Electronic Tax Compliance: Processes, Systems, Inspections & Litigation

Transcription

1 9h ANNUAL U.S. - LATIN AMERICAN TAX PLANNING STRATEGIES CONFERENCE Electronic Tax Compliance: Processes, Systems, Inspections & Litigation Miami June, 2016 Chair Lionel Nobre Dell (MWV) - Porto Alegre, Brazil Speakers Daniel Hora do Paço Petrobras Rio de Janeiro, Brazil Florencia Misrahi Cargill Buenos Aires, Argentina Jaime Filho - Cisco - Miami, United States

2 Agenda Statutory Environment Electronic Compliance Managing an Electronic Audit Tax Audit Trends Best Practices 2

3 Statutory Macro Environment External Factors Rapidly increasing accounting, tax and regulatory requirements Push for tax and accounts transparency and unprecedented levels of political focus Aggressiveness of authorities Significant increase in tax controversy activity and intensity Real time electronic reporting for accounting and tax purposes Fight for talent Business Driven Factors 3 Expanding business presence in LATAM need to grow the business! Changing business placing new demands on legacy systems Increasing reliance on manual process & workarounds IT investments not keeping pace with regulatory change and not scalable Acquisitions and shift in business model adding statutory complexity OPEX challenges mean we are asked to do much more with less Link between systems/processes documentation and talent to prepare financial statements & defend audits Strong expectation that these trends will continue

4 LatAm E-environment in May-2016 Country Electronic Invoicing Electronic Accounting Other e-info Electronic Filings Electronic Audit Brazil Aug-2009 Jun-2009 Yes Yes Mandatory Mexico Jan-2011 Jul-2015 Yes Yes Optional Argentina Jan-2011 n/a Yes Yes Mandatory Chile Nov-2014 n/a Yes Yes No Colombia 2016* n/a Yes Yes Optional Peru Optional** n/a Yes Yes No Panama n/a n/a Yes Yes No Puerto Rico Not available n/a No Yes No Costa Rica n/a n/a Yes Yes No Guatemala n/a n/a Yes No No El Salvador n/a n/a Yes Yes No * Decree 2242 approved in Nov2015. Additional regulations are still in process to determine start date and companies involved. ** Mandatory for Dell starting in July 15th, 2016.

5 Tax Compliance Environments The average time invested on compliance in LATAM: 618hs as per The World Bank Paying Taxes 2016 World average time invested 268hs Additionally complicated tax system (i.e.: VAT, Income Tax and other taxes), and multiple tax authorities levels and jurisdictions, dynamic tax legislations. Region Country # Hours Latin America Brazil Bolivia Venezuela 792 Ecuador 654 Argentina 405 Paraguay 384 Mexico 334 Uruguay 310 Peru 293 Chile 291 Colombia 203 Region Country # Hours Asia Pacific China 318 Japan 330 India 243 Europe Portugal 275 Italy 269 Germany 218 Spain 167 France 132 UK 110 North America Canada 131 USA 175

6 Sample Regulatory & Business Requirements Main Drivers Regulatory & Tax requirements increasing YoY Support business transformation Increase in tax audits & litigation Requires improved quality of data and easier access to information ( state of the art record retention) Demands full attention from a specialized tax team ( SWAT team ) Roll out BTS- Smart Selection Social security SPED OEM business Roll out BTS- Smart Selection Income Tax SPED Social security SPED OEM business Roll out BTS- Smart Selection Services Tax code Services Tax code Services Tax code Services T&C Services T&C Services T&C CPRB SPED CPRB SPED CPRB SPED New Solutions New Solutions New Solutions New Solutions Parts by Dell Parts by Dell Parts by Dell Parts by Dell PIS/Cofins SPED PIS/Cofins SPED PIS/Cofins SPED PIS/Cofins SPED ODM Production ODM Production ODM Production ODM Production ODM Production Assets SPED Assets SPED Assets SPED Assets SPED Assets SPED Retail business Retail business Retail business Retail business Retail business Retail business Oracle Localiz Oracle Localiz Oracle Localiz Oracle Localiz Oracle Local Oracle Localiz Fcont-RTT Fcont-RTT Fcont-RTT Fcont-RTT Fcont-RTT Fcont-RTT Tax SPED Tax SPED Tax SPED Tax SPED Tax SPED Tax SPED Inventory SPED Inventory SPED Inventory SPED Inventory SPED Inventory SPED Inventory SPED Accgt SPED Accgt SPED Accgt SPED Accgt SPED Accgt SPED Accgt SPED e-invoice e-invoice e-invoice e-invoice e-invoice e-invoice ICMS Substitution ICMS Substitution ICMS Substitution ICMS Substitution ICMS Substitution ICMS Substitution PAC PAC PAC PAC PAC PAC PWC Audit PWC Audit PWC Audit PWC Audit PWC Audit PWC Audit PWC Audit IFRS IFRS IFRS IFRS IFRS IFRS IFRS Blue Line Blue Line Blue Line Blue Line Blue Line Blue Line Blue Line Blue Line Blue Line Blue Line Recof BCC Recof BCC Recof BCC Recof BCC Recof BCC Recof BRH Recof BRH Recof BRH Recof BRH Recof BRH Recof BRH Recof BRH Recof BRH PPB BCC PPB BCC PPB BCC PPB BCC PPB BCC PPB BRH PPB BRH PPB BRH PPB BRH PPB BRH PPB BRH PPB BRH PPB BRH CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12* CY13* CY14* HEADCOUNT TBD TAX/CUSTOMS AUDITS * NA NUMBER OF IDR s NA TAX/CUSTOMS ASSESSM. NEW* NA TAX/CUSTOMS ASSESSM. ONGOING* NA * Main audits and assessments Business transformation Regulatory requirements 6

