. Total Tax Rate: load of all the taxes the company must pay in relation to their commercial profit.

2. Tax Payments: total number of taxes and contributions paid, the method and frequency of payments and the number of organs involved.

3. Time to Comply: how many hours per year are required to prepare, file and pay taxes and contributions. The time to gather all the information necessary to calculate the amount payable is included in this sum.

And it was exactly the last indicator that led Brazil to the last positions of the ranking, with a total of 2,600 hours/year measured for this model business in order to keep its tax and labor compliance.

To get an idea of the size of such catastrophe, the second last position, Bolivia, got 1,080 hours in this regard - less than half of ours. The world average was 277 hours, while Latin America and the Caribbean reached 382.

The indicator Total Tax Rate expressed a slightly better result. We were in 168th position, with 67.1% of tax burden on profit business - number 50% higher than the world average (44.8%). That is, if the State were a shareholder of that company, it would have 67.1% of the shares.

The study also found an overall trend of reducing the tax burden through reforms. Fact proven by a decrease of 7.4 percentage points in relation to seven years before. Clearly, Brazil is an exception.

In practice, it is not possible to say that Brazilian firms spend on average 2,600 hours per year to calculate and pay taxes. Nor that all of them leave 67.1% of their profits to the government. But we certainly can say that our tax and labor system is the most expensive in the world for business.

Representatives of the federal government and some tax authorities have stated that the responsible for this situation were the people who created the Laws.

Nevertheless, 3,294 tax acts of federal impact and 5,112 of state jurisdiction were published during the period from October 1, 2011 and September 30, 2012, against only 23 federal laws and 299 state laws. From the standpoint of the Union, therefore, 0.7% of the standards had some influence of the Congress.

There are numerous studies and research pointing to the same diagnosis. The consultancy Deloitte found that 44% of small and medium enterprises (MPEs) consider that a very complex tax system prevents the development of businesses. It also showed that 69% of entrepreneurs see the tax collection bureaucracy as an obstacle to the settlement of the tax situation.

The National Confederation of Industry (CNI) confirms the fact, pointing out that 92% of industries entrepreneurs attribute part of their competitiveness loss at the excessive bureaucracy. For 60% of them, the practical result of paternalistic bureaucracy is increased costs and the “allocation of funds for activities not related to the production”. The frequent change of rules, creating an unstable environment for business, was also highlighted.

The international consulting firm UHY reported on its website a ranking on labor costs in 25 countries. This study examined annual salaries of US$ 30,000, US$ 75,000 and US$ 300,000. Brazil is the country that collects the highest taxes on employees in the three categories. Considering other social costs, the additional cost of wages is 57.56%, a lot above the world average, around 25%.

Finally, there is a study by the Brazilian Institute of Tax Planning (BIPT) pointing an absurd issue of 275,095 tax rules between October 5, 1988 and this same day in 2011. On average, 49 rules were published per day or 6.1 per working hour. No fewer than 3,089,302 articles, 7,198,075 paragraphs, 3,027,516 clauses and 23,015,303 points. Exacerbating the situation, only 7.3% of the standards (20,082) were in effect at the closing date of the study. Moreover, most originated in acts that weren’t even processed in the Legislature.

OBSTACLES TO ENTREPRENEURSHIP

One of the biggest obstacles to the development of our entrepreneurship is bureaucracy, in particular the tax one. The symptoms of this illness are expressed in surveys such as the ones from the World Bank, pointing Brazil as the most expensive in that matter compared to 183 countries. The cost of maintaining a business here is nine times higher than the global average. Not to mention the cost of the tax burden itself. The result has been the persistence of high levels of the informal economy.

A total and complete automation of the tax and fiscal system provided by the Public Digital Bookkeeping System will not materialize the debureaucratisation dream. Any computer trainee knows that before automating a process you need to organize it, promoting a cleaning of procedures and standards. Otherwise, we will have to live with an infinite project regarding to cost and schedule. Worse, without effective results.

We need a model compatible with the Information Society typical of the Third Millennium and the Brazilian entrepreneurial vocation. And that can simultaneously provide resources to the government, yet being simple enough to encourage entrepreneurship and curb tax evasion.

There are 3 million Individual ns already inside a system with those characteristics. But there are 5 million small businesses among the participants of the Simples Nacional, or belonging to the regime of Presumptive Profit, which are undoubtedly the biggest victims of the bureaucratic chaos.

It would be perfectly possible to adopt a highly simplified model for those small businesses, in which the federal contributions and taxes are consolidated into a (cumulative) single tax on the profit. The same reasoning could be applied to States and municipalities.

In this model, there would be a single accessory obligation, nationally standardized: the electronic invoice, as it already exists today, yet extended to the provision of services. With the current technological evolution, this model would allow an effective fight against tax evasion, broaden the competitiveness and encourage healthy entrepreneurship.

Some might question the effects of cumulativity, but as noted by the economist Marcos Cintra, author of the thesis of the single tax (charged on financial transactions), taxes on added value leverage evasion by increasing tax complexity.

He exemplifies this situation with the changes of PIS in 2002 and Cofins in 2003, when both became partially charged on the added value and aggravated our tax complexity. Another example is the ICMS tainted by 27 laws, often draconian, with the non-cumulativity (guaranteed by the Constitution) systematically disregarded by Simples Nacional.

Anyway, all we need to see the entrepreneurial character of the new middle class enhanced is an efficient, transparent and simple tax model (not only in name), based on revenue.

How to kill the “goose of the golden eggs”

Once asked what the greatest challenge to be faced in Brazil was, the top executive of a European multinational company that had just purchased the operations of a Brazilian group gave a quick answer: “the incomprehensible tax system”.

It made no sense for him, especially in a confederate country without ethnic or separatist conflicts, the existence of such complexity, for example, in the disorder caused by the different state laws on Tax on Goods and Services (ICMS) or in the constant changes in the laws.

This interesting passage reveals not only a curious conflict of corporate cultures, but also the troubled relationship between tax authorities and taxpayers, whose forces are extremely disproportionate. After all, if all this systematic is hard to understand even for us, natives of this land, what about for a foreign investor?

The lack of a federal agreement to end the fiscal war between the States is among the urgent demands that may make both plates of the scales more equitable, preventing the increase of this lack. There are currently over 40 different rates of ICMS in effect, ranging from 4% to absurd 30% in some cases, including approximately 3,500 rules constantly changing, many of them unconstitutional.

In parallel, if some judgments of our courts seem cryptic to the foreign investors, what to say when the breach of those same resolutions comes from our government? The non-payment of precatory letters is one emblematic example, even facing a court conviction.

