The risk of a return to tax fraud in the beverage industry

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IRS suspends production control system that had managed to reduce tax evasion - replacement is still unknown

img4_SICOBEAt the end of last year, the federal government abandoned one of the most successful physical control systems for beverage production in the world, which had managed to drastically reduce tax fraud in this segment. ETCO's executive chairman, Edson Vismona, said he was concerned about the impacts of this decision. "The previous equipment operated in 320 factories in Brazil and was decommissioned on December 13, 2016. The Revenue has publicly committed itself to developing a new system, but it is important that this is done with priority and speed," he says.
According to data from the Federal Revenue, the old system increased the federal tax collection on the beverage sector by 40% after its installation in 2008. There were R $ 4,5 billion more for public coffers. "It is undeniable that the absence of physical production control can open space for certain players in the beverage sector to evade taxes", warns Vismona.
History justifies this concern. Until the early 2000s, the beverage industry was the scene of many cases of companies that made tax evasion their business strategy - and that managed to grow very fast in the market. It is easy to understand why they got along so well. Drinks are a product of very high demand (over 25 billion liters per year) and tax burden
high (above 50%). A company that evades taxes is able to quickly sell all of its production by charging impractical prices for those who correctly collect taxes.


In 2003, tax evasion was estimated at 30% in the soft drink production and distribution chain and 15% in the beer chain. That year, the government started to turn the tide. First, it required companies to install flow meters on their production lines; and in 2008 the model for the adoption of the Beverage Production Control System, Sicobe, evolved, which further improved inspection. “Online, the system sent the Federal Revenue, directly from the factories, information about the manufacturer, the brand, the date of manufacture of the drink, the volume and type of packaging, thus allowing the coding of products that left the line production, ”says Vismona. Sicobe was extinguished amid the Federal Police's Sphinx operation, launched in early 2016, which raised suspicions about the bidding process that resulted in the hiring of the company responsible for implementing the system.
When it announced the end of a model before its replacement was ready, the government said it believed that another newly created mechanism could prevent tax evasion. He was referring to the implementation of the so-called Block K of SPED (Public Digital Bookkeeping System), which requires companies to send detailed data to the Revenue on all their input purchases. The system began to be used earlier this year, still in a simplified version. But the ETCO president has another opinion. "We don't believe it is enough," he says. The new physical control system being developed by Casa da Moeda provides for much more detailed monitoring of production lines, using the technology known as QR Code. But there are doubts as to the need for so much complexity, costs and implementation time. "The original schedule presented by the Casa da Moeda predicts that 100% of the beverage factories will have a new equipment installed only in March 2019", recalls the president of ETCO. "Given the relevance of this control, this period should be revised, otherwise it will be almost two years without an effective inspection mechanism, which can result in the loss of billions of reais to the public coffers."

Ambev, Heineken and Coca-Cola prepare for headache

To adopt the new system, beverage companies will need to stop production at the height of summer

Brazilian beverage producers, including groups representing Ambev, Heineken and Coca-Cola, are fighting a change in the production monitoring system for tax purposes that they say will leave the industry exposed to fraud and put trade secrets at risk. .

In the new system, called Bloco K, companies will be responsible for informing the tax authorities, manually, the quantity of ingredients purchased and the volumes produced by them.

The system would replace the use of machines to monitor the volumes of soda and beer produced - a high-cost technology created to reduce tax fraud, but which ended up being considered an exaggeration.

The IRS says the change is necessary to cut costs and make better use of the revenue generated by state and federal taxes that, combined, account for an average of 44 percent in the case of beer.

But the change comes at a difficult time for Ambev, the biggest selling brewery in Brazil, controlled by the multinational giant AB InBev.

To adopt the new system, companies will have to stop production at the end of the year, at the height of summer in the southern hemisphere, according to Sicpa Brasil, a company that manufactures the current system.

And Ambev is still working to recover from the slowdown in sales that hurt the results of the first half of the year.

The big producers also deal with a growing group of craft breweries and do not want to make life easier for small ones.

Trade associations in the beverage industry said the new taxation method could allow smaller competitors to mask production numbers to pay less tax, thus offering lower prices than larger competitors.

In August, the Brazilian Association of the Soft Drink and Non-Alcoholic Beverages Industries (Abir), the Brazilian Beverages Association (Abrabe), the Brazilian Beer Industry Association (CervBrasil) and the Brazilian Institute of Competition Ethics (Etco) said to the Federal Revenue Secretary, Jorge Rachid, in a letter, that they were concerned with the replacement of the monitoring systems.

Ambev, Heineken and Coca-Cola declined to comment. The various phone calls and e-mails sent to the IRS have not been returned. The agency has not given any indication that it will reverse or postpone its decision.

There is evidence that Sicobe, as the current tax system is known, helped to prevent companies from evading taxes. Tax collection increased by 20 percent after the introduction of the system, according to a study by the Getúlio Vargas Foundation commissioned by beverage associations.

Sicobe uses machines to measure the volumes of beverages produced and tracks the final products using bar codes. This makes it harder for companies to mask the numbers.

