Impact on Business Processes

Scenario Sell from Stock

Example: „normal“ Country Version Netherlands vs. „complex“ Brazil:

In most Country Versions, local

requirements affect only billing/financials
in a well decoupled way.
In Brazil, local requirements affect the
whole process chain, and unique
additional process steps occur that even
change choreography.

Internal 1
Nota Fiscal
Organizational Structure

In Brazil, tax paying companies must issue Notas Fiscais for virtually all
business processes …
 With Business Partners (Customers, Vendors)
 For Inter-Company Transactions
 For Intra-Company Transactions between “Filiais” (Branches – in ERP called
“Business Place) Each Filial …
 Is a juridical Person.
 Isregistered with one or several tax authorities
and hence has distinct tax registration numbers
Company = Filial 0001
(that differ from the companies’).
 Sends and receives Notas Fiscais.
 Has to keep fiscal books and declare taxes.

Filial 0002 Filial 0003

Internal 2
 Process Overview
Process Description Details

Normal Sales Standard process: sales order – goods issue – invoice

Customer Returns Goods returned by customer, accompanied by nota fiscal

Future Delivery Sales After the sales order, first the invoice is issued, later the goods are sent

Customer Consignment First NF at consignment fill-up delivery, second NF at withdrawal

Third Party Selling – Venda à Ordem Company is selling to customer, but goods are delivered by different vendor

Third Party Supply - Venda por Conta e Ordem Company is shipping goods in the name of another vendor

Returnable Packaging Returnable Packaging on same or separate Nota Fiscal

Normal Procurement Standard process: purchase order – goods receipt - invoice

Special Procurement – Future Delivery After PO, first the invoice has to be paid, then goods are received

Special Procurement – Subcontracting Subcontracting components are sent to vendor who fabricates finished goods

Subsequent Debit in Procurement Referencing to original NF in a subsequent debit

Goods returned to vendor are accompanied by a NF referencing to original

Returns to Vendor
procurement

Stock Transfer (Two-Step MM) Stock transfers between two different branches (inventory management only)

Stock Transfer with Stock Transport Order Stock transfers between two different branches (with purchasing integration)

Standalone Nota Fiscal Direct posting of NF without reference to standard SAP ERP document

Internal 6
Nota Fiscal eletrônica
NF-e

3 4 XML
XML
SEFAZ SEFAZ
Origin Destination

1
XML
2
8
Receipt 5 Checking
Protoc.

Purchaser

Vendor 6 DANFE 7 Goods

+
DANFE
Internal 7
Nota Fiscal eletrônica
DANFE

A DANFE …
 Stillhas to be printed.
 Has to acompany all goods
movements between companies or
branches.
 Is NOT the Nota Fiscal, i.e. without
the authorized XML it is not legally
valid.

Internal 8
Nota Fiscal Basics – Paper Version

A Nota Fiscal …
 Is a (tax-) invoice.
 Has to acompany all goods movements
between companies or branches.
 Also for transactions without goods
movements (Services, Credit Memos …).
 Is basis for tax declarations.
 Includes logistics, fiscal and financial data.
 Contains a lot more information than
invoices in other countries.
 Has specific printing requirements (e.g. on
special forms, sequentially numbered etc.).
 … is since 2010 mandatory in electronic
form (NF-e) for almost all companies

Internal 9
Integration of Nota Fiscal in ERP

Sales

Sales Order Delivery SD-Billing Nota FI Accounting

Fiscal

Purchasing

Invoice
Purchase Order Goods Receipt Nota Nota FI Accounting
Verification
Fiscal Fiscal

Inventory Management

Goods Issue Nota Goods Receipt Nota FI Accounting

Fiscal Fiscal

Internal 10
Nota Fiscal eletrônica
XML document view

Internal 11
Conhecimento and CT-e
(electronic) Freight Invoice

A Conhecimento…
 Is a Nota Fiscal issued for Transportation Services.
 Also exists in electronic form as CT-e, but with different XML
layout than NF-e.
 It contains information on the freight and taxes on freight, which
depends mainly on the route taken.
 Each physical delivery (truck, ship, rail…) requires a
Conhecimento.
 The line items of a Conhecimento are the Notas Fiscais that
make up the delivery.
 When delivering with own fleet, freight is included on original NF
and no CT is required.

