For tax purposes, a company’s year-end is 31 December. A different year-end for corporate/accounting purposes is irrelevant.
With few exceptions, corporate entities, including those that are foreign-controlled, must file an annual tax return consolidating the monthly results of the previous calendar year. This tax return must normally be filed by the end of July following the tax year ending on 31 December. However, in light of the COVID-19 pandemic, deadlines for 2020 have been extended in some situations, and it remains to be confirmed whether the same could be applied to 2021.
Supporting documentation must be retained for at least five years.
Please note that there are a number of other declarations/returns imposed by the RFB, for different taxes, at federal, municipal, and state levels, which make the tax administration in Brazil notably bureaucratic.
Payment of tax
In the case of income tax, it is generally calculated monthly, and payments should generally be collected and paid by the last working day of the subsequent month. Any amounts of income tax due for the year (exceeding the payments performed) must be paid by the last working day of March of the subsequent year.
There is an option to pay the tax due at the end of each quarter in three instalments, the first one starting from the subsequent month to the end of the quarter. When income tax is calculated quarterly, the taxpayer must perform the applicable payment by the last working day of the month subsequent to the end of the quarter.
There are many other taxes applied in Brazil with different due dates established by the domestic legislation.
Tax audit process
As all tax returns are digital (please refer to public digital bookkeeping system [SPED] below) , they may be selected for audit by computer, according to various criteria, including type of business, unusually large or small amounts of income or deductions, and random sampling.
No corporate entity, whether a taxpayer or not, is excused from furnishing information or explanations required by the tax authorities.
When audits are conducted on the premises of taxpayers, tax inspectors have broad powers to inspect books and documents and to request information and any data deemed necessary. This is generally disrupting and, in practice, every effort is made to expedite the conclusion of these audits.
Whenever a violation is determined during a tax audit, the inspectors must draw up an infringement notification, which starts the administrative procedure for additional tax assessments.
It should be noted that, in case of doubts regarding the correct tax procedure to be adopted in a specific situation, taxpayers are allowed to consult with the RFB. From the date of its publication, the consultation has a binding effect within the RFB, and it is able to support any claims made by different taxpayers in similar situations (even if not the consulting party themselves). Nevertheless, the tax authorities, during an inspection procedure, can verify whether the fact pattern is indeed similar or not. In other words, it is possible to apply the results of the consultation to other taxpayers with no relation to the party that originally made the consultation request; however, this will not prevent the possibility of being challenged by the local tax authorities during the process of confirming, whether or not such unrelated taxpayers are indeed in the same situation as the original consultation.
Statute of limitations
The tax authorities may generally audit taxpayers up to five years after the close of the tax year. There is some debate about the moment this five-year period begins, depending on the type of tax considered and certain situations. Certain specific taxes and labour obligations have a longer statute of limitation period.
Topics of focus for tax authorities
It should be noted that, over the years, Brazil has applied a 'form-over-substance' approach. Nonetheless, as of 10 January 2001, Supplementary Law 104/2001 introduced a substantial modification in the Brazilian Tax Code (the so-called anti-avoidance rule). This law establishes a substance-over-form approach that, once regulated, may allow the RFB to disregard tax-driven transactions.
Although Supplementary Law 104/2001 has not yet been regulated, in our local practice we have seen that tax authorities are keen on ensuring taxpayers have economic substance in their operations (e.g. the use of special purpose entities to enable the amortisation of goodwill for tax purposes in Brazil).
Public digital bookkeeping system (SPED)
Brazil has implemented a public system of digital bookkeeping known as SPED, which aims at gradually replacing paper copies of invoices and tax records for electronic files. SPED can be defined as an instrument that unifies the activities of reception, validation, storage, and legalisation of records and documents that are part of the commercial and tax bookkeeping of companies, through a single, computerised flow of data.
Comprised of three pillars (electronic invoice, digital fiscal bookkeeping, and digital accounting bookkeeping), the implementation of SPED requires adjustments to the relationship with tax authorities, clients, suppliers and, mainly, on the internal operational processes, which will demand an integrated action from different areas (tax, labour [eSocial], indirect tax [bloco K], accounting, information technology, supplies, production, commercial, and others). On the other hand, occasional inconsistencies from databases, as well as operational errors related to tax and accounting information to be generated, usually unknown to the companies’ administration, are subject to increased visibility and monitoring by the RFB.
It is important to bear in mind that there are many more Brazilian ancillary obligations to fulfil, based on electronic frameworks established by the relevant federal, state, and municipal authorities, which may not be comprised within the SPED environment.
The RFB provide for so-called ‘accounting tax bookkeeping’ (ECF), which replaced the Brazilian corporate income tax return (DIPJ), where Brazilian taxpayers need to inform all transactions that impact the computation bases for IRPJ and CSLL purposes. The ECF shall be transmitted on an annual basis to the SPED system up to the last working day of July of the subsequent year to the calendar year it refers.
The Brazilian government is currently introducing two new ancillary obligations for reporting payroll taxes, contributions, and certain withholding taxes, referred to as 'eSocial' and 'EFD-Reinf'. The eSocial specifically relates to payroll taxes and contributions and started in waves in January 2018, and the launching was concluded in June 2018 for companies with gross revenues exceeding BRL 78 million (in 2016). For the other companies, it was planned to start in the second semester of 2019, but the deadlines for certain parts of the overall implementation have been postponed until early 2020. An additional group of information related to health and safety will be due in 2020 and 2021.
EFD-Reinf is a spinoff of eSocial, and aside from the disclosure of certain withholding taxes information, it replaces the 'EFD-contribuições' module in relation to the social security contribution levied on gross revenue (CPRB). Companies that should lodge the eSocial should also submit the EFD-Reinf.
Ancillary obligations imposed on import and export of services
The RFB issued regulations that imposed an ancillary obligation, called ‘SISCOSERV’, regarding transactions carried out between Brazilian residents and non-residents involving services, intangible assets, and other operations. Whenever one of the previous situations takes place, tax authorities must be informed. The type of information to be disclosed is detailed in complementary rules issued by the RFB.
As of 2021, the SISCOSERV has been officially discontinued, and reporting is no longer required.