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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.