Internal 12
Scenarios with Conhecimento

NF
NF
Vendor NF Customer

CT
Transporter

Customer pays freight (e.g. EXW) –

3rd party Transporter is a tax registered company.
 Vendorissues NF’s to Customer.
 Customer receives NF’s from Vendor.
 Customer receives CT from Transporter.

Internal 13
Nota Fiscal
Special Brazilian Processes

Business Processes in Brazil …

 Are legally defined and categorized by an official code (CFOP).
 Require one or more Notas Fiscais.
 Often have very specific rules / constraints that make them different from
their “international” equivalents (e.g. Consignment).
 Some of them do not really have an equivalent elsewhere
(e.g. Future Delivery).
 Are imposing need for NF to practically everything
(e.g. even Stock Transfers, Samples, Exhibitions, Borrowing, Scrapping …).

Internal 14
Brazilian Taxes
Overview

Brazil has no VAT…

 But a lot of similar transactional taxes,
 Levied by various Tax Authorities:
 On Federal Level (e.g. IPI “excise” tax)
 On State Level (e.g. ICMS “goods movement” tax)
 On Municipal Level (e.g. ISS “service” tax)
 A lot of additional “contributions” for social and other purposes:
 PIS/PASEP, COFINS, CSLL …
 Withheld taxes, such as income tax:
 IRRF, INSS …

Internal 15
Brazilian Tax
Basic Calculation

Straightforward calculation …
TaxAmount  TaxBase  TaxRate
… but: Base Amount includes Taxes!
And how – is governed by the use case …

Selling for Industrialization or Resale Typical Example with

ICMS, IPI, PIS and COFINS
NetAmount
TaxBase 
1  ( PISRate  COFINSRate  ICMSRate )

Purchasing for Resale with no right to credit IPI (non-industry)

NetAmount  (1  IPIRate )
TaxBase 
1  (( PISRate  COFINSRate )  (1  IPIRate )  ICMSRate )
Net Amount Changes frm Sale to Purchase, since Tax Base stays the same!

Internal 16
Brazilian Tax
Exemptions
There are many kinds of exemptions for Brazilian Tax
 “Regime Especial”: special tax treatments allowed by the authorities. May
apply to certain products or certain types of business partners / industries.
 Exemptions come in the form of:
 Base
Reductions.
 Special Rax Rates.
 Tax Credits (e.g. in Zona Franca de Manaus).
 Taxable and Exempted Base need to be stated in the Nota Fiscal.
 Some Base Reductions are calculated differently (Convênio 100/99).
Example: ICMS Tax Base is reduced to 80%:
NetAmount
TaxBase 
1  ( PISRate  COFINSRate  ICMSRate  0.8)
Due to inclusion of other taxes in the base amount, the application of base reductions is not always trivial.

Internal 17
Brazilian Tax
Handling of Discounts, Surcharges etc.

There are specific rules on taxation of Discounts and

Surcharges
 Usually, any discounts and surcharges apply on the tax base amount,
but not always (in most cases: not on IPI).
 Discounts, surcharges and other accessory costs such as freight,
insurance etc. must be shown on the Nota Fiscal.
 In case of freight, a separate tax calculation on freight may be required
(see also: Conhecimento).

Internal 18
Brazilian Tax
Federal Tax IPI
IPI (Tax on manufactured products)
 Is usually not included in the tax base amount (as most other taxes), but all other taxes
are part of the IPI base amount.
 Applies when selling products that were imported, manufactured or industrially processed
by the company.
 Is due, when the manufactured goods leave the company or when the imported goods
leave the tax-free zone (e.g. in a port).
 Usually levied as a percentage, that can be higher than 100%.
 In some cases calculated as a fix price per unit (common for beverages, tobacco etc.) –
this is called IPI Pauta.
 The IPI rate depends on the NCM code of the product.
 If selling for consumption or fixed assets, IPI is also included in the tax base amount,
leading to especially complex formula.
 Only industrial or “industry-equivalent” companies may take IPI credit on purchase of
materials for usage in production – it is possible to take 50% IPI credit even if the Nota
Fiscal does not contain IPI.

