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27/03/2010

KEY ASPECTS IN CONTROL ACTIONS OF TAX ADMINISTRATIONS

Inter-American Center of Tax Administrations – CIAT

 

 

Technical Conference

 

 

 

 

 

 

 

“KEY ASPECTS IN CONTROL ACTIONS OF TAX ADMINISTRATIONS”

 

 

 

 

 

 

 

 

 

Topic 1.3     

 

ECONOMIC/FISCAL ANALYSIS UNITS

 

 

 

 

 

 

Federal Internal Revenue Secretariat

Brazil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lisbon, Portugal

September 29 – October 2, 2003

I.          STRUCTURE OF THE BRAZILIAN TAX ADMINISTRATION

 

In Brazil, the condition of federative country with a strong degree of decentralization, grants administrative autonomy to all government levels.  Therefore, the Brazilian tax administration has as basic characteristic the multiplicity of collection branches, which reflect the country’s federative structure.

 

At a federal level, the two main tax administrations are the Federal Revenue Secretariat (SRF), subordinated to the Ministry of Treasury, and the National Social Security Institute (INSS), linked to the Ministry of Social Provision and Assistance.  SRF has under its competence the administration of all Brazilian federal taxes – including those that have an influence on foreign trade – and significantly of the country’s social contributions.  Its competence still covers at the advisory level, the formulation of the federal tax policies.

 

The General Coordination of Tax Polices (COPAT) is directly subordinated to the Federal Revenue Secretariat and it is divided into two Coordinating Entities:  The Coordination of Economic Studies (Codec) and the Prevision and Collection Analysis Coordination (Copan).

 

II.      GENERAL OVERVIEW OF COPAT’S ATTRIBUTES

 

Among other functions, the General – Coordination of Tax Policies – COPAT is in charge of advising the Federal Revenue Secretary and the Ministry of Treasury in the formulation and evaluation of Brazilian tax policies.  In addition to suggestions on modifications on tax legislation, COPAT performs simulations with the purpose of estimating the impact of alterations in the tax collection legislation, and its possible effects in the Brazilian economy.

 

COPAT is also in charge of:

 

• Coordinating technical cooperation between the SRF and national or foreign entities and with international organization, when it involves issues of its competence.

 

It includes technical cooperation with the tax administrations of sub-national Brazilian governments and with international organizations, such as the International Monetary Fund, the World Bank and the Organization for Economic Cooperation and Development (OECD).

 

• Representing the Federal Revenue Secretariat in the Permanent Technical Commission of ICMS (COTEPE);

 

This is a technical commission that gathers the representatives of the state tax administrations and the Ministry of Treasury, with the purpose of deliberation on issues pertaining to the Tax on the Circulation of Goods and Services (ICMS).

 

 

 

 

 

 

• Represent the al Ministry of Treasury in the National Classification Commission (CONCLA)

 

COPAT represents the Ministry of Treasury in the National Classification Commission – CONCLA.  This commission is responsible for the development, update and supervision of the CNAE-Fiscal amongst other duties, this classification is used with the purpose of establishing patters for the identification codes of the country’s production units in the cadastre and in the registries of the public administration in the three government levels, specially in the tax area, contributing to the improvement of the quality of the information systems that support the State’s decisions and actions.

 

 

• Carry out studies by sector and by types of taxpayers

 

Copat calculates the tax burden by economic sector and simulates effects in tax collection, which come from modifications in the legislation of a specific sector. Furthermore, the tax pressure by taxpayer (individual by income level, bodies corporate which qualify for their real profit, presumed profits and the micro companies, body corporate by billing level, etc.) is estimated.

 

• Develop and accompany the prevision and analysis of taxes and contributions managed by SRF, such as the Evidence of Tax Benefits (DBT).

 

Copat performs the prevision and the analysis of the income of all taxes and contributions managed by the Federal Revenue Secretariat.  Prevision is performed annually, monthly and daily, with very low discrepancy between what was provided for and/or realized.  Furthermore, Copat is responsible of developing the Evidence of Tax Benefits (DBT), the amount of the tax benefits granted in the fiscal year are calculated through the analysis of all federal tax laws which grant fiscal benefits and incentives.

 

·         Perform the economic – tax studies on internal taxes and customs.

 

COPAT carries out economic studies in issues pertaining to tax and customs affairs.