Based on those observations, the same analogy can be made when micro and small enterprises (MPEs) are on other side of the table. Despite the existence of laws to make the tax burden lighter, such as the Integrated Payment of Taxes and Contributions of Micro and Small Enterprises (Simples), they are still insufficient.

According to the Brazilian Institute of Geography and Statistics (IBGE), micro and small enterprises account for 20% of Gross Domestic Product (GDP) (or R$ 700 billion), are responsible for 60% of the 94 million jobs in the country (or 56.4% million) and constitute 99% of the 6 million existing formal establishments (or 5.7 million). It's impossible to ignore the importance of those endeavors.

Although the figures are more than representative, the micro and small Brazilian companies are still neglected in many points. Back to the case of ICMS, they suffer with the so-called tax substitution, damaging those who opted for the Simples Nacional.

The problem is directly linked to the ICMS rate charged on the purchase of a product made by an industry enrolled in the special collection regime of the state tax. Micro and small businesses end up paying the same rate of medium and large companies, a huge mistake that makes the development of entrepreneurship even more difficult.

The current model of ICMS tax substitution should be widely rethought and perhaps extinct. It occurs because the States concentrate the taxes collection at the beginning of the production chain, in industries, exempting them from the payment of tribute in the commercialization. In practice, there is no exemption for consumers because it only alters the time of the collection. The correct thing would be to relief the tax burden at least for traders.

Didactically explaining to those who do not understand our tax system, it is enough to say that the ICMS rate at Simples Nacional ranges from 1.25% to 3.95%, percentage considered moderate. However, when the micro and small businesses buy a product from a company that operates in the regime of tax substitution, the collected ICMS reaches 6.3% on average, a distortion that should not occur.

In the midst of this hurricane, it is worth noting that the Public System of Digital Bookkeeping (SPED) under implementation since 2006 will enable the creation of a statewide scale, measuring those exchanges and leading to a real tax reform. 80% of the operations involving industry, wholesale and importation part of our GDP already pass through this systematic virtually.

Thus, the continuity of business in Brazil depends on the end of bureaucracy, as the 27 million entrepreneurs and 58% of the Brazilian population who are willing to engage in business need a “normal” tax model, to say the least.

The fact that the country has as a base a structure of taxation on consumption, rather than income and assets, always raises questions about how to get rid of this model. Increasing the number of companies and people who pay taxes would be one way, but would it be the best one? It's hard to tell.

Unfortunately, one of the certainties that concern us most is the huge amount of time lost with accessory obligations, taxes calculated incorrectly, errors in fiscal procedures, among other problems that arise eventually.

A study of the Support Service for Micro and Small Enterprises (Sebrae) shows that 27% of micro and small businesses go bankrupt in the first two years of existence, which is still high. To grow, it's necessary to focus on the goals, a less stressful and healthier process. After all, bureaucracy only generates unnecessary expenses.

It is clear that it's impossible to live in a society without taxes. Having made this reservation, the definition of how much should be paid is matter for debates that resemble football passions: the reason disappears. The measure must be correct because fewer taxes can disarrange the accounts of the government and harm the investment in key areas such as health, education, housing and security. Taxes collected in excess kill companies and destroy any prospect of economic and social development.

However, the less the “partner-government” requires from entrepreneurs and taxpayers in general, the more profits and incentives to invest we will have. Plus more development in general.

It is important to stress that the tax alone is not a problem, unless when your competitor pays less, either legally or through tax evasion. The dose must be fair.

According to the IRS, there are approximately 23 million businesses in the country, and around 170,000 of them account for 85% of revenues, while over 15 million are in the informal sector (16.8% of the GDP, comparing with a global average of 10%). They could thicken this front if there were more incentives and less paperwork to the formalization process.

In fact, to the eyes of the European investor, our tax system will be always an unsolved puzzle, a maze with no exit. He will never be able to understand the blindness attacking the government, who can't see – or pretends not to see – that, by hindering the development of entrepreneurs, it is in fact killing the “goose of the golden eggs”. That is a logical perception, the purest and cruel truth.

Edgar Madruga

Business administrator and coordinator of the MBA

in Accounting and Tax Law at Institute of Postgraduate Studies (IPOG).

THE SPED AND BUSINESS ADMINISTRATION

Before even creating a project, every manager can be sure that there is always a cost, whatever is the business at hand: the tax. This is so relevant that impacts directly the financial and budgeting planning, the cash and personnel management, the pricing and production processes.

Holder of the honorary title of champion on tax complexity, with more than 80 taxes and a daunting bureaucracy in this regard, Brazil is going through a period of turbulent change. The Public System of Digital Bookkeeping has been transforming the reality of 8 million entrepreneurs in the country.

Information on inventory, financial, logistics, tax and personnel management migrated from physical (paper) to digital media, through electronic tax documents and books. Thus, all transactions are recorded in a giant “Tax Facebook”.

This digital network forms a interconnected ecosystem of information exchange between customers, suppliers, carriers, accounting organizations and obviously taxing authorities. In other words, the king got naked. Or rather, companies were completely exposed. Especially under the eyes of its main partner: the State.

In fact, he wants governance and management reports to know, finally, what the company purchased, from whom and at which price, the same level of detail required in the field of sales. And it goes further, scrutinizing the tax involved and calculated in the operation, as well as who are the employees, how much are their wages and all the events of their professional lives while contracted.

This whole movement is a great appeal to management: organization, planning and control. However, those changes have been invisible for managers. In general, the theme has been omitted in publications and public events focused on that public.

The great mass of professionals engaged in the task of planning and control don’t even dream that their actions are already monitored by Big Brother Tax. So, their mistakes and successes are exposed to the world, like the personal gaffes we are subject to in social networks.

Administrators are naked. And they need to dress up in a new outfit, the outfit of the knowledge in an area so forgotten by them, before that nudity is punished, not only by tax authorities.

SPED's big challenge

Since the establishment of SPED, the Public System of Digital Bookkeeping, the investments in technology by Brazilian companies have increased a lot. It is common to find millionaire figures invested to meet this new model of relationship with the IRS.

In the beginning of the SPED projects, like the Electronic Invoice (NF-e) and the Digital Bookkeeping (EFD), the high investments were even more common, since the demand exceeded the supply. With the increasing number of technology players, these values were reduced, but it did not mean the end of the high costs, especially since new projects are introduced constantly, such as the EFD-Income Tax.

Since the establishment of SPED, the largest concern of the companies has always been to supply the information within the time limit. Something natural, since the non-deliver within the time limit subjects the taxpayer to high fines. To do so, those companies have assigned their key professionals and hired the best services available in the market.

In events related to the SPED, it is common to present success stories in which professionals from large and renowned companies have adopted best practices to meet the deadline of the new obligations.

