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As e-invoicing mandates continue to spread throughout Latin America, it’s becoming increasingly important for companies to have a regional compliance partner that proactively monitors and responds to the ever-changing compliance landscape. As we explored previously, three countries are beginning to enforce compliance measures this year: Peru, Uruguay and Ecuador. While the legislation in each country affects businesses similarly and was introduced for a common purpose – ensuring the accuracy of value-added tax deductions and auditing and fining companies for errors – the specifics of each legislation can vary greatly.

In part two of our four-part series, we’ll examine the mandates in Peru. Peru began testing e-invoicing mandates in 2014 with a group of 239 companies. This quarter, the This quarter Peru's Tax Authority (SUNAT) starts rolling out  mandates to 200 more large multinational and 5,000 medium sized companiesrollout expands to 200 large multinationals and 5,000 medium companies. Later in the year, an additional 750 companies will be added to that group. Essentially, if your income was 150 UIT or greater last year, you will be required to record sales and purchases electronically.

Key requirements in Peru include:

  • Accounts receivable: Invoices must be submitted to and approved by the SUNAT (Peru’s tax authority) prior to sending to the customer.
  • Shipping: When transporting goods, a government approved invoice and bill of lading (Guia De Remision) must accompany the shipment.
  • Certification: Your compliance program, including invoice submission, payables, reporting and contingency planning must be tested and certified. You have 25 days to complete this process from the date you file an application with the government.
  • Contingency: If systems are down, you must send the SUNAT a daily summary of records.
  • Storage: Records must be stored for four years and must be available to clients via the government’s web service for one year.
  • Cancellations: You only have 72 hours after receiving an invoice to dispute or cancel it; otherwise, the SUNAT considers it verified and approved.

As you evaluate solutions for Peru compliance, here are five key questions to ask:

1)      Does your solution integrate with your existing ERP framework, eliminating the risk of data manipulation in external systems?
2)      Does your solution support change management for frequent updates to the Peruvian requirements?
3)      Do you have one end-to-end platform for all components of the Peru mandates, including e-invoicing, receivables, payables, transit and reporting? Or, are you maintaining multiple systems?
4)      Will you be able to get support when you need it?
5)      Do you know what to expect in terms of budget? Or, will each regulation change require a substantial additional expenditure?

As these mandates continue to change, it’s important to select a proactive partner that will help you navigate these murky waters seamlessly.

Latin American compliance is a challenge for all businesses, especially those operating in multiple countries who are attempting to manage these processes with internal staff and on premise software solutions.  From significant IT investments, internal support needs, and the cost of potential business disruptions and fines, the inability to achieve or maintain compliance can cost companies hundreds of thousands of dollars, even millions, each year.

Do you know if your company is prepared for Latin American mandates?  Here are the top questions determine if your company is prepared:

(1)    Do you have the subject matter experts in house to ensure you pass all the requirements – today and in the future?
(2)    How will you monitor and maintain compliance across multiple countries and languages?
(3)    Do you have contingencies in place to make sure you can always ship?
(4)    Are you sure you have valid XML to back up any value added tax deductions you are taking for your tax returns?
(5)    Have you kept a history of your invoices?

As legislation continues to expand in both area and scope, companies operating in Latin America need to take a hard look at the compliance landscape from a regional perspective.  You must understand the entire process when selecting a solution.  Otherwise, you may find yourself with operational issues, IT support issues and at risk for audit penalties.

E-invoicing mandates continue to expand throughout Latin America. Just a year ago, only three countries in the region enforced compliance mandates. This year, seven countries have enacted e-invoicing legislation, with more set to join the movement in the near future.

In this four part blog series, we will examine mandates in three countries expanding enforcement in 2015:Peru, Uruguay and Ecuador. Specific requirements vary significantly from country to country, but these mandates always affect five core aspects of business:

1) Accounts receivable – Invoices will not be paid unless they have been approved through the government server.

2) Accounts payable – Likewise, companies should not pay invoices that have not been verified or that do not match the goods received.

3) Shipping – Government-verified copies of the XML must accompany all shipments. Otherwise, they may not leave the warehouse or will be rejected upon arrival.

4) Tax reporting – From the governments’ perspective, tax reporting is the entire purpose of initiating these mandates. Government approval of e-invoices ensures the accuracy of tax deductions, and improves visibility into errors.

5) IT – Compliance requires complex systems to integrate financial processes with government servers, and all systems must be tested before the mandates begin.

Because compliance affects so many business processes, and errors can have such significant consequences in the forms of fines, penalties and operational shut downs, companies should carefully evaluate potential solutions. One that is patch-worked together – meaning, multiple solutions in each country with bolt-on additions for each new mandate – leave risky gaps in data management and reporting. Instead, companies should look for an end-to-end solution with a proactive approach to change management and real-time reports, since compliance is a real-time process.

While Peru, Uruguay and Ecuador have much in common as referenced above, unique requirements in each mean you have to carefully consider the processes required in each to determine the best solution. Stay tuned for closer looks into each of these new mandates.

Reduce Support Costs, Avoid Fines and Focus on Business Innovation

We’ve recently explored the top 5 reasons why companies are switching off on premise software solutions to cloud providers, more specifically hybrid cloud. This model:

  1. Configures to your unique SAP ERP and eliminates multiple upgrades
  1. Eliminates failure points and the need for constant monitors
  1. Provides real-time day-to-day support
  1. Streamlines the compliance process and frees up finance and technical staff
  1. Provides multi-country support

Compliance is a mission-critical process that has both operational and financial tax implications.  Consider the severe business impacts of getting this wrong:

You Can’t Ship if NFe is Not Working

Many companies have been shut down for more than 5 days at a time.  How much money will you lose if you are unable to ship goods to your customers for a whole week?  To avoid these costly incidents, ensure you solutions have a single, comprehensive monitor and built-in “contingency” modes.

Local Audits and FCPA Fines are Prevalent

The Brazil government has the ability to audit you in real-time. Not only does it have the transactional data from Nota Fiscal, but it also has aggregated monthly, quarterly and annual reporting (SPED) to ensure accuracy and consistency.  Non-compliance can mean local fines (on average 250 US Dollars per XML issue) or fines of 75% to 150% of the incorrect taxes. Such measures helped the government demand a record 109 billion Reais in unpaid taxes from individuals and companies in 2011 (Source: Reuters).U.S. companies should also consider the Foreign Corrupt Practices Act.  Latin American mandates give the SEC increased visibility into companies’ financial records, making compliance a corporate issue, not simply a local problem.

Next Steps

As you implement NFe compliance solutions, here is a list of questions to ask of your IT and fiscal teams:

  • How many resources are supporting the ERP system and Nota Fiscal process?
    • How many SD (Sales and Distribution) resources?
    • How many MM (Material Management) resources?
    • Who owns the integration of the systems?
    • How many people are in the Shared Service center processing invoices in Brazil (both AR and AP)?
    • What is the cost of the physical architecture (hardware, maintenance)?
  • How long do Brazil ERP upgrades take? What is the internal cost per project?
  • When there is an error, where do we find it? What is the process?
  • When something is wrong, who do we call? What is the process?
  • When the government changes, who is responsible for upgrading each solution component?
  • Are your Inbound Receiving teams manually entering data or do you automate the DANFe process?
  • Do you match the supplier XML to the Purchase Order before the truck arrives?
  • How many of your invoices are “touchless” – processed without any human intervention?
  • How much time does your finance team spend at the end of a month fixing data issues that were just pushed through the process?

We have given you the basic requirements to understand the “real” cost of trying to manage Brazil Nota Fiscal on premise.