R a f a e l

Practices for illegal import to Brazil

The Brazil Business

Updated

9 September 2012

A considerable amount of the imported products circulating in the Brazilian market entered the country illegally. In this article, we will outline the most common practices regarding illegal imports that happen in Brazil.

Background

The Brazilian consumer market is crowded with foreign products that affect the national industry. From the most superfluous gadgets, to the products indispensable to day to day life, such as textiles shoes and electronics, the imported goods already account for a considerable share of our local market.

Aware of the damage the imported products’ invasion can cause to the national producers, the Government tries hard to restrain the entrance of foreign products, adopting protectionist measures. Only this year, president Dilma Roussef applied 40 of them, including constant intervention in foreign exchange, increase of the taxes paid on imported goods and even surcharges for specific imported products.

As expected, by making the movement of imported goods more difficult, the Government had to strengthen the inspection and control of the Brazilian borders, to avoid the entrance of illegal foreign goods. So, along with the protectionist measures, came the reinforcement at ports and airports, the resumption of the use of safeguards and privileges for national products, the implementation of new tools to fight triangulation and the mobilization of the Federal Police to investigate deeply the suspects of illegal importing schemes.

So, the import players are being severally marked, but, in the soccer-loving country, there will always be a way to dribble the government and score the goods in. And if the legally imported goods are already competitive, imagine the illegally ones. As the Government do not play easy for the importers and exporters to maintain their prices competitive in the Brazilian market, it is expected that they would find their way into deviating the goods from the legal import procedure.

One thing is for sure: as long as there are buyers for the illegal products, there will be sellers. Because, in the end, a competitive final price is what will define who stays in the market and who gets out. We hardly see consumers asking themselves if the company they are buying from is honest. If the price is good, why not buying it?

Down below, we made a list of the most common illegal practices regarding importation in Brazil, and the criminal charges the illegal importers/exporters can suffer if caught by the authorities.

Smuggling and embezzlement

Most of the illegal imports are configured as crimes against the tax order such as smuggling and embezzlement. Both those crimes fit in the article 334 of the Brazilian Penal Code – Importing or exporting goods illegally, or not executing, in whole or in part, the payment of the rights and taxes applicable to the products brought in or out the territory.

Smuggling only applies to the illegal import or export of goods that are prohibited to be commercialized in the country, such as narcotics, weapons, wild animals or anything that threatens the health of the population. As for embezzlement, it happens when there is any import or export of products without the custom’s required licenses or the collection of taxes due.

Sentence: one to four years of imprisonment, and seizing of all the products. Smuggling is a felony liable to judgment in international courts. Although fitted in the same law, embezzlement is a much less serious crime. The prison can be avoided by paying the taxes due, the bail or the fines, and surrendering the illegal products. It is important to notice that any honest company or person can commit the crime of embezzlement, for unawareness or confusion in the import procedures.

Among the products seized for embezzlement are cigarettes, perfumes, electronics, watches, textiles, handbags, alcohol, and vehicles used for transporting loads. Under this category, cigarettes and alcoholic beverages are the goods that are most imported illegally in Brazil. A survey made by the Federal Revenue estimated that about 20% of the foreign wine consumed in Brazil entered the country without paying taxes.

Triangulation of goods

Triangulation happens when the exporter fraud the certificate of origin of the goods, changing the country where they were produced in order to get benefited by the Mercosul customs advantages when entering in the Brazilian market.

This year, the Receita Federal punished a case: Blankets produced in China, entered through Paraguay and Uruguay where they had their certificate of origin falsified. Then, the blankets were imported into Brazil as they were from Mercosul, getting benefits of the lower taxes’ rates agreed by its members. And voilá: Chinese blankets made in Paraguay, costing half the price of the ones produced here.

This procedure is being largely used by China (and other countries that adopt unfair competition practices) to avoid the anti-dumping measures that several countries, including Brazil, are taking towards its products.

