Brazil is, without doubt, one of the most challenging jurisdictions in the world when it comes to tax legislation. The intricate fiscal system that encompasses rules from 27 states and over 5000 municipalities has created a burden on companies, especially for cross-state and cross-municipality transactions.

Furthermore, taxpayers must carefully examine the numerous e-invoicing formats and requirements (and, sometimes, the lack of such). Therefore, hopes for tax reform in Brazil have existed for quite some time.

Simplifying e-invoicing compliance

In recent years, several legislative initiatives towards integrating indirect taxation mandates across the country have not met successful outcomes. Meanwhile, a feasible step into bringing forth such changes may be through the unification of rules on digital compliance with tax obligations, such as VAT e-invoicing and e-reporting.

In late 2021 a draft law proposal (Projeto de Lei Complementar n. 178/2021) was initiated by the private sector. Named the National Statute for the Simplification of Ancillary Fiscal Obligations, it has been welcomed this year by the House of Representatives. Its primary purpose is to introduce a significant reform within digital tax reporting obligations by creating a unified e-invoicing system.

By establishing national fiscal cooperation, the proposal intends to reduce costs with compliance, allow information sharing among tax authorities, and create an incentive for taxpayers’ conformity across all federal, state and municipal levels.

The principal agenda of the draft law proposal is to introduce:

What this means for businesses

The most significant change is the introduction of the NFB-e (Nota Fiscal Brasil Eletronica), a national standard for e-invoicing. It entails the unification of the NF-e (Nota Fiscal Eletronica), NFS-e (Nota Fiscal de Servicos Eletronica) and NF-C (Nota Fiscal do Consumidor Eletronica) in one single document. This will cover Brazil’s VAT-like taxes, in this case, ICMS (VAT on products and certain services) and ISS (services VAT).

In practice, this means that instead of complying with numerous e-invoicing formats and mandates, according to the state and municipality of the transaction, one national digital standard will provide uniform country-wide compliance for e-invoicing. The NFB-e will cover invoicing of goods and services on state and municipal levels for B2G, B2B and B2C transactions.

The reform will drastically reduce the burden on taxpayers and expand the scope of e-invoicing to municipalities where such a mandate hasn’t been adopted yet.

It’s essential to add clearance requirements for e-invoicing in Brazil will be maintained, meaning that businesses will still need to comply with rules for real-time clearance of invoices with the tax authority.

What’s next?

The draft law proposal is still in early discussions and will follow to the Justice and Citizenship Constitutional Commission (CCJC) for approval and possible amendments before voting by Congress. Until then, compliance with e-invoicing rules across Brazil remains at its current challenging status.

Take Action

Need to ensure compliance with the latest Brazilian e-invoicing requirements? Speak to our team or download Trends Edition 13 to keep up to date with the latest regulatory news and updates.

In the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” issued on 1 July 2021, members of the G20 Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) have agreed upon a framework to move forward with a global tax reform deal.

This will address the tax challenges of an increasingly digital worldwide economy. As of 9 July 2021, 132 of the 139 OECD/G20 member jurisdictions have agreed to the Inclusive Framework on BEPS.

Pillar Details

Pillar 1

Pillar 1 gives a new taxing right, Amount A, to market countries to ensure companies pay tax on a portion of residual profits earned from activities in those jurisdictions, regardless of physical presence. Pillar 1 will apply to multinational enterprises (“MNEs”) with global turnover above 20 billion euros and profitability above 10%.

There will be a new nexus rule permitting allocation of Amount A to a market jurisdiction when the in-scope multinational enterprise derives at least 1 million euros in revenue from that jurisdiction. For jurisdictions with a GDP less than 40 billion euros, the nexus will instead be set at 250,000 euros.

The “special purpose nexus rule” determines if a jurisdiction qualifies for the Amount A allocation. Furthermore, countries have agreed on an allocation of 20-30% of in-scope MNE residual profits to market jurisdictions, with nexus using a revenue-based allocation key.

Revenue will be sourced to the end market jurisdictions where goods or services are consumed, with detailed source rules still to come.