But is the SPED just about that? Is it just about ensuring that the information is sent on time? That may be the more immediate problem of the companies, but make no mistake – it is only the first step and it does not guarantee anything in the success of this project. The companies should never forget the main function of SPED: to be a powerful tool for surveillance.

What may seem like the end of the task is just the beginning of the tax authorities’ job. Once they have received the files sent to the SPED, they start their function of examining whether the taxpayer properly cleared his tributes. Therefore, to have success in such proceeding, it is necessary to ensure the quality of the information sent.

Considering the Brazilian tax system, however, solving this problem is a major challenge. After all, on top of the complexity of the legislation, we still have to live with its inconsistency. In order to give an example in the framework of ICMS, the main tax on consumption in Brazil, we have a specific legislation for each one of the 27 States and there are changes in it every day! In the case of ISS, the service tax, the problem is even bigger, since there are more than 5,000 municipalities, each with its own legislation.

Therefore, the challenge of SPED is much higher than initially imagined and it will not be solved only with the generation and transmission of information on time. To ensure the quality of the information, it is necessary to invest mainly in monitoring and understanding of the tax legislation. Those are the challenges faced by companies that want to effectively have successful cases with the SPED.

Fábio Rodrigues

Lawyer and Accountant, Director at Systax and professor at post graduation courses at FIPECAFI, UNISO, IBG, INPG, ITE and IPOG.

THE IMPORTANCE OF SUPPORTING SYSTEMS TO THE CORPORATE MANAGEMENT

Currently, the whole business contingent (legally constituted or not) lives in the digital tax ecosystem established by SPED. The perception of that digital inclusion accelerates with the participation of a large number of companies in EFD-Contribuições and soon in the eSocial. In another aspect of the matter, the study of IBPT, as already mentioned, explicits the edition of a tax rule every 42 minutes.

So, if we have on one hand a movement of tax collecting offices toward electronic intelligence - as irreversible as digital photography, social media, e-books, media convergence, mobility etc. -, on the other hand there is a growing complexity in the tax system, accompanied by a quantum volatility of the rules that make up this intricate system.

Attentive and realistic observers of this scenario realize clearly that:

1. Inevitably, the entire business contingent should adopt technologies to support management - integrated systems (ERP) with good tax base.

2. Those systems, apart from the obvious tax compliance, should be integrated intra and inter-enterprises, thus creating a huge B2B system - Business to Business.

3. The safety of those tax documents, both in storage and in processing, will be critical for the survival of any business size. The smallest participant in the supply chain can expose the vulnerabilities of a larger one, demonstrating that nobody is good alone in an integrated world.

4. With so much volatility in the tax rules, the solutions will indispensably use cloud technology. It would be insane to imagine almost daily updates in an installed base of millions of established systems users in organizations distributed in more than 5,000 cities.

However, the Brazilian reality regarding the use of ERP is frightening. Less than 1% of all companies use some form of software management support. Now, with a market of this magnitude, it is perfectly possible to say that there is no consolidated leader.

The ranking of ERPs disclosed in the “All Software Markets, Worldwide - 2011” and prepared by Gartner Institute points out the Brazilian Totvs as the 6th largest ERP company in the world (by revenue), with 53.1% of the Brazilian market share.

SAP is on the top of that list. Oracle is the second, Sage and Infor round out the list of the biggest ones. Totvs ERP clients portfolio has something around 26,200 names. It seems a lot, but this volume represents only 0.4% of total enterprises. In practice, Brazil contains more than 200 Totvs!

The huge size of this market has attracted corporations from America, Europe and Asia that have already started their participation, either directly or through the acquisition of system providers already established in Brazil.

For now, the market for the provision of solutions to support corporate management is infinite and badly exploited, leaving unattended a big part of the small businesses in terms of products, prices and services. But the process of internationalization of this sector has undoubtedly begun in Brazil.

IMPACTS ON ACCOUNTING ORGANIZATIONS

Almost all companies opting for Simples Nacional has performed its bookkeeping using outsourced accounting organizations. A significant portion of the companies framed in Presumptive Profit also uses in a regular basis the services of those companies that were 80,691 registered in the Federal Accounting Council (CFC) in 2012.

Considering those assumptions, we can estimate that there are between 4 and 5 million businesses assisted by accounting organizations, resulting in an average of 55 to 62 clients each.

The raw material for the production of quality information aimed to SPED obligations must be backed by also adequate documents that originate the digital files. And it covers all the sectors of the business: customer base, suppliers, products, units of measure, stocks, rendered and taken services, financial transactions, sales, purchases, transfers, returns, employees, payroll etc.

Up to now, the overwhelming majority of those service providers receive such data through documents on a physical medium (paper). Often, outside the proper time for processing, and even in an improper or inaccurate way.

At the current implementation stage of SPED projects, the relationship between companies and accounting organizations will not survive the fragility of a model that was efficient and effective in the twentieth century.

Much as many controls and process improvements are established, the exchange of paper-based information generates a series of vulnerabilities related to the quality and timeliness of information. In practice, this entails an increasing amount of rework through bookkeeping rectifications, fines for not meeting deadlines and exposure to inspection systems.

The accounting offices become hostages of operational work (typing, corrections, conferences) in increasingly smaller deadlines. This way, they stop subsidizing entrepreneurs in most valued aspects, whether in advisory support on management or on preventive tax planning.

Finally, the exchange of information between companies and accounting organizations is an obsolete and costly model for both sides. It generates conflicts and constitutes a relationship in which everyone loses.

The continuity of accounting businesses in a post-SPED world passes by the accounting organization’s own conception as a company that needs strategic planning, control, and especially innovation through the intensive use of information technology.

Good strategic planning will help the accounting entrepreneur to set his essence, strengths and weaknesses. He will also understand what are the opportunities and threats inherent to the current context. He should also analyze his current client base and gradually align it to the vocation of his business.

What is seen in practice are movements of market segmentation and in some cases even reducing the amount of customers in order to improve the service quality and profitability of the business itself.

Undoubtedly, they seek improvements in the accounting communication starting from a marketing and customer relationship planning. Such actions comprise intensive use of technology through electronic newsletters, blogs, social networks.

However, the proper relationship model foresees (irreplaceable) personal encounters, i.e., regular meetings between managers to track results, train the client’s operations teams and events to raise awareness of future trends, among other actions.

Finally, the operational model of information exchange should be reviewed and aligned to the accounting organization’s strategic plan. There are some models currently in operation. Nevertheless, those who rely on the exchange of paper documents tend to become expensive and uneffective:

1. Procedures of the twentieth century are kept, with the exchange of information on paper. The company continues to execute its transactions and periodically sends copies of documents so that the accountant performs the accounting and tax bookkeeping. After completing the closure of those routines, the accountant generates SPED files using the systems of his office.