7 Electronic Tax Systems Electronic systems (i.e.: Electronic invoicing, etc.) Big Brother systems have been implemented by many tax authorities in Latin America (i.e.: Brazil, Mexico, Argentina, Chile, etc). because that: (a) facilitates compliance; (b) improves cash flow; (c) reduces the cost of revenue administration; and (d) creates new tools for identifying areas for audits/investigation (e) eliminates possibility of corruption From a taxpayer perspective these electronic systems are an opportunity to: (a) automates compliance, requiring connections between a corporation s internal systems and tax preparation; and (b) promotes harmonization and standardization. In some cases commercial software vendors satisfy this need (e.g. Brazil and Chile, but their availability is not widespread throughout the region.) Brazil and Mexico have now implemented Electronic Accounting Systems

8 Latin American Compliance Are we really different? Exceptionally time-consuming compliance due to: Hyper inflation history; Low tax morale & high tax evasion; Need to tropicalize business practices Form over substance rules Greater focus on electronic invoicing and big brother tax systems Lack of harmonization in tax approaches, calculations, and comparability for the region: Indirect taxes Transfer Pricing Treaties Capital flows Income tax Accounting bases (IFRS vs. local GAAP vs. US GAAP) Significantly less experience with tax systems than Europe or Anglo North America MWV COMPANY CONFIDENTIAL Source: RISI, Freedonia 8

9 Electronic invoicing process Peru

10 Requirements Summary as established by the tax authorities (SAT) Charter of accounts On October 2014 Every time it changes Regulated Entities Minimum chart CNBV* Non Regulated Entities Grouping Code Appendix 24 Trial Balance of: Due Date: 100% of the data needs to be in Spanish Trial Balance Accounting Entries July October 2014 August November 2014 September & October December 2014 November & December January 2015 Starting 2015 On authorities request Compensations Refunds *CNVB: National Banking and Securities Commission 10

11 Main obligations of mexican taxpayers Income tax Accrued Income Tax rate VAT Cash flow VAT payable Cash flow VAT in favor Self tax determination Informative Returns Income tax Payroll withholding tax Service withholding tax Foreign payments Foreign Intercompany transactions REFIPRE payments Paid dividends VAT Monthly DIOT Service withholding tax Keep books for 10 years Support documentation of transactions Issue electronic invoicing Obtain transfer pricing studies Obtain electronic invoicing Verify the authenticity of electronic invoices Other tax obligations Tax books and records CUFIN Net tax profit account CUCA Contributed capital account NOL s Updated NOL s Tax cost basis of shares 11

12 Brazil: Regulatory and Tax Compliance Environment Audits Eletronic (Realtime) Compliance Tax, Trade, Siscoserv, Central Bank, Others IT Systems New Legislation New Business Other External Factors: Economic, Social, Political

13 People How to adapt to the electronic environment? Corporations need to adapt as to guarantee an/the: Investment in electronic tools that "talk" with ERPs; Implementation of automated processes; Development or hiring of professionals with knowledge of Tax Systems (tax rules and IT); Greater integration with other departments (accounting, treasury, IT, payroll, etc); Interaction with software houses (IT consultants and software vendors); Familiarization with on line inspections by local revenue authorities. MWV COMPANY CONFIDENTIAL Source: RISI, Freedonia 13

14 LATAM Electronic Tax Audit Overview Tax (Compliance/Litigation) Involvement: owns and leads the audits and all communications around the audits. Tax coordinates approach and briefing on rules of engagement, provides technical analysis & arguments, gathers/reviews documentation, & decides the best negotiation strategy including the use of an external legal advisor - or accountancy firm. Electronic data cross reference Electronic IDR Electronic data cross reference Electronic Clarifications Electronic data cross reference Closing Electronic Meeting Assessment Electronic filing of appeal Finance, Local In-country Company Officers, Accounting Teams Involvement: responsible for the collection of supporting documentation: including accounting records and context, retrieval from systems and archives, provision of contextual background and history, assistance with language/culture, etc Audit may take a few days and weeks or potentially several years (up to 15 years depending on the country). Multiple audits or court cases underway at any time either as part of a regular cycle or ad hoc audits will start electronically or through a Tax Official s visit. Company s position reviewed quarterly, provisions made as necessary. The electronic environment does not give taxpayer s the option to commit errors, since they will be watching every single transaction on a real time basis and can automatically issue electronic IDRS and Assessments Do it right the first time is mandatory since you cannot fix anything on the back-end

