Recently, the Federal, State and Municipal Tax Administrations announced measures to make the relationship with the taxpayers easier. Although this is a good initiative, taxpayers must take precautions so that these new mechanisms do not become problems.

Alert Project: The Brazilian Federal Revenue announced the continuation of this Project, which foresees sending communications to taxpayers about possible errors in the tax returns before opening a formal inspection procedure and the application of any fines. The Project was tested with taxpayers that are subject to the presumed profit method. Now, it is being applied to taxpayers exempted from social security contributions, to beverage industry companies and to companies that sell goods and services to agencies of the Federal Government.

The IRS system makes an automatic verification of the income tax returns verifications and, based on the crosscheck of the data with other taxpayers' information, it can identify potential inconsistencies. Then, the IRS sends a notice alerting taxpayers to the possible errors in the Income Tax Return and suggests its rectification.

The mentioned communication is not a tax inspection, so that if the taxpayer confirms the error, it may rectify the necessary returns and even pay the outstanding taxes, without the incidence of punitive fine.

It is important to note that taxpayers that receive these communications are already being "tracked" by the tax authorities so that all actions are subject to the tax authorities' review and may therefore initiate a formal tax inspection.

Credit Card Transactions: In a similar initiative to the IRS, the Municipality of São Paulo is crosschecking the information of taxpayers subject to Services Tax (ISS) with information provided by credit and debt card operators, aiming to verify if all revenues of service providers are being declared and subject to taxation. In case of data inconsistencies, the Municipality is also issuing notifications to taxpayers, suggesting the regularisation of any outstanding debts.

As it occurs in the Federal Revenue Department's project, the Municipality of São Paulo communication also does not consist in an act of tax inspection, so that it does not affect the ability of the taxpayer amending returns or paying debts without punitive fine. However, it is undeniable that the communication is a pre-inspection, so that the notified taxpayer should review the tax procedures and, if possible, respond to the notice by explaining or demonstrating the absence of tax debt.

Requests for Ruling: The State of São Paulo announced the electronic system to present Requests for Ruling about the interpretation of tax legislation. In this new system (called "e-CT"), the taxpayer presents the Request for Ruling directly through the State Treasury Department website and the corresponding ruling will also be provided electronically.

The new procedure should hasten the Ruling proceedings, but taxpayers should be alert to the fact that, although filed electronically, this is a formal Request for Ruling. This means that the same rules applied to the formal Requests for Ruling, previously filed physically, still apply to the electronic Requests for Ruling:

  • They are binding to the taxpayer.
  • They protect the taxpayer against penalties while the request awaits response.
  • They give the taxpayer a deadline to adequate its procedures to the received Ruling.

For this reason, despite the fact that the Request for Ruling procedure appears to have developed, the same precautions must be taken by taxpayers before a Request for Ruling is filed.