2. The company’s management system (ERP) does not generate SPED files. The accounting office receives electronic files with the performed transactions (financial transactions, inventory etc.), allowing the bookkeeping in the fiscal/tax systems. Here, the accountant is also responsible to generate the SPED files using the systems of his office.

3. The transactions bookkeeping is generated by the company’s management system (ERP). The accounting office receives electronic files with accounting/tax movements and performs the adjustments and entries for the closing process. The accountant is still responsible to generate the SPED files using the systems of his office.

4. The transactions bookkeeping is generated by the company’s management system (ERP). The accountant accesses the ERP and performs the adjusting entries and the accounting/tax closure. The ERP generates the SPED files.

5. The accounting services office becomes a provider of management software for its customers. Thus, the ERP is installed on the accounting organization’s servers and is accessed by its clients over the Internet, as if each company had operationally an ERP.

6. The accounting services office becomes a provider of management software for its customers. But the ERP is accessed by the accountant and its clients via services in the cloud (cloud computing). It is a variation of the Model 5, in which the company and the outsourced accounting use technology infrastructure of a solutions provider, also outsourced.

Theoretically, all described options work. In practice, the decision should be taken after the completion of the organization’s strategic planning, seeking the alignment of the technology used in the business plan.

There is undoubtedly a growing demand for high value-added services such as ERP consulting, auditing, selection and configuration. That situation produces a sea of opportunities to the market of accounting services. On the other hand, it brings profound changes in the organizational structure and in the profile of its professionals.

FINAL THOUGHTS

The use of intra and inter-enterprises integrated systems became a critical factor for success in projects adapting to the new fiscal reality. The various departments should be reformatted in this new order, in which the interaction between all areas is critical.

The full computerization and the exchange of digital information between customers, suppliers and financial organizations should be seen by managers as something strategic to the success of the venture.

In other words, it is not possible anymore to feed the greater B2G (Business to Government) of the planet from information on paper, because it generates inevitable tax inconsistencies, besides the huge increase in administrative costs.

Therefore, companies and accounting organizations that are still trying to solve new problems with old solutions come in a vicious circle of clear consequences: more errors and costs for everyone.

Regarding the obstacles to entrepreneurship, everyone should remember that only humans can solve the problems created by themselves.

This way, the SPED will not be the absolute solution for the serious tax distortions that destroy the potential of the Brazilian entrepreneur. Even less he will be responsible for transparency in relations or cooperation between the State and the society.

Only people with ethical and moral principles can sustain healthy relationships. That is, the focus is not technology but its use - whether by private or State initiative.

GDP COMPOSITION BY SECTOR

1-Gross Domestic Product (GDP) at Purchasing Power Parity (PPP)in 2014: USD 2.284 trillion

2-GDP per capita, at PPP: USD 11,600

NUMBER OF COMPANIES - “SIMPLES NACIONAL”

NUMBER OF COMPANIES - INDIVIDUAL MICRO-ENTREPRENEUR

PARTICIPATION OF THE INFORMAL ECONOMY IN GDP

TIME TO COMPLY (IN HOURS)

NUMBER OF COMPANIES BY TYPE OF PROFIT TAXATION - 2012

GDP: SHARE OF REGIONS AND STATES 2010

ACCOUNTING PROFESSIONALS AND ORGANIZATIONS BY STATE

EVOLUTION OF BITES

EVOLUTION OF TAXES COMPARED TO GDP

B2B - Business to business is the denomination of trade established between companies. Associated to buying and selling operations of information, products and services through the Internet or the use of private networks shared between two companies, thus replacing the physical processes that involve commercial transactions.

CNPJ - CNPJ is the acronym for the National Register of Legal Entities. It is a register to which all legal entities are required to enroll before starting their activities.

Cofins - The Contribution to Social Security Financing is a Brazilian federal contribution of tax nature, levied on the gross revenues of companies in general, to finance social security.

COTEPE - It provides the technical specification for the digital generation, storage and transmission of files related to the registry of tax documents, books, accounting entries, financial statements, documents with economic and fiscal information and other information of interest to the tax authorities. COTEPE means Permanent Technical Committee, composed of one representative from each State of the Federation and representatives from the Brazilian Internal Revenue Service, the General-Attorney of the National Treasury and the Brazilian National Treasury.

CPF - CPF is the acronym for Registration of Individuals. It is a register of taxpayers with the Brazilian Federal Revenue Service (RFB).

CSLL - The Social Contribution on Net Profits is levied on the legal persons and entities equivalent by the income tax legislation and it is intended to fund Social Security, paid to the IRS. Its rate varies between 10% and 12% and the calculation basis is the value of income before provision for income tax.

CT-e - Electronic Bill of Lading is a document of exclusively digital existence, issued and stored electronically in order to document the provision of transport services, of which legal validity is guaranteed by the digital signature of the issuer and Use Authorization provided by the tax administration of the domicile of the taxpayer.

Dacon - The Statement of Verification of Social Contributions is a mandatory accessory statement in which legal entities inform the IRS about the PIS and Cofins calculation in the cumulative and non-cumulative regime and PIS based on payroll.

ECD - The Digital Bookkeeping is one of the first three major SPED projects. It consists in replacing the bookkeeping on paper made by companies for the bookkeeping transmitted via files in digital version.

EFD-”Contribuições” - EFD-Contribuições is the current name of the former Digital Bookkeeping – EFD-PIS/Cofins. The name change was made due to the inclusion of social security contributions on revenue in bookkeeping, in addition to the already established bookkeeping of PIS/Cofins.

EFD-ICMS/IPI - Working group that discusses the technical, operational and legal aspects of the SPED and its impacts on companies, formed by pilot enterprises, technology suppliers and government representatives.

EFD-”Social” - The EFD Social or eSocial is a new obligation of SPED which aims to cover the bookkeeping of payroll and, in a second phase, the Employee Record Book.

Electronic Invoice - The Finance Departments are agencies responsible for the financial health of the States, ensuring efficient procedures for collection, transfer and application of public resources; they control the collection of state taxes and the state spending.

FCONT - Transitional Tax and Accounting Control is the bookkeeping of the asset and income accounts in double entry, which considers the accounting methods and criteria in force on December 31, 2007. The use of FCONT is needed to achieve the adjustments made in Lalur and can’t be replaced by any other control or calculation memory.

ICMS - The Tax on the Circulation of Goods and Interstate and Intermunicipal Transportation and Communication Services is established by the Brazilian States and the Federal District and charged at the commercialization of goods and services; the funds raised are used by the government to carry out works of social interest and maintain the systems of education, health, public safety, among others.