More details on segmentation are still in the works, as is the final design of a marketing and distribution profits safe harbour that will cap the residual profits allowed to the market jurisdiction through Amount A.

Lastly, countries have agreed to streamline and simplify Amount B with a particular focus on the needs of low-capacity countries. The finalised details are expected to be completed by the end of 2022.

Pillar 2

Pillar 2 consists of Global anti-Base Erosion (“GloBE”) Rules that will ensure MNEs that meet the 750 million euros threshold pay a minimum tax rate of at least 15%. The GloBE Rules consist of an Income Inclusion Rule and an Undertaxed Payment Rule, the latter of which still needs to be finalised.

Pillar 2 also includes a Subject to tax rule, which is a treaty-based rule, allowing source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate. The rate will range from 7.5 to 9 percent.

When Will the Plan be Implemented?

There is currently a commitment to continue discussion, in order to finalise the design elements of the plan within the agreed framework by October 2021. Inclusive Framework members will agree and release an implementation plan.

The current timeline is that the multilateral instrument through which Amount A is implemented will be developed and opened for signature in 2022, with Amount A coming into effect in 2021. Similarly, Pillar Two should be brought into law in 2022, to be effective in 2023.

More Details to Come

Although the key components of the Two-Pillar Solution have been agreed upon, a detailed implementation plan that includes resolving remaining issues is still to come.

As many countries could be implementing these changes in the near future, it is important for businesses active in the digital economy to carefully track and understand the developments surrounding the OECD/G20 Base Erosion and Profit Shifting Project.

Take Action

Need to ensure compliance with the latest e-document regulations? Get in touch with our tax experts.

Download VAT Trends: Toward Continuous Transaction Controls to discover more about how tax systems around the world are evolving.

Sun Chemical consolidates its global tax obligation with Sovos

case study

Sun Chemical

Sovos made multinational reporting simple for Sun Chemical, allowing it to consolidate its compliance efforts.

Summary

Business Challenges

  • Sun Chemical sought to find the right solution to minimise the impact of changing mandates on 24/7 business operations.

  • The company needed to address language barrier among local and technical teams.

Solution

  • Sun Chemical needed a platform that could consolidate its compliance efforts across all its Latin American markets.

Benefits

  • The Sovos Business to Government regional solution minimises business delays and disruptions for 24/7 operations.

  • It offers local support in Spanish, English, and Portuguese, eliminating the language barrier issue.

  • Without the constant need for legislative monitoring, the Sun Chemical team can focus on innovation.

The Company

Sun Chemical is the world’s largest producer of printing inks and pigments. With more than $3.5 billion in annual sales, the company is a leading provider of materials to packaging, publication, coatings, plastics, cosmetics and other industrial markets in 56 countries. Sun Chemical operates 24 hours a day, seven days a week, and has hundreds of multinational suppliers and partners from around the world.

The Challenge

Sun Chemical cannot afford business disruptions or shipping issues due to its operating schedule. Its e-invoicing process must be seamless across throughout the process, including SAP configuration, middleware performance, connections to the local authority’s compliance server, and printing.

Because of e-invoicing mandates in Latin America, Sun Chemical faced the challenge of conducting constant legislation reviews to determine new requirements that needed to be converted into the system. The language barrier also posed a challenge. With technical requirements being communicated in local languages, fluency to understand the mandates and to convert changes into the system was required. For parties without a high level of technical proficiency in the local language, this caused lag time and confusion, contributing to reduced efficiencies.

The Solution

Based on individual compliance needs, Sun Chemical initially elected to implement different solutions in each country. In Argentina, it selected the regional Sovos Business to Government Reporting solution to maintain its compliance platform. In Chile and Mexico, it selected two separate local providers with two different models, and in Mexico, it implemented an internal solution.

“Change is happening, but we’ll automatically solve it with the [Sovos] solution. Converting a legal requirement in a local language into a configuration plan is very complex, so the service of automatic updates to the new legislation was a clear key point of help for us.”