15 Responding to Tax Audits In-House Professionals X Tax Advisors Brazil In-House, typically; Argentina / Chile Tax Advisors and/or auditors combined with in house team; Mexico also Tax Lawyers because in litigation process taxpayer is not allowed to provide new evidence that was not offered during audit process. Dealing with auditors Define a leader to coordinate the tax audit procedure is mandatory! Only trained people should be allowed to interact with auditors 15

16 Responding to Tax Audits Audits focused on Local Tax Matters In-House professionals/advisors with strong local background must be involved Audits focused on cross-border transactions Global Tax teams must be involved Global Policies must be taken into consideration; Advisors (when necessary) must have strong International Tax background (Transfer Pricing, DTAs, CFCs, etc). 16

17 Responding to Tax Audits Answering official requests Official requests have to be answered, but only restricted to what was asked. Brazil: not obliged to produce documents to tax auditors. If produced, document has to be provided. Mexico: New rule obliges taxpayers to submit all information Settlements: Not common in the Region Brazil - not possible; Mexico recently settlements became available (with intercession of Taxpayers Ombudsman ); Chile and Argentina may be possible in limited circumstances; 17

18 Responding to Tax Audits Litigation is potentially the next step The tax audits are of key importance to subsequent tax litigation. Answers given during the audit can affect decisively any argument to be used during litigation and determine the odds in favor or against the taxpayer Keep tax litigation experts (In-House or external) involved since the beginning of audit process If there are tax planning's behind recall all assumptions adopted on the implementation Cooperative environment and cross-function expertise are essentials 18

19 Tax Audit Trends Brazil: Transfer Pricing Import and export transactions Customs Valuation Stronger on certain economic sectors; Reorganization and M&A Goodwill and Aggressive Tax Planning; Brazilian CFC rule; Tax incentives (Federal & State) Federal and State VAT; Payroll Tax (INSS) 19

20 Tax Audit Trends Mexico: Focus on cross border transactions BEPS guidelines; Transfer Pricing All perspectives; Identification of bad practices massively used. Exchange of information with tax authorities from other countries. Future trend electronic audits (e-billing, monthly filing of books, electronic salary receipts) Judicial injunction ( Amparo ) against electronic reporting. 20

21 Tax Audits Trends Argentina: Deductibility of Interests on I/C Loans; Transfer Pricing; Customs Valuation Stronger on certain economic sectors. Chile: Transfer Pricing Goods, Services, Intellectual Property; Deductibility of Marketing Expenses (with non-related parties). Colombia: Customs Valuation; Transfer Pricing Importation of Goods. 21

22 Tax Litigation Department Structures Tax Litigation Report/Control Tax litigation requires report/control on: risk assessment: remote, possible, probable, more likely than not, less likely than not disbursement schedule (cash deposits) (updated) amounts in discussion (updated) deposits amount when tax clearance certificate is available or not if there is reserve in the accounting books 22

23 Tax Litigation Important Aspects If Assessed check if the assessment is complete and accurate confront informations given with facts informed in the assessment think about information not given analyze if correct procedure has been followed Amnesties Common in the region Brazil, Mexico, Peru & Colombia; Apply to an amnesty request analysis and controls; 23

24 Best Practices Main problem: Tax authorities today are more organized and have more information/data than taxpayers have including data from clients, providers & competitors!! Tax authorities are commencing criminal investigations (Brazil & Argentina) at the same time as the tax audits, plus they are already publicising their efforts and accusing taxpayers in the press can become a reputational issue from day one. Compliance needs to be close to perfect Requirement for specialized resources to pro-activitely monitor quality of the information/data being processed/filed Same team is the first contact person for IDR respone together with seasoned tax controversy professionals (in-house/external) Tax professionals need to develop skills that allow them to: 1. Work with large volumes of data as to make sure that data is correct, consistent, available and in the right format 2. Clearly identify what the IDR is aiming at and what the Tax Authorities might conclude based on the information they received 3. Take into account the potential direct and indirect consequences related to the data required under the IDR; and 4. Develop a line of defense from an IT as well as a legal/tax perspectives.

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26 Questions? Lionel Nobre Florencia Misrahi - Florencia_Misrahi@cargill.com Jaime Filho - jfilho@cisco.com Daniel Hora do Paço dpaco@petrobras.com.br MWV COMPANY CONFIDENTIAL Source: RISI, Freedonia 26