 

III.        STUDIES PERFORMED BY COPAT

 

a)      Among the studies performed periodically, we can mention:

 

The Tax Burden in Brazil

 

The text presents the calculation and evaluation of the Brazilian tax burden for the year analyzed.  The concept of the tax burden is broadly used and includes social contributions, intervention in the economic domain and of interest of professional and economic categories, in addition to taxes, rates and contributions for improvements covered by the concept of taxes in the terms of article 145 of the Federal Constitution.  Contributions for the Guarantee Fund for Service Time (FGTS) are also included in the calculation of the tax burden.  Since the estimate considers taxes and contributions pertaining to the three government levels, the result established constitutes an indicator of society’s efforts to finance State activities.

 

Economic Analysis of the IRPF Statement

 

Discloses and comments some consolidated data, pertaining to the year in study, which allows to have a panoramic vision of the universe constituted by the main individuals taxpayers who are subject to income tax.  It is divided (regionally, occupationally, etc.) and stratified to take the possible perception of important aspects, which, otherwise, would be lost in the simple aggregation.

 

Profile of the Declaring Party of DIPJ

 

The purpose of this work is to characterize the universe of bodies corporate, which acted in Brazil during the year, analyzed, based on information offered by the companies in the Statement of Economic-Fiscal Information of Bodies -Corporate (DIPJ). The study is directed towards alterations in the books of the companies, it characterizes the profile of the companies that opted for each taxation regime, analyzes the geographic distribution of companies between the units of the federation and finally covers the distribution of companies by sector.

 

DIPJ Consolidated – Brazil

 

Consolidated Report DIPJ sets forth in registry lists the consolidation, nationally of the mentioned statement.  Aggregate values of the declaring parties subject to taxation (Real, Presumed and SIMPLES profits) are presented in addition to aggregated information from taxpayers who are beneficiaries of the exemption or immunities pertaining to the IRPJ.  This group of information allows a panoramic view of the declaring parties of the DIPJ it consists an important tool for managerial orientation and support for studies and research.

 

Consolidation of the Income Tax Return filed by Individuals

 

The Consolidation of the Income Tax Return filed by Individuals (Consolidated PF) sets forth in tables and graphs the aggregation, nationally of the main information of the referred return.  Totalized values informed by the individuals filing returns, pertaining to yields subject to exclusive taxation, exempted revenue, taxable income, deductions, tax calculation, assets of individuals during the year in study as well as information pertaining to the type of form and means of delivering the return.  The purpose of disclosing this data is to make it accessible to the general public and tax scholars, important information for the comprehension of the national taxation system..

 

Export reports and statistics

 

Presents a monthly by month report of exports by type of goods, according to the level of manufacturing of goods, according to the economic destiny of the goods and according to the country of destination.

 

 

 

 

Import reports and statistics

 

Presents a monthly by month report of imports by type of goods, according to exchange modalities and payment terms, of the large economic categories and countries of purchase.  It also discloses oil imports according to the country of origin, imports according to taxation regimes, fiscal waiver in imports and mean aliquots of imports.

 

Reports and Statistics on the Commercial Balance

 

Discloses general data of the commercial balance, net export according to the main chapters of the Goods Classification Nomenclature, net exports according to the large economic categories and net exports according to the main countries.

 

b)             Other studies of COPAT’s audit

 

The Brazilian Experience in the Taxation of Micro and Small Companies

 

The work analyzes the current tax treatment given to micro and small companies (MPE) established in Brazil.  It is specially centers it attention on the simplified taxation model established in 1996 by the federal government and known as SIMPLES.  Based on recent data, it seeks to measure the impact of the implementation of the simplified tax regime on the labor market, tax collection and the costs of the tax administration.  Results obtained are useful to define the level of certainty in the adoption of the measures under analysis as well as to indicate whether or not there is a need for corrective adjustments.

 

Progress in Consumption:  Accumulated taxation and on the valued added

 

Covers the issue of indirect taxation on consumption.  By using data from National Accounts, Domicile Inquiries and Fiscal-Economic Information Statements the effective aliquot was calculated by income level, for the main indirect taxes enforced in the country.  Then the degree of progress or underlying regression was obtained for each tax / contribution researched.