Aldo Magenes

SAPAnalyst, Sun Chemical

The Benefits

The metrics showed a large production support advantage in Argentina, where Sun Chemical had implemented the Sovos Business to Government Reporting regional platform. The company elected to expand its partnership with Sovos to cover its operations in Chile, Mexico and Brazil as well.

The Results

With local support in English, Portuguese and Spanish, the Sovos Business to Government Reporting regional platform helped Sun Chemical isolate its compliance problems and focus on driving business results. The Sovos solution alleviated the need to monitor every single change and translate each of those changes into system configuration plans, saving the team valuable time and reducing the risk of penalties.

Why Sovos?

Sun Chemical evaluated each of its four Latin American e-invoicing compliance solutions with a series of analytics measuring cost and benefits. Company leaders knew the internal team’s time was best spent on innovation and improving business and customer relationships, so they were looking for the solution that would minimise delays and disruptions and keep the team focused where it mattered most.

Brown Forman embraces changing e-invoicing regulations with Sovos

case study

Brown Forman

The Sovos e-invoicing compliance solution allowed Brown-Forman to ease the burden of compliance from its IT team.

Summary

Business Challenges

  • Growth strategy hindered by complex regulations

  • Real-time processes and responses required by mandates impacting business operations

  • Limited IT resources to monitor and implement requirements

Solution

Brown Forman selected Sovos’ Business to Government regional reporting platform for:

  • Brazil Nota Fiscal
  • Mexico CFDI
  • Mexico eContabilidad

Benefits

  • Seamless integration with SA

  • Constant monitoring and support has resulted in zero business disruptions

  • Ability to redeploy resources to core business functions

  • Need for ongoing SAP upgrades and IT burdens eliminated

The Company

Brown-Forman is one of the ten largest spirits companies in the world, distributing products in more than 160 countries. Based in Louisville, Kentucky with offices across the globe, Brown-Forman manufactures iconic brands such as Jack Daniels, Southern Comfort and Woodford Reserve.

The Challenge

International expansion has been integral to Brown-Forman’s success, but this growth strategy placed a great demand on its IT team. The company’s SAP systems needed to comply with the constantly changing financial legislation around the world, and e-invoicing mandates threatened to exceed the Brown-Forman IT team’s bandwidth. This was especially a concern in Brazil and Mexico, where the company operates nine facilities and regulations change frequently.

Demanding real-time processes and responses, any e-invoicing oversight in these countries would affect both the finance and supply chain teams, and could significantly impact business operations. 

The Solution

With limited in-house IT resources to monitor and implement each country’s fiscal requirements, Brown-Forman needed a solution that would help it adapt to the ever-changing Latin American landscape and also integrate into its single global instance of SAP ERP.

Given the extensive scope of its operations in Latin America, Brown-Forman realised that it needed a specific subject matter expert. In addition, the company required a predictable cost structure during its heavy expansion.

“Because Sovos provides the network upgrades as well as the SAP ERP configurations, we have been able to work with one vendor across multiple countries and confidently manage the changes to Brazil’s Nota Fiscal and Mexico CFDI’s legislation.”

Randy Isdahl

Director, SAP Process Architecture at Brown-Forman

The Benefits

Sovos provides Brown-Forman with constant monitoring and support, ensuring no compliance-related business disruptions. Plus, the Sovos solution seamlessly integrated within Brown-Forman’s existing systems, allowing the company to manage multi-country compliance directly within its internal SAP system.

The Results

With Sovos e-invoicing compliance in place, Brown-Forman was able to redeploy resources to core business functions, including account receivables and account payables, and focus on supply chain and logistics enhancements. In addition, the partnership has eliminated the ongoing SAP upgrades and IT burdens caused by the constantly changing e-invoicing regulations.

Why Sovos?

Brown-Forman selected the Sovos eInvoice and eAccounting regional solutions to simplify its compliance efforts in Brazil and Mexico. The company sought a solution that could help it cut down on human resource capital and technology investments, and Sovos’ SaaS platform allowed it to accomplish that goal.