Internal 19
Brazilian Tax
State Tax ICMS

ICMS (Tax on goods movements and services)

 Applies to all goods movements, even internal ones (e.g. stock transfers between different
branches) and certain types of services (mostly communication and provision of energy).
 Is due, when the goods leave the company.
 The ICMS rate depends on the state of the seller and the state of the buyer (Ship-From
and Ship-To).
 Interstate ICMS rates are usually lower than intra-state rates, since then, the seller only
collects the intrastate portion of ICMS.
 On interstate purchases, the buyer must usually apply the difference to the local ICMS
rate in a way similar to EU acquisition tax.
 Sales to Tax Free Zones (most important: Zona Franca de Manaus) are allowed a tax
credit of 100% - i.e. instead of tax exemption, tax is calculated and the same amount then
discounted.
 On sales for consumption or assets, ICMS is calculated “over IPI”.
 ICMS tax can fall under the regime of “Tax Substitution”.

Internal 20
Brazilian Tax
Substituição Tributária

ICMS Sub.Trib. (Tax Substitution for ICMS)

 IsICMS tax that the seller collects on behalf of the customer who is a non-tax
paying reseller.
 ICMS is calculated twice: the normal ICMS of the sale and the ICMS on the
deemed resale price (including surcharge). The difference between ICMS on
surcharge and the “normal” ICMS is the ICMS ST.
 Many variations exist, involving fix prices or minimum prices.
 Inter-state sales with ICMS ST need to consider the Intra-state rate of the
destination state.
 ST may also apply to PIS and COFINS.

Internal 21
Brazilian Tax
Municipal ISS

ISS (Tax on services of any nature)

 Applies to most types of services, except those governed by state law (where
ICMS applies).
 Is usually collected by the Service Provider.
 In many cases however, the municipal law requires the Service Recipient to
withhold the ISS. This may also lead to double taxation.
 The ISS rate depends on the type of service. Each municipality issues a list of
applicable ISS rates per service type.
 Services are either taxed by municipal law (ISS) or state law (ICMS, e.g. for
telecommunication services). Hence ISS does normally not occur in combination
with ICMS or IPI, but frequently with other contributions such as PIS and
COFINS.

Internal 22
Brazilian Tax
Contributions

PIS / COFINS / CSLL …

 Are contributions that are collected by the government in order to fund social
programmes.
 Used to be non-deductible and were hence not treated as tax, but as an
additional cost element (surcharge).
 Some years ago, these contributions became deductible in order to alleviate
companies from the cumulativeness. Since then, they are treated in the same
way as taxes.
 They are usually part of the base amount together with ICMS etc. – the way how
they are included depends on the use case.
 They can be subject to Substituição Tributária.
 They can be subject to Pauta calculation (quantity based).
 They can be subject to Withholding.

Internal 23
Brazilian Tax
Withholding Taxes

Brazilian Withholding Taxes …

 Are among the most complex in the world.
 Can be due at invoice time or payment time.
 Depend on the type of business partner.
 In some cases, depend also on the nature of product or service.
 There are taxes, that are always withheld, such as Income Tax (IR) and Social Security
(INSS). They can occur in SRM and in HCM.
 There are taxes that are only withheld under certain circumstances, in others they are
collected by the vendor (ISS, PIS, COFINS, CSLL).
 Calculation may involve accumulation and threshold amounts.
 Are reported in the federal tax report DIRF, which needs to consolidate withholding tax
information from SRM and HCM.
 Certain Withholding taxes may have to be reported jointly (with summarized tax rate) or
separately.

Internal 24
Reporting

Brazilian legal reporting

 Tax reports have to be submitted to the respective federal, state
and municipal authorities. Therefore, an abundance of local
variations and layouts exist for each non-federal declaration.
 There is a strong trend to replace paper based reports by electronic
ones.
 Also, there is an attempt to harmonize the local reports on a
national level. However, experience shows that with each legal
change, the complexity grows, instead of reduces!

