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When Mexico announced e-accounting legislation, many multinational corporations argued that the requirements were unconstitutional. Almost 10 percent (16,000) of the companies initially required to file their records electronically in 2015 were granted a legal stay, called an amparo. However, as 2016 approaches, these stays are quickly running out. To date, courts have shown a tendency to deny continued amparo and ruling on the side of Mexico’s tax authority, the SAT, to require electronic reporting.

Time is of the essence – when amparo expires or courts rule in favor of the SAT, companies areimmediately responsible for generating and submitted required reports retroactively - which is why they must have a solution in place before that happens. As you prepare for this inevitable requirement, here are some key considerations:

Compliance is not simply a technical issue.

Internal processes are critical to compliance. How and where is your data input? How is that data then connected to the correct internal and external reports? Companies who maintain separate systems for e-invoicing and accounting risk errors, which trigger audits. All compliance should be maintained within your ERP, and journal entries and reports should all link back to the original XML for seamless reporting and compliance.

Unique codes are required for each transaction.

eContabilidad reports encompass your chart of accounts, trial balances and journal entries, which all must link to XML e-invoicing approval codes known as UUID. These 36-digit, case sensitive, alphanumeric codes are typo magnets, making manual data entry an insufficient (and inefficient) means of compliance.

Change is constant.

As we’ve seen with e-invoicing in Mexico, the mandates change frequently, requiring significant change management or a proactive solution to keep your compliance efforts up to date.

Opportunities are inherent in these challenges.

Despite eContabilidad’s complexities, these requirements can actually help companies streamline their accounting process. By automating reports, staff can focus on discrepancies and errors instead of data entry. Plus, by linking all transactions, companies will have complete and accurate financial records.

Another key consideration: even if your company remains under amparo for the time being, the reports required under eContabilidad are still necessary if your company is being audited or is claiming VAT tax credits – they are just submitted physically instead of electronically.

Don’t wait to begin updating your internal accounting processes and implementing a proactive e-accounting solution until your reports become overdue. Contact us today to discuss the key considerations for eContabilidad, and read more about the specific requirements here.

As Brazil continues to expand its business-to-government regulatory requirements to affect an ever-growing list of business processes and units, Block K is presenting drastic challenges to manufacturing, inventory management, supply chain and accounting teams. Starting January 2016, companies with revenues over $300 Million Reais according to the most recent announcements by the SEFAZ (http://pesquisa.in.gov.br/imprensa/jsp/visualiza/index.jsp?jornal=1&pagina=18&data=08/10/2015) will have to submit monthly inventory and production reports. Further mandates will hit companies in January of 2017 and 2018. Those that have yet to start preparing for these new requirements are behind, as these mandates go beyond the need to produce new reports and require fundamental changes to the ways companies track their inventory and manufacturing.

Companies affected by these mandates include any industries where the composition of a product and the raw materials or components used within it are subject to specific industrial reports – whether that product is produced in house or by a third-party. Under Block K, companies have to provide detailed information regarding manufacturing, production and inventory control for each one of their business locations, following the specific rules for each region’s government administration – meaning that specific requirements may vary from facility to facility. So not only do companies need to update their cost accounting practices – many of which currently lack the detailed information needed – they also have to ensure their reports and processes adhere to each variation in local requirements.

Specific information required under Block K includes:

  • Inventory/stock movement
  • Raw materials/components used
  • Components lost
  • Finished products manufactured
  • Bill of material
  • ICMI tax collection
  • IPI tax collection
  • 3rd party manufacturing


Using this information, Brazil’s tax authority will be able to track the full product cycle in companies – from material orders (through SPED) to production (through Block K) to sales (through Electronic Nota Fiscal). Inconsistencies will result in fines, penalties and even business shut downs as e-invoicing and other operational services may be suspended.

Companies need to prepare now for this complex requirement that mandates the integration of multiple departments and processes – from supply chain management to inventory control to production to bookkeeping and accounting. The first step is to have your tax department check your local level requirements, as the mandates affect a complex array of industrial sectors and suppliers.

Compliance with complex e-invoicing and e-accounting legislation in Latin America requires a dedicated, multi-tiered, flexible solution. While corporate governance and risk management dictate that such compliance be managed through corporate ERP systems, SAP’s support of these regulations has historically been fragmented, leaving gaping holes that result in severe audit and penalty risks.

