Originally published in the August 30 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Recent data from Brazil’s Federal Revenue Department (FRD) shows that the number of tax audits carried out between January and July 2007 is more than 90 percent greater than for the same period in 2006, and the volume of assessed taxes also has increased by more than 66 percent.
A total of 233,182 individual and corporate taxpayers had been audited from January through July of this year, an increase of 90.28 percent over the 2006 figures for the same period. Federal tax assessments issued between January and July 2007 reached BRL 39.85 billion (approximately $20 billion), 66.22 percent more than the amount assessed for the same period of 2006.
Of the total amount assessed for that period, BRL 34.5 billion was assessed against companies and other legal entities, an increase of more than 51 percent over the first seven months of 2006 (BRL 22.79 billion). The FRD assessed 14,402 corporate taxpayers, compared with 12,864 in the first seven months of 2006. In the first half of 2005, the FRD assessed 9,322 corporate taxpayers and expected to finish that year with a total of 12,000 corporate taxpayers subject to assessments. In less than two years, the volume of assessments expected for an entire year has been superseded in a single seven-month period (in 2007).
FRD Subcommissioner Paulo Ricardo de Souza Cardoso stressed that during that period, the industrial and financial sectors have been the most relevant sectors in terms of amounts assessed (BRL 11.13 billion and BRL 9.44 billion, respectively). One of the reasons for the significant amounts assessed against financial institutions (an increase of 229 percent as compared with the same period of 2006), Cardoso said, is that those companies are liable for a series of tax withholdings on behalf of third parties, which sometimes have not been properly remitted to the government. Among those withholding obligations are the withholding tax on financial income, the financial transactions tax (IOF), and the 0.38 percent bank transactions tax (CPMF).
Tax assessments against individuals during the first seven months of 2007 totaled BRL 5.35 billion, compared with BRL 1.76 billion in 2006. The number of individual taxpayers subject to tax audits soared from 107, 340 in 2006 to 216,481 in the seven months of 2007, an increase of more than 100 percent. Among the most targeted individuals are company owners and officers, and entrepreneurs, which accounted for 39.88 percent (BRL 2.13 billion) of the amounts assessed. The most assessed situations included unreported ordinary income, improper deductions of medical expenses, and unreported income arising from leases and dependents.
The FRD’s tax audits usually are planned in the preceding year based on electronic cross-checking of several tax returns and information from various sources, such as credit card expenses, CPMF payments, and purchases, sales, and leases of real properties. Tax audit planning also takes into consideration data gathered from operations carried out by the Federal Police and by congressional investigation commissions.
David Roberto R. Soares da Silva