Federal Revenue Tax Audit
Federal Revenue collects almost two-thirds of all the Brazilian government revenue, and a large portion of it comes from tax audits. This article will explain more about this process, and its consequences in Brazil.
Feared by many, a tax audit might be required when any possible irregularities are identified in a person or company's income tax return. The responsible governmental body is the Brazilian Federal Revenue, known as Receita Federal.
Receita Federal is reportedly making a more severe fiscalization of tax evaders year after year, so, the chance of any irregularities being detected is growing higher. In 2013, for example, new detection systems launched by the Federal Revenue made it possible to supervise companies on a monthly basis, with the analysis of reports such as the DCTF, or Declaração de Débitos e Créditos Tributários Federais.
How Companies are Selected for an Audit
If any difference is detected between the information given by a company and the tax received by Receita Federal, a fiscalization process may be started.
Many differences are made involuntarily or are not very significant, though, making it possible to solve the situation before that, through a cobrança amigável or friendly charge. This might happen, for example, when the contributor wrongly fills up any monthly or annual forms, such as DIPJ, short for Declaração de Informações Econômico-Fiscais da Pessoa Jurídica, or the already mentioned DCTF. The causes of the mistakes, in these cases, are not even investigated.
If the auditors consider that the differences detected may represent something more serious, a fiscalization process is opened. Beside the incongruence between documents and taxes, other reasons for a possible audit are:
- Contributors with big profit and low tax return
- Financial movements way above the values presented in the Income Statement
- Companies associated with famous personalities
If any of the above is detected, a tax auditor of Receita Federal may advance with the fiscalization, as will be shown later.
The Tax Auditors
Becoming a tax auditor is a recurrent desire among Brazilians. The competition for this position is fierce, mainly due to the high salaries of this governmental job.
The selection process, known as concurso público, is entirely run and supervised by Ministério da Fazenda. It requires an entrance fee, of BRL 130 in the 2014 process, and basically consists of two stages:
- Four tests; three multiple choice questions and one test requiring an essay
- Documental analysis about the applicant's past
All the applicants must have a higher educational degree. The 2014 process opened 278 job opportunities as tax auditors, offering a monthly salary of nearly BRL 15,000.
The Fiscalization Process
First Steps
The whole fiscalization process is started after the emission of a MPF, short for Mandado de Procedimento Fiscal. This document basically brings information about the process, like its identification number, what kind of procedure will be executed, and its expiry date. The MPF also shows that the audit is legit, avoiding any criminal possibility.
The MPF will be presented personally by an agent or tax auditor, requiring the signature of the contributor. If this is not possible, then it will be delivered by mail at the contributor’s residence.
Presenting Documents
After presenting the Mandado de Procedimento Fiscal, the auditor will require some data and documents proving what were previously informed. Every time a document or paper is given to the agent, a formal registration is required. This can also help to control what was already shown throughout the process.
Receita Federal can, if necessary, ask the contributor to present every single one of the company’s accounting and tax documents. However, the bank and mail secrecy of the company must be assured, unless extreme situations indicate otherwise.
Final Steps
After all the documents are presented, and no further comments are made, a term signalizing the conclusion of the process is signed, called Termo de Encerramento de Fiscalização. From here, there are two possibilities:
- It is stated that the contributor no longer has any pendencies, and is free from any legal obligations.
- It is stated that the contributor have pendencies, which leads to an auto de infração, showing fines and amounts to be paid. The company can, yet, legally challenge this measure in another instance.
Punishment and Fines
If the irregularities are proved and confirmed by the tax auditor, a fine that varies from 75% to 225%, on the whole amount, is charged, plus interest based on Selic, the Brazilian basic interest tax.
In cases of evasion, fraud or collusion, the first fee is doubled, independently of any other ongoing criminal processes. Also, goods might be confiscated as a guarantee of the payment.
In addition, the first fee might be doubled if the company fails to meet deadlines to present files, documents, archives, or present any needed clarification.
Recommendations
Here are some additional recommendations to make all the processes listed above less stressful and laborious.
- Review all the data before delivering it to Receita Federal. Correcting wrong information might prevent the company from being audited.
- Store everything. For safety reasons, archive every document, paper, sheet or form used and required throughout the process.
- Treat the auditors seriously and professionally. In Brazil, a big part of the process is centralized in one agent, who is susceptible to emotional conditions, so, avoiding conflicts is important.
- Prepare yourself or your representant. This is also a common measure to avoid conflicts with the agent. Besides, this allows keeping a closer eye to the whole process.
Special Cases of Fiscalization
According to the Brazilian Law, the Federal Revenue may investigate a company more frequently, or in uncommon situations, if:
- There is fiscalization obstruction, characterized by not showing documents proving the financial activities of the company, or by not giving legal information requested by Receita
- There is registered resistance to the fiscalization, denying the entrance of an auditor to the company building or any legally requested place
- Any form of smuggling is registered
- An infraction against the tributary Law is repeated
- Evidence that the company is constituted by persons that are not the real and declared partners or shareholders
- Any operation is realized without the necessary legal registration
- Uninterrupted fiscalization of the company
- Reduction of the time, by half, for calculation and collection of taxes
- Electronic control of the operations made and daily tax collection
- Need to systematically prove the fulfillment of the legal obligations
- Special control of commercial and fiscal documents issuing from the financial activity