For example, SAP focuses its Brazil SPED maintenance on key federal-level reports, including SPED accounting, but does not fully support other reporting requirements like Ficha de Conteúdo de Importação (FCI) and Guia de Informação (GIA). In Peru, Libros mandates new reports, but many of the recently required data elements aren’t covered with standard SAP OSS notes. Click here to register for an upcoming webinar, “Common SAP ERP Gaps in VAT & Fiscal Reporting in Brazil” on Thursday, October 8th at 12pm ET.

Such holes force companies to implement outside solutions or expend significant technical resources to build their own reports. However, it is critical for companies operating in Latin America to take a holistic view of compliance. Solutions that don’t focus on end to end compliance leave companies vulnerable to fines and even operational shutdowns. All fiscal processes and transactions – from the initial e-invoice to the final tax reports – should be integrated and automated to guarantee consistency and minimize the risk of error.

Despite this need for an integrated approach, ERP systems, including SAP, tend to lack support for state, municipality and industry reports. For example, Argentina’s VAT perception tax is done at the state level, with each state requiring a different data as legislation evolves. This leaves companies unable to implement standard SAP templates, and most have difficulty customizing their ERP to meet these requirements – especially considering the frequency changes required.

Latin American financial regulations are complex – increasingly so – making it important to look for a regional compliance partner that truly gets the implications and opportunities that come with these requirements. Regulations throughout Latin America are constantly changing. For instance, ECF (net income reports) was a recent addition to SPED accounting requirements that takes effect this month, and Block K (inventory reports) is a change to SPED fiscal reporting taking effect in January 2016. Reactionary approaches to these changes leave companies vulnerable and can be implementation and customization nightmares. Managing compliance through add-on solutions and multiple implementations increases the risk of errors, which can quickly trigger audits and penalties.

As compliance regulations throughout Latin America continue to expand, now is the time to turn to a regional provider that understands the impact of these regulations on global corporations. As governments continue to integrate and link required reports to e-invoice transactions for greater transparency (like Brazil, Mexico and Chile), an integrated approach to compliance is becoming even more imperative. Companies who rely on their ERP systems or local solutions risk gaps in compliance and miss opportunities for innovation. Contact us today to learn how we’ve helped some of the world’s largest companies proactively manage compliance – seamlessly within their existing ERP.

Although Peru’s e-invoicing requirements don’t go into full effect until the middle of next year, libros reporting extensions are due at the beginning of 2016. Companies MUST prepare now to meet these reporting requirements or risk fines and penalties. And unlike libros requirements throughout much of Latin America – Peru’s are significantly complex, more similar to the depth of information requested in Mexico’s eContabilidad model.

Here are the top four questions we’re asked as companies prepare for this new mandate.

Who is affected?

Any business operating in Peru with income equal to or greater than 150 UIT ($180,000 USD) is subject to the programa libros electronicos (PLE) requirement to file electronic reports for all sales and purchases. Those with over 3,000 UIT ($3,696,000 USD) in income must submit more than 10 accounting reports electronically beginning in January 2016.

What is required?
The standard reports required include Compras (purchases), Ventas (sales), Libro Diario (daily ledger) and Libro Major (general ledger), as well as additional reports for principal contributors.

What are the risks?
Penalties include:

  • .2% of net income for any language other than Spanish and currency other than Peru’s used in the reports
  • .3 to .6% of net income for inaccuracies in the reports
  • Up to 30% tax penalty for missing or invalid records

 

Plus, inaccurate, delayed and missing reports trigger audits, potentially resulting in even greater fines and penalties.

How do we prepare?
The most important consideration as you prepare for compliance with the libros reporting mandate is to remember the big picture. Although this mandate is separate from Peru’s e-invoicing requirements, an error in one place will trigger errors in other reports. Managing compliance through one integrated system within your ERP minimizes compliance risks and automates these reporting requirements.

Increasing globalization has significantly changed the corporate tax function, with constantly shifting regulations and stakeholder demands. In a recent report, “Reshaping the Tax Function of the Future,” PricewaterhouseCoopers (PwC) details several critical factors that will drastically impact the way companies do business worldwide – trends we’ve especially seen in the complex Latin American compliance landscape.

The big picture? Combined, improved visibility into all financial transactions and increased automation are helping companies pave the way to the Holy Grail of cost savings and risk mitigation. As we’ve discussed previously, the business-to-government mandates in Latin America are helping to speed up this automation and visibility.

Other highlights from the report include:

Government mandates are here to stay.