 

Electronic Commerce Taxation

 

Establishes the concept and characterization of electronic commerce, outlines the magnitude of the problem and its implications and derivations.  Studies changes in the economy, caused by the rise of Internet trade and the perspective of taxing its operations.

 

Considerations on the Income Tax Return of Individuals in Brazil

 

It’s about individual taxpayers in Brazil, which is a topic of constant debate in out society.  The reasons that lead to the extinction of the monetary correction in Brazil are presented; the evolution of the participation of the IRPF in the collection of federal taxes and some guidelines for international comparison.  Real determining factors of the increase in declaring parties observed during the past years, the behavior of exemption and deduction limits, and the amount of fiscal incentives in Brazil.  Estimates pertaining to tax collection losses, and what would happen in the event the IRPF table is adjusted.

 

Analysis of Collections in Large Companies

 

Analyzes the concentration of taxes in the large companies installed in the country.  It is specially focused on two groups of companies: the first one constituted by the 500 largest non-financial companies and the second formed by 50 larges financial companies.  Aggregated data pertaining to gross income stated and the collection effectively performed during the year in study.

 

Conditions and Perspectives of Taxation in Brazil

 

Covers the Brazilian tax policy, its interaction with other macro-economies and the economic conditions that limit its autonomy.  As part of the government’s policy, the tax system must be in agreement with Brazil’s insertion into the new international economic order and with the need for fiscal and external balance. Lastly, the text covers the issue of the tax reform in Brazil.

 

Profits in Rural Activities

 

Systematizes the results of the rural activity declared by individual taxpayers in the DIRPF 2001, year-base 2000.

 

Brazil’s Trade with FTAA Countries during the 1997 – 2000 Period

 

Analyzes aspects of Brazil’s trade with FTAA countries:  behavior of the commercial balance, intra-company and wholesale commerce, and oligopoly  competition, the low degree of concentration of wholesale commerce, de-nationalization of the high productivity industry, market structure, fiscal and financial incentives and payment terms of imports.

 

1. ATTRIBUTIONS OF THE COORDINATING UNITS AND DIVISIONS OF COPAT

 

Copat is divided into two Coordinating units: the Coordination for Economic Studies (Codec) and the Coordination Collection Prevision and Analysis (Copan).

 

a)    Codec is charge of the supervision of activities pertaining to the Division of Tax Studies (Diest) and the Division of Foreign Trade Studies (Ditex).

 

a.1)       The Division of Tax Studies (Diest) is in charge of the following:

 

1. Select, develop and evaluate techniques and quantitative methods and propose their application to the interpretation of the behavior of federal, state or municipal collections as well as other variables of interest to the tax administration;

 

1. Perform statistical studies on federal, state or municipal collections;
2. Perform jointly with the research and extension organizations, economic – tax studies and investigations, to promote the exchange of data and experiences;

 

1. Maintain an economic - tax databank, in the area of its competence;

 

1. Disclose managerial information on taxes and contributions managed by SRF;

 

1. Perform research to statistically measure the global tax burden and by sector, force and effectiveness and its regional distribution;

 

1. Perform studies to subsidize the elaboration and evaluation of draft bills on tax, regarding the effects on collection and the economy in general;

 

1. Develop simulation methods which allow the dimensioning of the reflection of the alterations in tax legislation in the behavior of the macro-economic, and structural guidelines;

 

1. Perform studies and research on the taxes and contributions managed by SRF;

 

1. Perform comparative studies and research, internationally, of tax systems and their respective administrations;

 

1. Perform studies and research on the evaluation and projection of the economic – tax potential; and

 

1. Accompany and participate in studies on issues of its competence, developed by international organizations.

 

a.2)       The Division of Foreign Trade Studies (Ditex) is in charge of the following.