Internal 25
Paper based reports (small except)

Accounting
 Livro Diário (Journal)
 Livro Razão (GL account statement)
Federal Tax
 DIRF (Declaration of Withholding Tax)
 LALUR (Income Tax) – not provided by SAP
 DIPJ (Declaration of Juridical Persons) – not provided by SAP
Local Tax (State, Municipal)
 Modelo 1, 2 (List of incoming and outgoing documents)
 Modelo 3, 7 (Overview of production and inventory)
 Modelo 8, 9 (Summary on taxes IPI/ ICMS)
 Modelo 51, 56 (List of service documents)
 Modelo 12 (Interstate goods movements)
 CIAP (control of ICMS credit on fixed assets) – only partially covered

Internal 26
Public System for Electronic Declarations
SPED

Accounting: ECD (SPED Contábil)

 Substitutes paper based accounting files, e.g. Journal, Balances etc.

Tax Reporting: EFD (SPED Fiscal) and EFD PIS/COFINS

 Substitutes the “Modelos”, I.e.
 Contains line-items of all Notas Fiscais
 Production, inventory and goods movements
 Summary of tax credit / liability
 Specific records, e.g. for electricity, telco, oil, telco etc.

FCONT: Fiscal control of accounting system transition

 Reports differences in accounting according to Brazilian GAAP and IFRS
during a transition period.
 Not provided by SAP standard.

Internal 27
Financial Accounting
Brazilian Accounting System
 Brazil introduced IFRS in 2010 for Large Enterprises. In SME, the
transition will be in phases.
 Companies subject to IFRS need to maintain parallel accounting in
Brazilian GAAP (probably still for many years).
 Brazil has no “official” Chart of Accounts, but there exist common
practices, especially with respect to treatment of tax postings.
Significant peculiarities of Brazilian Accounting practice:
 Revenues are posted including (most) taxes.
 Taxes are posted twice: on tax credit/debit and on an “offset”
account in order not to duplicate the taxes already contained
in the revenue.
 Contradictory revenue recognition: from Brazilian tax law
perspective, revenue must be recognized at goods issue, from
IAS principle, usually at proof of delivery time.

Internal 28
Asset Accounting
Fixed Assets
 Brazil uses specific valuation and depreciation rules, which however
are not unusual as compared to other countries.
 Transactions with assets (buying, selling, leasing, transferring etc.)
require issuing of Notas Fiscais as for any other goods movement.
 Tax calculation for Asset transactions is similar to the one for
consumption.
 ICMS, PIS and CONFINS tax paid on asset acquisitions may be
credited at 1/48th per month during 4 years.
Main impact of ICMS credit:
 All transactions with assets must be controlled with the correct
cost assignment via CIAP from the day of the transaction for
48 months.
 SAP supports only a very basic CIAP feature for purchasing of
assets (no integration with projects etc. to handle assets
under construction etc.)

Internal 29
Cost Accounting

Actual Costing
 Inorder to determine the real profit for income tax purposes,
Brazilian companies need to apply actual costing.
 For manufacturing industry, it is necessary to roll-up all differences
between planned and actual cost to Work in Process, Inventory and
Cost of Goods sold.
 Also in service industries, the time sheet data, wages etc. must be
used to revaluate the actual cost of projects, services etc. at period
end.

Therefore in ERP it is mandatory to use Material Ledger

for manufacturing companies in order to meet actual
costing requirements.

Internal 30
Payments

Brazil has one of the most

Brazilian Payment Instruments modern clearing systems
of the world, with real-
 Checks.
time credit transfer.
 Credit Transfer. On the other hand, especially
in B2C, paper checks are
 Standard (DOC) and real-time (TED) fund transfer. still widely used.
 Payment Bills (Boleto, Duplicata …). It is very common to pay in
many installments, even
 Payment Cards.
smallest amounts at the
 Direct Debit - recurring and authorized (DDA). supermarket or gas
station.
Brazilian Central Bank Statistics (2007) Financing models are also
common where
by volume Payment
by value companies act as credit
Card institutes for their
35% customers.
Credit
Transfer
84%
Credit
Transfer
Check Check
44%
15% 13% Payment
Direct Debit
6% Card
2%
Direct Debit
1%
Internal 31
Payment Bills
Boleto issued by Bank

Inter-Bank
Communication

Vendor Customer
Bank Bank

3 Boleto
2
4
DME
Payment
5
Extract

1 NF
Vendor Purchaser

Internal 32