“Global tax information reporting requirements (e.g., CbCR and similar transparency initiatives) will grow exponentially and will have a material impact on the operations and related budget Download the PwC reportallocations within the tax function.

Country-by-country (CbCR) reporting is not the first transparency initiative, and it won’t be the last. But what makes the CbCR requirements stand out is the breadth of their reach and impact on taxpayers, tax authorities, governments and even the general public.”

As governments worldwide seek to maximize tax revenues, we can expect to see an increasing number of business-to-government mandates. With the success of e-invoicing in Latin America (for example, Mexico increased tax collections 34 percent in just its first wave of e-invoicing), other countries across the globe, including Russia, Singapore, Italy and Spain, are beginning to explore this model.

Risk management and governance are straining financial reporting now more than ever.

“Increased global compliance requirements combined with inefficient processes and over-reliance on spreadsheets will increase risk and drain already strained resources.”

Government mandates change at a rapid pace, and updating internal systems and processes to comply with these changes can be a complex and cumbersome process. As transparencies and information sharing increase, governments will also have the capability to sift through data and easily conduct global audits. The risk of error is high – with severe fines and penalties leveraged for tax discrepancies and errors.

As this pace of change only continues to increase, tax departments must find ways to streamline their operations and automate reporting processes to avoid costly mistakes.

Technology is changing how we manage financial reporting.

“The linchpin for real transformation is data. How data issues are solved will shape process change, which in turn will drive the resource model and the opportunities for value-added activities that contribute more strategically to the business.”

Proactive companies are realizing the efficiencies of better managing their data. From streamlined AP and AR processes to error avoidance, automation is helping companies to focus on innovation instead of manual financial processes.

Staying Ahead

As PwC explains, a corporate tax strategy and roadmap are critical for transforming the tax function. As business-to-government regulations become the new normal, planning now for future compliance measures is critical. Learn more about how Invoiceware is staying ahead of the curve, helping companies turn business-to-government legislation into opportunities.  

 

In the past several years, we’ve seen an increasing trend of multinational corporations moving to a single global instance of SAP to maintain better visibility into operations around the globe and improve corporate governance. At the same time, governments throughout Latin America have implemented regimented e-invoicing and e-accounting requirements. The goals of each of these efforts are the same – increased visibility into financial operations. However, the two trends significantly counteract each other, making global implementation of SAP a distinct challenge in countries enforcing business-to-government compliance.

 

E-invoicing and e-accounting reporting requirements vary in mandated countries worldwide – affecting separate transactions and business operational units, detailing certain naming architectures and fields, having select character limits, etc. To adequately maintain compliance, SAP must be adapted to account for all of these irregularities. However, implementation of SAP in mandated countries is only a fraction of the compliance battle. Because regulations change swiftly, keeping transaction and reporting structures up-to-date with the latest requirements is an ongoing task.

 

For example, just this week, Mexico’s new Polizas reporting requirement goes into effect – requiring journal entry reports dating back to July 1, 2015. For effective compliance, it’s critical that a company’s ERP be the system of record for these – and all other – mandated reports. Leveraging a third-party solution or maintaining records outside of SAP leaves companies vulnerable to costly irregularities – the exact kind of discrepancies that trigger audits in Mexico and other countries with similar requirements.

When rolling out SAP in Mexico, it’s critical that the local template, e-invoicing transactions and mandatory government reporting are integrated. Any holes in the process leave companies at risk for significant fines and audits by the SAT (Mexican tax authority, equivalent to the IRS in the United States). Looking at the Polizas mandate specifically, a penalty of up to $3,368 MXN (approximately $200 USD) will be enforced for each transaction that should have been posted in the delinquent or inaccurate Polizas. That can add up quickly when you consider the dozens of transactions that may be tied to a single journal entry. Further, unreported income or taxable income adjustments uncovered through SAT audits carry even heftier penalties. In some cases, the interest, penalties and fines may very easily total 80% to 100% of the imposed tax deficiency.

The audit and penalty risks associated with compliance errors make it critical to implement SAP effectively in Mexico and other countries with business-to-government mandates. Despite the challenges and ongoing maintenance needed, managing compliance through your corporate ERP is the only way to minimize audit risk and ensure reporting accuracy.

For more information on implementing SAP in Mexico, be sure to join our webinar on September 10, where Invoiceware and our partner LinkTech discuss common configuration challenges and upcoming legislation requirements.