Under invoicing

In this practice, the exporter fraud the receipts, writing a much lower value than the buyer paid. This way he will pay less taxes, as they are calculated over a determined percentage of the product's final cost. The importer is often involved in the scheme with the exporter, as they both get benefits from it.

Under invoicing also happens a lot in e-commerce and the illegal importers almost never get caught. Due to the low costs of the products sold online, the e-commerce sales in Brazil went through the roof. This becomes evident in the shed for inspection of the Federal Revenue at the Post Office of São Paulo, where 2900 boxes per day arrive from abroad. Every order passes through the x-ray, but only products deemed suspicious are opened.

People practicing under invoicing are again, committing a crime against the tax order, that can be defined as tax evasion, with penalty of 2 to 5 years of imprisonment plus fine.

Smarty consumers/travelers

As the imported consumer products are very expensive in Brazil, mostly because of the high taxes, people usually buy a lot of those items when they go abroad. But individuals are only allowed to bring those products into Brazil for personal use. Bringing goods to resale in Brazil is strictly forbidden. If caught, the person will have all the goods seized and will have to pay fines.

Purchases up to USD 500,00 per luggage for air travels are exempted from paying the Import Tax. Above this value, the buyer will have to pay 50% of the excess in Import Tax after presenting and declaring the goods purchased to the customs office.

A lot of people will skip this step, get in the green line, and count with luck to run across the airport without being caught. Actually, the number of supervisors is not sufficient to perfectly check all the travelers and luggage, so most of them succeed in this attempt.

As the air travel tickets decreased in Brazil, a lot of families are going abroad only to shop, bringing clothes, shoes, electronics, cosmetics, among other things. If a family of six people (carrying six bags) goes shopping overseas, they will have an amount of USD 3000 to spend without paying the Import Tax when returning home. Plus, it is a lot easier to camouflage undeclared goods distributing them in a lot bags.

Also, people will trade all sort of information on how to “hide” goods inside the luggage and deceive the supervisors. Among those tricks are: putting the goods inside snack packages, rolling them in newspapers and clothes, taking them out of the original boxes and so on.

Importing via Correios

The simplified import is one of the most used ways to bring goods illegally into Brazil. Some products, such as books, magazines and newspapers are exempted from taxes. People bring the boxes already sealed to the post office and declare that their content are books, for example. This kind of simple trick usually works right as the amount of boxes that come into Brazil is enormous and the supervisors are not enough to check them all. The imports via Correios are also the ones that register most of the cases of under invoicing and falsification of content and amounts.

Paraguay: a paradise for illegal importing

Every Brazilian knows that right by our side there is a neighbor that sells all our dreams of consumption with much lower prices. The prices of imported products in Paraguay can be up to 80% cheaper than in Brazil, what attracts several people seeking to buy products for resale and for personal use. We already have seen that individuals are forbidden to bring goods from abroad for resale, but there are lots of people making a living on sales activities in Brazil, having Paraguay as their number one supplier.

Busses and cars are the types of transport preferred by the ones who want to import illegally, because the roads have less supervision and larger flow of people (and their huge bags) circulating. The precise spot where the purchase magic happens is along the surroundings of the international Friendship Bridge, that connects the cities of Foz do Iguaçu, in Brazil and Ciudad del Este, in Paraguay.

Speaking of which, the flow of people along the Paraguay-Brazil border is enormous, that is why most of the people return to Brazil with bags full of goods without being caught or paying a single penny in taxes. That is so true that Brazilians even joke that anything coming from Paraguay is falsified, robbed, or illegal, which is a huge prejudice, I know, but we can't help it.

Out of curiosity, the legal way for an individual to import from Paraguay goes like this: the person will buy the product in a legal and licensed Paraguayan store, keep the nota fiscal from the purchase, and present it at the Brazilian customs office located in the border to pay the taxes due. The limit value exempted from Import Tax is USD 300,00 per luggage.