ICMS-ST - The Tax Substitution (ST) is the system by which the responsibility for the Tax on of Goods and Services (ICMS) due in respect of the transactions or services assigned to another taxpayer. The ICMS collection in the regime of tax substitution is anticipated and the tax is often collected based on an estimative of the price to be charged on the sale to the final consumer (VAT - Value Added Tax). ICMS is charged on the invoice of customers selling products difficult to control, such as cigarettes, discs, parts, beverages, fuel, oil, meat, etc.

IPI - The Tax on Manufactured Products is federal and levied on national and foreign industrial products. The main function of IPI is extrafiscal prohibitive, although it can be used as an selective tax. To encourage the consumption of a product, the government can exempt it from the IPI or significantly reduce its rate.

Lalur - The Book of Taxable Income Calculation is a fiscal book, being mandatory only for companies taxed under the income tax on taxable income method, as forecast contained in the Income Tax Regulation. Its function is to adjust the financial statements to the income statement with additions and deletions to the net profit of the base period, investigating the calculation basis the income tax due and values control that should influence the determination of the taxable income of future base periods not included in the commercial bookkeeping.

Manad - Regulatory Guide for Digital Archives which contains all information necessary to generate the digital file to be submitted to the SRP (Federal Social Security) to be delivered to the AFPS (Social Security Tax Auditor).

NF-e - The Electronic Invoice is one of the first three major SPED projects. It is the digital version of the paper invoice, a digital document issued and stored electronically, with the intention of documenting an operation of goods transit or service provision between parties; its legal validity is guaranteed by the digital signature from the issuer and the receipt by the tax authority before the triggering event.

PIS/Pasep - The Social Integration Program and the Civil Service Asset Formation Program (Civil Servant Participation Fund) are social contributions of tax nature, payable by legal entities in order to finance the payment of unemployment benefits, allowances and revenue share of the agencies and entities for public and private workers.

Practical Guide - The Practical Guide is a kind of manual that aims to guide the generation in digital file of the data needed for the care of any tax liability.

PVA - Validator and Signer Program is provided by SPED and its function is to import and validate digital files sent to the tax authorities by taxpayers.

RFB - The Brazilian IRS is an agency under the Ministry of Finance, responsible for the administration of taxes of Union competence, including social security, and those levied on foreign trade, covering a significant part of the social contributions of the Country. It also subsidizes the Federal Executive Power in formulating the Brazilian tax policy, prevents and combats tax evasion, smuggling, embezzlement, piracy, trade fraud, drug and endangered animals trafficking and other unlawful acts relating to international trade.

RTT - The Transitional Tax Regime deals with the tax adjustments arising from the new accounting methods and criteria introduced by Law 11.638/2007 and articles 36 and 37 of MP 449/2008, converted in articles 37 and 38 of Law 11.941/2009.

SINTEGRA - Integrated Information System on Interstate Operations with Goods and Services is the system implemented in Brazil in order to facilitate the provision of taxpayer’s information to the tax authorities in the States and to improve the information flow in tax administrations and between them. SINTEGRA enables computerized control of interstate input and output operations performed by ICMS taxpayers.

SPED - The Public System of Digital Bookkeeping was established in 2007 in Brazil and aims to computerize the relationship between tax authorities and taxpayers.

1. Cirigliano, G. y otros. Juicio a la Escuela. Editorial Humanista. Buenos. Aires. 1976.

2. WIKIPEDIA. Government of Brazil. Available at: <http://pt.wikipedia.org/wiki/Governo_do_Brasil> Consulted on: March 8, 2013.

3. WIKIPEDIA. Federal Unities of Brazil. Available at: <http://pt.wikipedia.org/wiki/Unidades_federativas_do_Brasil> Consulted on: March 8, 2013.

4. WIKIPEDIA. Municipalities of Brazil. Available at: < http://pt.wikipedia.org/wiki/Munic%C3%ADpios_do_Brasil> Consulted on: March 8, 2013.

5. ARAÚJO, Érika. Carga Tributária: Evolução Histórica - Uma Tendência Crescente. Informe-se nº 29, June 2001. BNDES. Available at: <http://www.bndes.gov.br/SiteBNDES/export/sites/default/bndes_pt/Galerias/Arquivos/conhecimento/informesf/inf_29.pdf>.

6. BRAZILIAN INSTITUTE OF TAX PLANNING (IBPT). Carga Tributária Brasileira de 2010. Available at: <http://www.ibpt.com.br/img/uploads/novelty/estudo/60/CargaTributariaBrasileiraCresce5EmUmaDecada.pdf >.

7. INTERNAL REVENUE SERVICE OF BRAZIL. National Portal of SPED. Available at: <http://www1.receita.fazenda.gov.br/sobre-o-projeto/objetivos.htm> Consulted on: March 8, 2013.

8. INTERNAL REVENUE SERVICE OF BRAZIL. National Portal of SPED. Available at: <http://www1.receita.fazenda.gov.br/noticias/2012/julho/noticia-25072012.htm> Consulted on: March 8, 2013.

9. NATIONAL MEETING OF STATE TAX COORDINATORS AND ADMINISTRATORS - ENCAT. Trophy celebrating the milestone of 5 billion NF-e. Available at: <http://www.encat.org/index.jsp?arquivo=webcontrol/detalhesNoticia.jsp&cod=87> Consulted on: March 8, 2013.

10. FRANÇA, Álvaro Sólon. Arrecadação trilionária mostra importância do Auditor-Fiscal da Receita Federal do Brasil. Available at: <http://www.anfip.org.br/informacoes/artigos/Arrecadacao-trilionaria-mostra-importancia-do-Auditor-Fiscal-da-Receita-Federal-do-Brasil-Alvaro-Solon-de-Franca_15-02-2013>. Consulted on: March 8, 2013.

11. FRANÇA, Álvaro Sólon. Previdência Social: 90 anos combatendo a pobreza e reduzindo as desigualdades sociais. Available at: <http://www.anfip.org.br/informacoes/artigos/Previdencia-Social-90-anos-combatendo-a-pobreza-e-reduzindo-as-desigualdades-sociais-Alvaro-Solon-de-Franca_24-01-2013>. Consulted on: March 8, 2013.

12. NACIONAL ASSOCIATION OF FEDERAL TAX AUDITORS OF BRAZIL. EFD-Social: RFB e ANFIP vão trabalhar juntas na divulgação. Available at: <http://www.anfip.org.br/informacoes/noticias/EFD-Social-RFB-e-ANFIP-vao-trabalhar-juntas-na-divulgacao_14-02-2013>. Consulted on: March 8, 2013.

13. INTERNAL REVENUE SERVICE OF BRAZIL. Projeto EFD-Social, Programa de Unificação do Crédito. Available at: <http://www.robertodiasduarte.com.br/wp-content/uploads/downloads/2012/05/Programa_de_Unificacao_do_Credito.pdf>. Consulted on: March 8, 2013.

