Originally published in the March 14 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Federal Revenue Department (FRD) on March 4 announced that it has started the 2008 National Tax Strategy (Estratégia Nacional de Fiscalização 2008, or ENAF/2008), an initiative designed to combat federal tax evasion.
The strategy will focus tax audit efforts in a more integrated and effective manner, relying on the participation of all FRD field offices. Tax officials will investigate and audit previously selected individual and corporate taxpayers who, under FRD standards, have shown clear evidence of tax evasion. That evidence is based mainly on cross-checking of taxpayers’ financial and tax information and on various business sectors’ economic data.
The first part of the program will focus on individual taxpayers whose most recent tax returns indicate that they have undeclared income. The FRD estimates that this first step may generate more than BRL 1 billion (approximately $591 million) in income tax revenues. The program has identified more than 30,000 individual taxpayers with tax discrepancies, such as:
- credit card expenses in amounts exceeding declared income;
- declared income in amounts below that declared by third parties (for example, professionals such as physicians and dentists, whose clients declare the amounts paid to allow tax deductions);
- declared tax-exempt income (for example, profits and dividends) in amounts below those declared by the source of payment (for example, corporations or personal service companies);
- declared taxable income or tax credits in amounts different from those declared by the sources of payment; and
- taxable income from rural activities (for example, sales of produce) in amounts below those declared by corporate purchasers (for example, cooperatives and agribusiness companies).
The FRD on March 10 initiated 2,634 audits of taxpayers with the highest evidence of tax fraud. During 2008, the FRD will monitor the remainder of the identified taxpayers and may request that they provide further information and documents. If tax evasion or tax fraud is confirmed, taxpayers are subject to assessments of unpaid taxes, interest, and penalties ranging from 75 percent to 150 percent of the tax due, and may also face criminal prosecution.
Taxpayers may amend past tax returns up until they receive a tax audit notice. After a notice is received, the taxpayer loses the opportunity to amend a tax return and must wait until the end of the tax audit and possible tax assessment.
David Roberto R. Soares da Silva