 

1. Perform data and information processing, with the purpose of developing statistics on foreign trade;

 

1. Select, develop, and evaluate techniques and quantitative methods and propose their application for the interpretation of the behavior of the variables of foreign trade;

 

1. Perform the analysis, studies and research on taxes that influence Brazil’s foreign trade and on the performance of the alter in regards to other countries, to evaluate commercial relations from the tax – customs point of view;

 

1. Maintain technical exchange and mutual assistance with institutions linked to Brazil’s and other country’s foreign trade in the area of its competence;

 

1. Accompany and participate in studies on issues pertaining to its competence, developed by international organizations; and

 

1. Prepare studies and proposals to perfect standards pertaining to issues of its competence.

 

b)   The Collection Prevision and Analysis (Copan) is in charge of:

 

1. Develop to include in the Budgetary Guidelines Law (LDO), in the General Budget of the Union (OGU) and in the Pluriannual Applications Program (PPA), the estimate of tax collections and contributions managed by SRF, as well as coordinating works pertaining to the raising of data and the consolidation of the estimate of other income;

 

1. Develop and accompany the prevision of tax and contribution collections managed by SRF and propose collection goals to be reached regionally by Decentralized Units;

 

1. Proceed to studies directed to perfect the prevision methodology, to be attached and the analysis of federal revenue, proposing economic – tax variables to be adopted;

 

1. Quantify tax revenue, committed by fiscal waiver, under the form of incentives, benefit, reductions, deductions or exemptions;

 

1. Analyze the collection performed, to identify the causes of the distortions detected, with the purpose of providing the bases for the adoption of corrective measures;

 

1. Perform studies for the identification of changing trends in the legislation and in the tax administration and for the evaluation of the effects of those changes in economic activities;

 

1. Define economic indicators to be applied to the prevision and analysis of the behavior of the revenue managed by SRF;

 

1. Perform comparative studies of temporary variations in collections performed and that of the respective economic indicators; and

 

1. Prepare the collection goal proposal to be evaluated by SRF.

 

V.        COPAT’S PRIORITY FOR THIS YEAR (TAX REFORM)

 

COPAT’s activity center is directed this year towards the reform of the Brazilian tax system.  The government’s short-term strategy in this area has as a priority to reduce the burden of the extremely complex tax system and the risk of harmful tax competition among States and the Federal District, in addition to promoting the progress of the Brazilian tax system.  In this sense, following a meeting without precedents with the Governors of the States and the Federal District and consultations with society, Constitutional Amendment Project (PEC 41) was submitted to Congress establishing the backbone of the tax reform.  COPAT has an active role throughout the process of elaborating the constitutional amendment, performing a large number of impact estimates in tax collection, originated in the modifications to the Constitution’s provisions of the Brazilian tax system.  The amendment proposal modifies the legislation of some taxes:

VI.       Contributions on Billing: opens the possibility to the conversion of contributions on billing in contributions on value added (through ordinary laws);

 

VII.     ICMS:  the tax on the Circulation of Goods and Services has an expressive collection, and it constitutes the main source of resources for the States, with an average relative share of 86,35% of the state tax collection (2002).  It is the important tax of the country in collection volumes, representing in 2002, around 22,02% of the gross tax burden of the three government levels (including contributions for Social Prevision). The great problem of this tax is the existence of 27 different legislations and regulations (of the 26 States and the Federal District), which enables the concession of exemptions and reductions to this tax, with the purpose of attracting new investments, generating fiscal war in the Union.  PEC 41 unifies legislation and the aliquots of ICMS amongst the States, and it establishes one regulation as web, it proposes the application of a lesser aliquot to first need food items and prohibits the concession of new fiscal or financial benefits and incentives, the purpose is to rationalize and restrain fiscal war.

 

 

VIII.    Employers’ Contribution on billing.  The proposal considers the possibility of substituting totally or partially, the employer’s contribution on payrolls (20% on the payroll), for another that influences income or billing in a non-accumulative manner.  The measure reduces the tax burden on the generation of jobs, which is the economic and social objective sought. In this manner it is expected to aid the process for the formalization of work relations and stimulate the sectors that employ more workers.

 

IX.       Contribution on Financial Movement.  The proposal establishes that the Temporary Contribution on Financial Movements (CPMF) become a permanent contribution, with a aliquot between 0.08% and 0.38%, giving the Executive Power the power to reduce or establish it totally or partially.

 

X.        Property Taxes.  The proposal is to transfer the competence of the Rural Territorial Tax (ITR) to the states, the progressiveness of the tax is determined on inheritance tax, of state competence (Tax of the Transmission of Causa Mortis and Donation - ITCD), to further tax it regarding larger quantities transfer operations; for the Tax on the Transfer of Real Estate (ITBI, the municipalities’ competence), its progressiveness is expressively established by virtue of the value of alienated real estate, also allowing the application of differentiated aliquots in function of the location or use of the real estate (selectivity).

 

 

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