14. INTERNAL REVENUE SERVICE OF BRAZIL. National Portal of SPED. Available at: <http://www1.receita.fazenda.gov.br/noticias/2012/novembro/noticia-30112012.htm> Consulted on: March 8, 2013.

15. BRAZILIAN OFFICE OF THE COMPTROLLER GENERAL. Answered Request [personal message]. Message received by <roberto@robertodiasduarte.com.br> on October 17, 2012.

16. OTONI, Luciana. Receita Federal implanta malha fina para empresas. Reuters. Available at: <http://http://br.reuters.com/article/domesticNews/idBRSPE91J02H20130220?pageNumber=1&virtualBrandChannel=0>. Consulted on: February 23, 2010.

17. INTERNAL REVENUE SERVICE OF BRAZIL. Strategic Map of RFB. Available at: <http://www.receita.fazenda.gov.br/Historico/SRF/PlanejAdminTribAduaneira/Default.htm> Consulted on: March 8, 2013.

18. NOBRE, Ernesto Silva. O Combate à Sonegação é a Nossa Meta. Available at: <http://www.conaf2012.org.br/index.php?option=com_phocadownload&view=category&download=27:o-combate-a-sonegacao-e-a-nossa-meta&id=3:justica-fiscal&Itemid=498> Consulted on: March 8, 2013.

19. GETÚLIO VARGAS FOUNDATION. Índice da Economia Subterrânea. Available at: <http://www.etco.org.br/publicacoes/estudos-e-pesquisas/> Consulted on: March 8, 2013.

20. GLOBAL ENTREPRENEURSHIP MONITOR. Empreendedorismo no Brasil – Relatório Executivo 2012. Available at: <http://bis.sebrae.com.br/GestorRepositorio/ARQUIVOS_CHRONUS/bds/bds.nsf/9696c98c23d137fd0d8af1300d9742b0/$File/4226.pdf>. Consulted on: March 8, 2013.

21. BRAZILIAN INSTITUTE OF GEOGRAPHY AND STATISTICS. Cadastro Central de Empresas. Available at: <http://www.sidra.ibge.gov.br/bda/cempre/default.asp?z=t&o=12&i=P>. Consulted on: March 8, 2013.

22. MINISTRY OF LABOR AND EMPLOYMENT. Cadastro Geral de Empregados e Desempregados - Estatísticas. Available at: <http://portal.mte.gov.br/caged/estatisticas.htm>. Consulted on: March 8, 2013.

23. MEIRELES, Renato. Nova Classe Média Brasileira. Data Popular. 2012. Message received by <roberto@robertodiasduarte.com.br> on October 17, 2012.

24. THE WORLD BANK GROUP; PWC UK. Paying Taxes 2012 – The Global Picture. Available at: < http://www.pwc.com/gx/en/paying-taxes/download-order.jhtml>. Consulted on: March 8, 2013.

25. ZUINI, Priscila. Burocracia e mudanças na lei atrapalham PMEs, diz pesquisa. Portal Exame. Available at: <http://exame.abril.com.br/pme/noticias/burocracia-e-mudancas-na-leis-atrapalham-pmes-diz-pesquisa>. Consulted on: March 8, 2013.

26. BORBA, Júlia. Papelada é entrave para 9 entre 10 industriais. Folha de São Paulo. Available at: <http://www1.folha.uol.com.br/fsp/mercado/65317-papelada-e-entrave-para-9-entre-10-industriais.shtml>. Consulted on: March 8, 2013.

27. BRAZILIAN INSTITUTE OF TAX PLANNING - IBPT. Quantidade de Normas Editadas no Brasil: 23 Anos da Constituição Federal de 1988. Available at <http://www.ibpt.com.br/img/uploads/novelty/estudo/63/Em23AnosDeConstituicaoPaisEdita43MilhoesDeNormas.pdf>. Consulted on: March 8, 2013.

28. CINTRA, Marcos. A Verdade sobre o Imposto Único. São Paulo: LCTE, 2003.

29. GRAHAM, Colleen et al. Market Share: All Software Markets, Worldwide, 2011. Gartner Inc. Available at < http://www.gartner.com/id=1969315 >. Consulted on: March 8, 2013.

30. FEDERAL COUNCIL OF ACCOUNTING. Profissionais Ativos nos Conselhos Regionais de Contabilidade. Available at: <http://www3.cfc.org.br/spw/crcs/ConselhoRegionalAtivo.aspx>. Consulted on: March 8, 2013.

31. DUARTE, Roberto. Manual de Sobrevivência no Mundo Pós-SPED. 4 ed. Belo Horizonte: Editora Ideas@Work, 2011.

Business Process Outsourcing

BPO Brasil specializes in running administrative and operational activities of commercial companies on its own structure, including deploying and making available in the ‘cloud’ the ERP SAP Business One. The goal is to be a great enabler so that the clients are able to dedicate themselves to their true vocations and focus on strategic areas of their business, such as new product development, production, marketing and sales.

The company is prepared to deliver a faster and cheaper alternative to the installation and operation of your company in Brazil, making it easier to cope with cultural challenges, significantly reducing the investment on structure of warehouses, office and IT. The intention is to eliminate the cost of learning in order to overcome the bureaucracy and the complex tax and labor system of the country.

Just Sell! We take care of the rest.

BPO Brasil is passionate about what it does and pursues continuous improvement in its processes. The following services are offered in an integrated manner:

•Shared office

o Legal and commercial address

o Personalized telephone answering

o Meeting rooms for the client’s use

o Office posting

• Logistics (operated in BPO Brasil’s warehouses)

o Receipt of goods

o Storage

o Billing

o Delivery

o Reverse logistics

o Hiring and management of carriers

• Financial management

o Management of payables through a structured flow of authorizations

o Management of receivables

o Administrative and judicial collection

o Bank conciliation and cash closure

o Financial reports

• Accounting and tax management

o Tax calculation

o Presentation of accessory obligations

o Balance sheet and financial statements

o SPED

• Personnel management

o Calculation of payroll

o Calculation of charges

o Issuance of accessory obligations

• SAC Service (customer service)

• Implementation and in ‘cloud’ delivery of ERP SAP Business One

• Support in hiring services of import and customs clearance

Technological environment

SAP Business One Cloud

The technological strategy of BPO Brasil involves the implementation of ERP SAP Business One using a methodology that combines the knowledge of business processes and accounting/tax procedures to the experience proven in more than 38,000 customers of the largest and most prestigious company of integrated management software in the world.

Integration with e-commerce

Through its partner Zethos (SAP Gold Partner), BPO Brasil offers full integration of ERP SAP Business One with the e-commerce platform Magento, enabling another sales channel with full integrity of information.