 

 

Register for webinar

 


 

In recent weeks, we’ve examined the rapid expansion of business-to-government compliance in countries that rely on VAT tax income. While Latin America is the current hotbed for such legislation, similar mandates are cropping up worldwide as countries prove the effectiveness of financial legislation in maximizing tax revenues. The reach of these mandates is far – affecting sales,procurement and even HR. Though many companies see compliance as cumbersome, there are multiple benefits to the automation required under these mandates – not the least of which is improved cash flow.

Business-to-government compliance can require extensive changes to accounts receivable and accounts payable processes – but with change, comes opportunity. On the AR side, e-invoicing requirements mean that XML invoices have to be sent to the government and approved before being issued customers and often before goods are shipped. Brazil is even acting as its own e-invoicing network, meaning that customers can easily download invoices from the server, eliminating the distribution burden on AR teams and ensuring that there is never an excuse for a missed invoice.

 

The real cash flow benefit, however, comes from the impact of business-to-government compliance on AP processes. Because invoices must be available to buyers even before goods arrive, e-invoicing mandates streamline AP approval processes, opening the door for improved cash flow and supply chain financing. Automating the inbound receiving process means that invoices can be deemed “okay to pay” as soon as goods arrive, reducing operational costs and providing greater flexibility over cash flow.

Proactive companies are using this automation to introduce supply chain financing in regions of the world where supply chain stability is critical. Using supply chain financing, corporations can lower the cost of payment processing while providing suppliers with greater access to liquidity, as payment approval windows decrease from weeks to hours. Suppliers have the ability to immediately convert invoices into cash, and can speed up the payment process based on their unique cash flow needs, payment terms and billing cycles.   

With improved cash flow comes increased stability in the emerging markets most inclined to implement business-to-government legislation, ultimately ensuring supply chain effectiveness and making these economies a less risky place to do business.

Recently, we’ve been examining the tidal wave of business-to-government regulations in emerging markets and their impact on business operations, including sales and procurement. Heavily involving both the accounts receivable and accounts payable teams, it’s clear that these mandates have significant implications on financial processes. However, recent legislation is adding a new operational unit to those affected by business-to-government compliance mandates: human resources.

recent legislation in Brazil and Mexico is adding a new operational unit to those affected by business-to-government compliance mandates: human resources.

Looking back 18 months at the compliance landscape in Latin America, only three countries – Mexico, Argentina and Brazil – were enforcing mandates, and these all encompassed A/P and A/R processes only.  Now 10 countries have introduced mandates, and they are entering an increasing number of busines processes.  While Brazil is typically considered the leader in compliance legislation, having the most robust, complex requirements, Mexico was actually the first to introduce HR-related mandates.  Last year, Mexico introduced Nomina Electronica - electronic payroll receipts.  Now, Brazil is testing eSocial, which collects labor, social security, tax and fiscal information related to hiring and employment practices. 

As IT and finance struggle to adapt to the pace and complexity of legislative change in this region, these additional business-to-government regulations present whole new challenges to HR departments.  Specifically, under Nomina Electronica, any company operating in Mexico paying employees a salary or wage needs to be issuing electronic payroll receipts. These payroll deductions are a critical component to the recent eAccounting legislation as you can’t deduct taxes until payroll has been submitted to the government electronically for approval and the approval codes linked to your monthly Journal Entry (Poliza Report). 

As has come to be expected of Brazil, its tax authority takes HR requirements to the next level. Under eSocial, which will go live in the next 12-18 months, employers must submit all information regarding their labor force to the government electronically. This includes labor events such as hiring, contracts, warnings, suspensions and terminations, which must be sent as soon as the event occurs, as well as payroll details, benefits, etc. This equates to up to 41 individual XML files per employee per month!

With the additions of personnel-related mandates, Mexico and Brazil are looking beyond VAT taxes and into payroll and income taxes in an increasing effort to ensure that they are receiving maximum tax revenue. We anticipate this trend continuing throughout emerging markets like Latin America as government’s attempt to stabilize and grow their economies, making it critical that companies operating in these regions begin creating proactive compliance strategies so they aren’t caught off guard.

Peru published new legislation on August 3, 2015 that mandates electronic invoicing as the standard starting in 2016.  Over the last few years, the SUNAT (Peru’s Tax Authority) has announced a number of e-invoicing waves; however, this latest legislation focuses exclusively on large and medium organizations classified as PRICOS (principal contribuyentes nacionales).