Data Center World Class

The client BPO Brasil has web access to the ERP SAP Business One, of which database is hosted by Level3, one of the largest data center companies in the world, ensuring high availability and high level of security.

Zethos fiscal technology suite

Integrated with ERP SAP Business One and in accordance with the complex Brazilian tax system, the tool monitors the emission of electronic invoice and ensures the integrity and security of information in the communication with public bodies, providing an environment for data verification and adjustments, allowing the assertive delivery of accessory obligations, especially SPED.

Implementation Methodology BCZ

BPO Brasil’s expertise, along with Zethos’ experience in implementing hundreds of projects with the application of their knowledge base (BCZ) and ASAP methodology (AcceleratedSAP), allows to quickly and effectively deliver the best models of implementation of SAP Business One.

Learn more at www.bpobrasil.com and contact us. BPO Brasil will be glad to develop a proposal that meets the challenges of your business.

www.bpobrasil.com

First of all, in order to understand what Decision IT does, it’s necessary to understand the Brazilian fiscal and tax situation. Here, all the three state entities (Federal, States and Municipalities) establish standards that define what information should be provided by the taxpayer and how. In their turn, companies need to fit their databases in order to provide the information in the layout set. As that process is still considered recent, many companies are not fully adequate to it.

With the emergence of SPED, all obligations previously provided to state entities through books on paper must be provided by digital means. Therefore, everything that was once done by accountants needed the help of IT, since it would have to be submitted digitally, in a specific layout. Thousands of data must be submitted every month by the organizations, in coherence with the operations occurred in that period. It is a true ‘picture’ of the company presented monthly to the Treasury.

That way, errors and inconsistencies hardly noticed before are now automatically under the lenses of the tax authorities. Therefore, keeping up with the information and requirements has become a priority of tax and accounting areas, needing the help of IT. The teamwork required by the IRS, in which different areas should be in synergy to provide business information, is quite complex and has been worrying many managers.

The SPED is a project that aims to digitalize the fiscal and tax books of Brazilian companies, but many of them have not structured themselves to meet the new requirement – whether because it was implemented too soon or the companies have not given due attention to it, or they do not have qualified personnel, specialized in the areas of tax and IT, etc.

Decision IT saw there a great opportunity to become expert in a brand new market emerging in front of everybody. Therefore, they sought consultants that were trained in accounting, but also with knowledge in IT, and IT analysts, but with experience in accounting; they should be able to understand the needs of two areas that have never worked so much together as now: IT and accounting. That way, they built a team of specialists in what is called SPED.

With more than 15 years in the market, Decision IT complies with the obligations of SPED on which most of the companies need more technical support. Because of the dynamic aspect of the Brazilian tax scenario, changes with a heavy impact on the companies’ businesses happen without a long-term schedule of what they need to do to fit. That way, many obligations are imposed on entrepreneurs, sometimes with very short deadlines, difficult to meet. In view of this, Decision IT emerges as a strategic ally in matters related to tax obligations with all the necessary support, so that the tax and IT areas of the corporations can adapt their systems to the layout proposed by the tax authorities.

Decision IT counts currently with a team of more than 50 employees who breathe SPED. Those are the people who help the Brazilian companies to comply with the almost daily changes proposed by the Brazilian tax authorities every day. Based in Porto Alegre, in the state of Rio Grande do Sul, Decision IT attends medium and large Brazilian companies of different segments that are in need of the services of a company specialized in FISCAL IT to assist them with the challenge of delivering the Brazilian tax obligations with safety and information quality.

Among the solutions offered are:

WORKMATIC PRO, a software that automates many of the routines in the tax area, providing higher quality and speed to such processes. So, the tax staff is released from far too operational processes that end up reducing its capacity, and can now operate in more tactical and strategic issues. It is suitable for large companies that can’t afford to have their tax and accounting areas unavailable; it is easy to use and quite adaptable to the specific needs of each business, optimizing the allocation of resources, increasing productivity and reducing company costs.

NOTAMAX, the NF-e solution from Decision IT for companies demanding high availability, high performance and high volume of tax documents. It is a robust and practical software with many modules to safely and quickly attend the full life cycle of all electronic tax documents. It has a wide range of Validation Rules that verify the integrity of the information before sending it to the tax authority, as well as being a solution that can be triggered via web.

TRIBUTARY ENGINE (MOTOR TRIBUTÁRIO) is a software that can be defined as a ‘tax calculator’, assisting companies in the calculation of the taxes required to issue tax documents of goods. Thus, while providing the taxes for the operations carried out by Brazilian companies, it serves as an information basis for a better decision-making of the company regarding the fiscal side of its operations.

DECISION SPED is a full fiscal manager capable of managing all the accessory obligations of your business and safely and efficiently determine your taxes. The solution is easily integrated with ERP and other applications on the market and can be accessed by mobile devices due to the utilization of web platform. With more than 2,000 validation rules, Decision SPED makes your company able to deliver the Brazilian tax obligations.

With experience gained in over 2,000 projects of TAX IT consulting executed for large companies, Decision IT identifies itself as a company specialized in SPED and able to provide customers with premium consulting services to assist them in any tax demand related to the SPED scenario. Among our consulting services are:

1.SPED Diagnosis – supports companies that need the tax mapping to begin attending a new tax obligation and those who already meet the requirements, but need to ensure the non existence of inconsistencies in the digital files generated by an analysis of our expert consultants, implementing improvements in the company along with the areas involved in the SPED deliveries, for the security and integrity of the information sent to the tax authorities.

2.Item’s Fiscal Framing – implementation of the framing and parameterization of the company’s items, seeking the correct taxation on business operations of simple handling. That way, the database of the company is qualified regarding current and future tax audits.

3.Register Validation – quickly updates and qualifies registers involved in the files generation for SPED. Accomplished through the identification of the information maintained in the customer’s ERP that present fiscal risks. It also includes the characterization of the problems encountered and recommendations for their resolution.

4.Fiscal Validation of NF-e (XML) – validation of the XML’s information allowed by tax authorities and stored by the client, whether received or issued by the client regarding the invoices. Completely automated, it checks over 1,000 instances of possible fiscal inadequacies in a clear way. Furthermore, it indicates the best ways to fix and maintain the integrity of the tax data.

5.Credit Recovery – technological support to locate, reconcile and consolidate the information needed to generate complete tax reporting, allowing companies entitled to tax credit to quickly and safely do the proper confirmation of the calculated amount to the Treasury.

6.Support for Digital Audit and Fiscal Summon – summoned companies are subject to the delivery within 20 days of financial and tax reporting of the last five years in a detailed and digital form. The service prepares those companies to such a tax audit, retrieving, validating and formatting the information in accordance with the layout required by the summon.