Below is the key information on the Peru mandate:

Name of mandate: Resolucion de Superintendencia de la SUNAT 300-2014

Important Dates:
Electronic Invoicing - Comprobantes de Pago Electronicos (CPE):

  • 1st wave: October 1, 2014 for 239 companies [Published 2013]
  • 2nd wave: July 1, 2015 for 778 companies [Published Sep 2014]
  • 3rd wave: July 15, 2016 of all PRICOS  as of July 31, 2015  [Published August 3, 2015]
  • 4th wave: December 1, 2016 for those taxpayers that as of July 31, 2015 have:
    • The capabilities of a principal contribuyente  of the intendencia of Lima Peru
    • The capabilities of principals contribuyentes of the regional and municipalities

All multinational companies should be included in the 3rd wave with a deadline of July 15, 2016. If you do not know if your organization is designated PRICO, check with the SUNAT immediately.The above information is published on the SUNAT website athttp://www.sunat.gob.pe/legislacion/superin/2015/203-2015.pdf.
Requirements

  • Electronic Documents: Electronic Invoices, Boleta de Venta Electrónica (end consumer), Credit Note, Debit Note, Daily Summaries, Comunicación de Baja
  • Outbound:  Sending Invoices to customers – These must be approved by the SUNAT and approved with aCDR (constancia de recepcion).
  • Inbound: Ability to receive invoices electronically from suppliers.
  • Certification Process (Proceso de Homologacion): Testing phase must be completed within 25 days.
  • Contingency:  Will be used when the systems online is unavailable due to updates and maintenance.
  • Storage:  Documents must be stored for 4 years.
  • Cancellations:  Applies to all electronic documents. You have up to 72 hours after receiving the CDR from the government.
  • Daily Summaries:  For contingencies and cancellations
  • Guia de Remision or Guia de Transportista: Document must be on truck and approved by government. Typical process for many companies is to ship with the Factura and the Guia de Transportista on the truck.
    • Libros PLE Mandatory Reports Electronically:
      • Compras (Purchases)
      • Ventas (Sales)
      • Libro Diario (Daily ledger)
      • Libro Major (General ledger)

As part of go-live, an organization needs to make their readiness declaration.  The requirements include:

  • Check if invoices, boletas de ventas, credit and debit notes, daily summary and contingencies are within the standards of the SUNAT
  • Both the electronic and paper documents must pass the certification process
  • Once Successful completion of the test, the SUNAT will issue a Resolucion de Intendencia (R.I)


Note: you can’t be live in Peru without the R.I. The legislation states that once you start the testing process you have 25 days to complete the process or you will be asked to start again. This means that having a provider that works with you through certification is critical.

From a timing perspective, keep in mind that you will not want to go live with electronic invoicing during a fiscal period as switching over from a manual to electronic invoicing may impede your accounting processes.

You will run into a lot of vendors in Peru, and many will say they can support compliance. So ensure you understand the entire process or you will find yourself with operational issues, IT support issues, and at risk for audit penalties.  Remember this is as much a project management issue and SAP ERP issue as it is a web service integration issue. Make sure your providers solve the SAP configuration issues, theLibros reporting extracts, the web service integration and the assistance and management of your certification.

Compliance with strict e-invoicing, finance and tax reporting legislation throughout Latin America is not a one-time, set-it-and-forget-it process. The pace of legislative change in this region is faster than ever as governments aim to expand the tax base and collect every penny, peso or reais they can. New mandates commonly move from initial legislation through implementation and even reforms before companies can fully grasp the implications of these requirements. With the global trend of governments re-evaluating their indirect tax legislation to close loopholes, eliminate fraud and maximize tax revenues, corporate taxpayers should be concentrating on the performance of their indirect tax functions more than ever before.

As global companies continue to expand in Latin America’s emerging markets, spreading their reach into new territories and thus different tax regimes, they are encountering new liabilities and ever-changing reporting obligations. For example, in Brazil, the ICMS rate (tax on the interstate movement of goods) is now variable based on the ratio of imports within a bill of material. Other countries, Each Latin America country has different tax reporting requirements. such as Peru and Dominican Republic, have implemented some important changes in their local indirect and direct tax laws. Plus, Mexico is facilitating and opening possibilities for foreign businesses to trade or manufacture in the country by revisiting its local conditions and tax laws.