7.Mapping and configuration of fiscal scenario in ERP implementation – working together with the ERP implementers in your company in order to map the fiscal operations, parameterize them and approve the tax calculation of the company’s transactions in accordance with the tax regulation. That way, the client’s database is more reliable with respect to the registration data and fiscal parameters, making use of the ERP’s automatized routine of tax calculation.

8.OUTSOURCING – aimed at companies that require specialized external support to fulfill the specific demands of the fiscal and accounting areas to quickly internalize the knowledge and experience required for unforeseen tax projects requiring immediate allocation to meet deadlines, use of experts or management of tax projects.

9.Fiscal BPO – to take over the operation of processing the client’s tax routines, offering management, systems and specialized team, ensuring the delivery of the calculation of taxes and accessory obligations within the time required by the tax authority with quality and reliability of information. A technical team of experts with knowledge of the fiscal situation and fully capable of assuming the company’s processes and operations involved in the fulfillment of SPED is allocated.

10.ASM – Tax Application’s Maintenance and Support – to operate in quick and effective maintenance of the client’s tax applications from simpler systems to major solutions that do not have a maintenance service to accompany the company’s needs. Therefore, we can bypass critical situations to the fulfillment of obligations such as the SPED and meet the deadlines required by law with quality and safety.

Finally, we believe the SPED Project is very beneficial for Brazilian companies, greatly contributing towards the rational use of resources, reducing the unfair competition, maintaining the integrity of business information, process review and control, reducing corruption, integrating the treasury departments, simplifying the accessory obligations, among others. Decision IT wants to be present in this part of the Brazilian history which is apparently just beginning and tends to continue with many chapters of the country’s development and many business changes.

NTW Contabilidade e Gestão Empresarial is the first accounting franchise chain in Brazil.

With over 20 years in the accounting and business management and certified with ISO 9001:2008, they have all the know-how to open a successful franchise.

NTW develops the activity of providing accounting services to various companies, establishing a mix of service packages of wide acceptance in this market.

NTW offers all the support that the franchisee needs: Corporate university and training, marketing initiatives, sales strategies, unit deployment, strategic planning, management system unique to the accounting office, full support in the assemble and opening of the office, advice for obtaining ISO Certification 9001:2008 and deployment of MEG - Excellence and Management Model.

The goal is to expand the knowledge of the management model for other accounting and financial units, creating an opportunity for entrepreneurs of the accounting field to convert or open their own business following a successful and nationally recognized model.

To achieve that goal, they hired one of the leading companies in the area of expansion in business franchises in the country to assist in formatting the business. In 2013 was opened the first franchise abroad in Maputo, Mozambique.

Additionally, a benchmarking was made with franchise networks in the United States, Canada, Australia and England.

www.ntwcontabilidade.com.br

Knowledge to grow

For 10 years in the field of business management, the integrator Zethos helps businesses to grow. With over 105,000 consulting hours distributed in more than 1,800 projects in small and medium enterprises, totaling 1,600 clients served and more than 2,500 students per year.

Focused on medium and small businesses, Zethos has an extensive experience in the fields of accounting and tax, since a large number of their own professionals is skilled in those areas, which enabled the development of solutions like: Zethos SPED and tax management solutions, fully integrated with SAP Business One.

The SAP Gold Partner Certification enables Zethos to sell, deploy, support and train consultants (SAP Academy) in the solution SAP Business One, ERP management software for small and medium enterprises, from the global giant SAP. Moreover, Zethos keeps business partnership with major companies of accounting solutions in Brazil – Mastermaq Softwares / MasterSAF Thomson, among others. The education sector is a task for IZEC – Zethos Institute for Corporate Education, attached to Zethos.

As MASTER VAR SAP, the company’s performance reaches the southeastern and midwestern Brazil, regions that concentrate more than 65% of the national GDP. With headquarters in Belo Horizonte, in the state of Minas Gerais, two branches in São Paulo and Brasília and business partners spread across those regions, Zethos expands the reach of the SAP ecosystem along small and medium enterprises.

The biggest commitment is the conduction of winning projects, focusing on the profitability of the clients, where success is linked to a unique differentiator of business competence on the market. With a methodology based on the success factors of each client, Zethos offers solutions according to the needs, providing full integration between the work teams, the processes and the technology. Always aiming to optimize the projects, Zethos adapted the method ASAP (SAP methodology tested in thousands of companies around the world) to the needs and characteristics of Brazilian companies, adding to this method all their knowledge in business processes, accounting and tax processes and particularly their experience in implementing hundreds of projects of business solutions in small and medium-sized Brazilian companies over the 10 years of operation. Zethos methodology enables to reduce the project risks and, thus, rationalize costs. In summary:

Following the technological trends in the ERP’s market, mobility, choice of systems in the clouds (CLOUD) and segmentation, every one of them is a reality for Zethos’ clients. The latter occurs through specialization and development of vertical solutions started on the following segments: Lease, Sale and Service, Engineering and Projects, Business Accounting, Commerce, Industry and Services. In this sense, several solutions have been created:

* Zethos LocOne

* Zethos SalesForce

* Zethos ServiceDesk

* Zethos SPED

* Zethos FiscalSuite

What’s SAP Business One?

SAP Business One is a business management software with an affordable investment for small and medium enterprises and with SAP quality, the world leader in ERP. It is a fully integrated platform that covers all the vital operations of companies such as: sales, finance, accounting, customer relations and operations, also including CRM (commercial management), service management, inventory management, production and BI. The software allows you to optimize all the operations, to get immediate access to information and to accelerate profitable business growth. Moreover, with the new fiscal reality in Brazil (SPED and Electronic Invoice), it is imperative that the fiscal intelligence of the operation is in the company’s hand, not only with the accounting. SAP Business One is the ultimate software for the company that no longer wants to worry about changing or acquiring new ERP solutions.

IZEC

At Zethos Institute for Corporate Education (IZEC), the knowledge of the entire line of Software SAP Business One and Mastermaq is passed on to students through: SAP Academy; Departments Courses in Practice, in the areas of Accounting, Tax, Finance and Personnel; Courses on the NG and Master platforms, both by Mastermaq; among others. The classes are dynamic and given by top certified professionals in the solutions.

With trainings offered by IZEC, the user is able to use all the features of the solutions in order to get full agility and efficiency in daily work, thus increasing their productivity. The trainings are held in properly equipped rooms and by skilled professionals.

Zethos and IZEC - Learn more at:

•www.zethos.com.br

•www.izec.com.br

•www.facebook.com/zethos

•www.facebook.com/IZEC.Educacao.Corporativa

•www.youtube.com/canalzethos

•www.facebook.com/sapbusinessone

Zethos: Knowledge to grow - +55 31 2125-8300