Any corporate oversights of these recent legislative or rate changes, minor errors in calculations or operational mistakes leading to compliance errors can be costly. Errors in VAT/GST deduction and payment functions can have far-reaching consequences that go well beyond the tax value. However, growth into Latin America also presents new opportunities for well-managed, performance-oriented organizations, and achieving these efficiencies hinges on the stability of internal accounting systems.

With upcoming changes to reporting legislation set to take effect in the next six months in Brazil, Chile and Argentina, senior finance and tax professionals need to understand the risks associated with these mandates.Join us for our webinar on Thursday, August 13, as we provide an in-depth examination of new requirements being implemented this year, including:

  • Block K: In Brazil, the government is moving beyond sales and purchases to track the full lifecycle of goods. Currently, companies report incoming supplies and outgoing sales through Nota Fiscal electronic invoices and SPED reporting requirements. Now, the government will cross-reference these purchases and sales with production through Block K, which must be submitted monthly. Any inconsistencies will result in fines.
  • Acuse de Recibo: Chile’s new three-way-match process ensures the accuracy of deductions by comparing the purchase order, goods receipt and supplier’s invoice, and companies must legally declare VAT obligations within eight days of invoice submission.
  • eFactura & Libros: Argentina recently began enforcing e-invoicing and proforma VAT reporting requirements, and is currently modifying tax treaties that may very well result in changes to the country’s entire indirect tax system.

Companies are already struggling with the day-to-day support and change management Latin American compliance requires, and these new mandates further the complexities.

With fines, penalties and operational disruptions as consequences of an inadequate approach to managing e-invoicing and reporting mandates in Latin America, multinationals in this region should take note to avoid common errors. Not only does proactive compliance eliminate these risks, companies can improve operational efficiencies, streamline processes and improve cash flow through a strategic approach.

Avoid these top 10 mistakes in Latin American compliance that can cost your organization millions

Managing Latin American compliance for hundreds of clients, here are the top 10 mistakes Invoiceware sees in compliance management.

1) Maintaining multiple, local compliance solutions throughout the region.
Companies often use varying solutions in each country in Latin America because no ERP offers business-to-government compliance without multiple third-party add ons – creating a support nightmare!

2) Not using your ERP as the central system of record.
Most compliance solutions, including SAP’s own third-party bolt ons, house critical information outside of the ERP. Any resulting discrepancies between the corporate system of record and external systems and what is reported to the government creates huge tax and audit risks.

3) Not understanding the cost of ERP change management.
Most corporations have highly customized global ERP applications that don’t match government requirements. Mandates directly affect accounting systems, requiring specific naming structures and character limits, and the inability to adapt to these individualities results in compliance errors.

4) Not having a contingency plan.
Government-approved documents are needed to ship legally. Built-in back up processes are required to ensure there are no disruptions to your business operations and that you can always ship and receive goods.

5) Using PDFs as the invoice of record.
Many accounts payable teams rely on PDFs instead of government-approved XML invoices, but this process opens the door for discrepancies between internal records and the government’s files, triggering audits and fines.

6) Manually managing inbound receiving.
A manual, paper-based receiving process not only requires significant internal resources, it also increases the risk of error. Since PDF copies of the XML invoices accompany your supplier’s trucks in Latin America, this process can be automated to improve efficiencies and ensure accuracy.

7) Thinking it’s a local technical issue rather than a $100 million cash issue.
Fines, penalties, operational shut downs and missed tax deductions all have a direct impact on the overall bottom line, and with VAT remittances averaging 18% of sales revenues – the problem is hundreds of millions of dollars for billion dollar companies. A local, technical approach reduces corporate visibility into local finances, making them vulnerable to irregularities and increased scrutiny under the Foreign Corrupt Practices Act.

8) Relying on ERP technical notes to perform updates.
Companies running SAP for compliance, as an example, rely on support packs for the latest solutions, but these updates affect the entire global system, a process most companies don’t want to undergo frequently. Even with the latest updates, systems including SAP still requires certain information – including 30+ digit alphanumeric government IDs – to be entered manually, increasing the risk of errors.

9) Underestimating the pace of change.
Compliance mandates have spread from three to 10 countries in less than two years, with more business processes affected, including accounting, operations and human resources.

10) Overlooking maintenance and support costs.
Managing compliance internally requires up to 11 full-time staff, including personnel to monitor and manage regulation updates, middleware issues and ERP, as well as developers, financial analysts and more. Couple this with the hard IT costs associated with change management, and compliance easily totals six figures – per country!

There is major shift in the way governments in Latin America regulate businesses – particularly multinationals – that is distinct from anything else seen in global compliance. Unlike the United States and most European countries, which rely heavily on income taxes, Latin American governments and many other emerging markets generate the majority of their incomes from value added (consumption) taxes (VAT). Since VAT collections represent nearly 60 percent of tax revenue in these countries, fraud and evasion cost trillions of dollars, and now many countries in Latin America are stepping forward to proactively combat this issue.

Through mandated e-invoicing and financial reporting, these countries are automating tax collection processes. By requiring standardized XML e-invoicing for all business-to-business transactions, governments gain visibility into all suppliers’ VAT obligations; by automatically matching these XML invoices to financial and accounting reports, governments ensure that they are receiving accurate tax payments. No longer do governments have to rely on companies to report tax deductions accurately; they can now verify tax calculations automatically. This is significantly different from European Union e-invoicing mandates, which only apply to business-to-government transactions.

Since Brazil first implemented e-invoicing in 2008, the practice has spread rapidly across the region and continues to expand into more business processes. In fact, in the last two years alone, mandates have spread from three to 10 countries, and now affect accounting, supply chain management, procurement and human resources. This tidal wave of regulation is expected to continue throughout emerging markets and VAT-based societies worldwide as more and more governments see increased tax revenues from enforcement. Consider this:

These regulations present significant cash flow and supply chain challenges for multinationals operating in mandated countries. Over the next few weeks, we’ll examine in detail how these business-to-government regulations affect sales, procurement, human resources and cash flow.

If you want to learn more about this topic and have an opportunity to ask questions, register for our upcoming webinar, "Business to Government Tax Compliance: Latin America Turns to Automation for VAT Tax Collection" on July 23rd at 12pm.

September 2015 is quickly approaching, and in Mexico that means the journal entries, known as Polizas, are due for organizations that are required to submit the eContabilidad reports.  As the deadlines arrive, we wanted to use this opportunity to address the confusion concerning Amparo and those that have filed for an Amparo.

It is important that you work as a team – your local finance staff, corporate controllers, corporate IT teams, and your auditors – to understand your final decisions. This article outlines the basic questions and updates we are hearing from our clients across Mexico.

What is an Amparo?
There are many question regarding the impact of an Amparo for Mexico eContabilidadThere were a number of companies that filed a court case against the Mexico SAT stating that the obligation to send electronic accounting documents was unconstitutional among other reasons.  There were a number of Amparos handed out prior to the legislation going live – around 16,000 out of the ~200,000 companies required to file in 2015 received this legal stay.

What is the current status of Amparo court cases?
For many, the trial for the Amparo is still going on and the courts have not determined anything yet. Companies that have the Amparo have a stay and don’t have to submit any of eContabilidad reports (catalog, trial balances, polizas) for the moment.  However, there are two main points to be made:

  • Many court cases in Mexico, such as those in Chihuahua, have been denied with a ruling in favor of the Mexico SAT
  • Once the case is resolved and if the ruling is in favor of the Mexico SAT, a company is immediately responsible to generate ALL the reports. 

 

Why are court cases denying Amparos and ruling for the Mexico SAT?


The main reason the courts are denying Amparos are as follows:

  • If a company already submitted the chart of accounts or the trial balances they have already accepted the law and will need to generate the polizas
  • If a company has already implemented electronic invoicing, this proves that the company has the technical competence to create and send the eContabilidad reports

 

If my Amparo decision is favorable and we win the court case, do I I still have to generate eContabilidad reports?
Yes, you will still have to generate eContabilidad reports according to our recent conversations with the Mexico SAT. The only different is that you will not be required to send these reports electronically. Instead, the SAT will physically come to your organization and ask for them for two reasons: (1) your company is being audited or (2) your company is claiming VAT tax credits (devolucion or compensacion, for example).

Key Takeaway
If you are a multinational corporation already sending and receiving CFDI electronic invoices, be prepared to implement a solution for eContabilidad.  Ultimately, you will have to provide this data even if you are not required to file it electronically.  And if your court case is denied, as many have already been, then you will be required to supply this data.

If you win the Amparo and you are audited or need toclaim VAT tax credits (devolucion or compensacion), you will be required to create this data as this is the SAT process going forward. Remember, there were similar court cases during the move to CFDI and ultimately 95% of the country adopted electronic invoicing.

Next steps: Talk to your auditors and set up a project team to understand the solution requirements, project timelines and ultimate costs. Waiting is not an option at this point in time. Contact us to learn more about recommended next steps.

Mexico will be putting your tax deductions under a microscope when new eContabilidad (eAccounting) requirements go into effect this September. The SAT, Mexico’s tax authority, will now have the ability to examine accounting reports and subsequent line item tax deductions, requiring added diligence in inbound procurement processes to ensure compliance. This scrutiny demands complete accuracy on invoice payments by buyer’s in Mexico.  And the only way to ensure that your tax deductions are ultimately correct is to automate your three-way match which guarantees that your purchase order, goods receipt and supplier’s invoice are identical. Any deviations can trigger audits and result in fines, penalties and lost tax deductions.

Companies managing over 500 procurement invoices per month should consider full automation as the only way to ensure tax accuracy. Currently companies are approach the problem in three ways:

1) Manual entry: Almost a quarter of companies are having accounting clerks hand-enter the 30+ digit, case sensitive, alphanumeric unique identifier codes (UUIDs). These UUIDs, assigned to each individual XML, are the government’s tracking codes. If the UUID on the XML isn’t entered correctly into your ERP, the resulting reports required under Mexico’s eContabilidad will be inaccurate. Any discrepancy will trigger government scrutiny – for example, a single “I” instead of a “1” or an “A” instead of an “a” can trigger a hefty fine. In fact, we’ve found an approximately 7 percent error rate in codes entered manually! Clearly, these mistakes will add up quickly. Despite this risk, this process is SAP’s recommended solution – another reason why SAP is insufficient to manage Latin American compliance.

2) PDF format: Many companies also rely on PDF invoices instead of XMLs for accounts payable. However, when it comes to government compliance, the XML is the only invoice that matters. If you request an update from a supplier, return goods or don’t receive the correct order, the XML must be updated. Still, many suppliers will only update the PDF, and accounting will use that as the invoice of record. As many as 10% of XML invoices don’t match the PDF and are at risk of government penalties.

3) Automation: The final option is to automate the process, bringing the XML invoice into your ERP so that it links back to the government-approved document. Collection, validation and processing of invoices should all be automated, and journal entries and required reporting should all be linked from the ERP. This is the only way to ensure a three-way match and eliminate the chance of inconsistencies.

Option three is the only one that decreases your risk of an audit. The first two scenarios make companies employing these methods a prime target for government audits, as any errors will trigger the government’s automated checks. The SAT doesn’t care if it’s just a typo – any inaccuracy equals the inability to take tax deductions on the effected invoice coupled with a fine.

If your company is using one of the first two methods, an audit is virtually inevitable.

In the past few weeks, we’ve discussed the challenges associated with implementing a global instance of SAP ERP within the complex regulatory environment of Brazil. With the strictest mandated business requirements in the world, fully leveraging SAP in this country requires thorough planning, an expert team and patience during the implementation phase.

If you’ve made it through these phases, you’re likely breathing a sigh of relief. The challenges of integrating your global SAP template with Brazil’s strict e-invoicing, accounting and reporting requirements have been conquered. But not so fast. The work is far from over. In fact, it’s really just beginning.

The requirements to do business in Brazil are constantly evolving. In fact, earlier this year, companies operating in Brazil were forced to transition to Nota Fiscal version 3.1 – the largest change in requirements since 2010. Companies managing compliance internally had to make significant changes and upgrades to their SAP system and processes in order to maintain compliance and avoid costly penalties and operational disruptions.

It’s because of these constant changes and expansions in legislation that the process of implementing SAP in Brazil is never truly over. To ensure that your company maintains compliance, you need to:

  • Regularly conduct system audits to ensure compliance.
  • Constantly monitor legislation changes.
  • Translate any change in requirements into your custom SAP set up.

 

Though corporate SAP teams typically have a specific plan for rolling out SAP upgrades, Brazil doesn’t time its legislation changes with these corporate strategies. As a result, SAP systems require major updates and faster response times that interrupt the COE calendar - and can affect the entire global operation.

Compliance is difficult throughout Latin America, but nowhere is it more so than Brazil. As the emerging market continues to expand its business requirements into finance, accounting, logistics and human resources, integrating these mandates within the SAP infrastructure will only get more challenging. Plus, as other Latin American countries look to Brazil as a model, you can expect these issues to expand throughout the region. That’s why it’s important to select the right partner – one with a proactive, regional approach to compliance that handles the constant changes and requirements seamlessly.