“Before Sicobe, the beverage segment was known for its high tax evasion rate,” said Alexandre Gleria, a partner specializing in Tax Law at the ASBZ Advogados office in São Paulo. "This topic needs to be discussed from a fiscal perspective, but also from a competitive perspective."

ASBZ has beverage and chemical manufacturers among its customers. Gleria declined to name them, saying his comments did not refer to a specific company.

Source: (13/10/2016)


Mobilization to fight tax crime

The People (CE) - 21/11/2011

By Roberto Abdenur

The crime of tax evasion is an evil that affects our country in several spheres. But good initiatives to combat this harmful practice have been implemented by federal and state government agencies.

In Ceará alone, according to data from the Public Prosecutor's Office and the Secretariat of Finance of Ceará (Sefaz), about R $ 183 million that should have been in public coffers until October this year were lost due to tax evasion. This figure is mostly based on deviations from the ICMS (Tax on Circulation of Goods and Services) and fines imposed on more than 400 companies in the segments of wholesale, retail, industries, food and accommodation services, transportation and sector services agriculture.

For this reason, the State Finance Departments have created several tools to contain tax evasion and promote greater control in the application of tax laws. Among them is the Beverage Production Control System (Sicobe). Although the beverage sector is already one of the largest federal taxpayers, there are still producers who seek to beat competition through violation of tax law.

An advanced device for tax collection purposes, Sicobe provides information on production and identification of what is manufactured, ensuring control of the quantity produced and the types of drinks, brands and packaging. The agency acts in two ways: In factories, it performs electronic inspection of goods. After the products leave, they are tracked during circulation and presented at points of sale. With the mechanism and the information provided, the IRS can cross-check the production volume data and the brands of beers, soft drinks and water, relating to the added value of the drink, the taxes and the collection by the federal coffers.

The implementation of Sicobe, since 2008, has become mandatory and one of the main instruments to combat tax evasion. Its installation and maintenance at Casa da Moeda has a cost of R $ 0,03 per unit of measured product, an amount that can be reduced with the payment of IPI, PIS and Cofins. With the system, everyone benefits. The government, which will provide more funds for social improvements; companies, which will have balanced competition; and the consumer, who will have quality products accompanied from their manufacture to the points of sale.

Roberto Abdenur is President of ETCO

Crusade against tax evasion in the United States

The delivery of the source codes and technical documentation of the BI NF-e System - or Business Intelligence System based on Electronic Invoices - to 14 Finance Departments was just the beginning of a work whose main goal is the effective implementation of the system in all the states of the country. Since the beginning of August, an ETCO delegation has visited State Finance Secretariats with the objective of establishing partnerships and mobilizing the states to adopt not only the BI NF-e, but also other control tools such as Sicobe - for the soft drink industry - and Scorpios - for the cigarette industry.

On August 11, the Finance Secretary of Pará, José Tostes Neto; the assistant secretary of Revenue, Nilo Rendeiro de Noronha and the coordinator of the Fazendária School, Maria de Nazaré Arruda, received ETCO executive president Roberto Abdenur and Everardo Maciel, member of the Advisory Board. The main focus of the meeting was the development of actions aimed at combating tax-related offenses and the free offer to the State of NF-e BI.

On the occasion, Tostes Neto stated: “we identified a great potential for work in the tool offered. The State Government and ETCO will sign a cooperation agreement and as soon as possible the software must be added to the secretariat's computer system ”.

On the 15th, it was the turn of the São Paulo Finance Secretary, Andrea Calabi, to receive Abdenur's visit. The secretary said that the State already has a tool similar to BI, but was interested in comparing them.

Also in August, on the 17th, the president of ETCO and Everardo Maciel went to Paraná, accompanied by Paulo Ayres and Antonio Totaro Neto, representing two sectorial chambers of the Institute. The four were received by the Finance Secretary Luiz Carlos Hauly, at a meeting in which possible partnerships were discussed in the development of actions aimed at combating tax evasion in the State, including the implementation of the BI NF-e, a system of combat applied to the Nota Fiscal Electronics, delivered free of charge by ETCO to the State, during an event held in April in Espírito Santo.

On the last visit, on September 6, Roberto Abdenur went to Belo Horizonte accompanied by Cesar Guimarães and Amaury de Azevedo, representing two sectorial chambers of the Institute. The three were received by the Finance Secretary Leonardo Colombini, by the State Revenue Undersecretary Gilberto Silva Ramos and advisers. ETCO representatives were able to explain the alternatives and tools that can be adopted by the State to contain tax evasion and expand control over the application of tax laws.


“On October 05th, the Attorney General's Office of the National Treasury (PGFN) obtained from the Federal Regional Court (TRF) of the 4th region, in Porto Alegre, the suspension of the injunction that assured the Association of Manufacturers of Soft Drinks in Brazil (AFREBRAS) non-payment of Sicobe's operating cost - R $ 0,03 per unit of measured product.

The decision will cause more than 130 companies in the sector to comply with the inspection of the Federal Revenue and argues that the maintenance of the injunction “implies the absence of inspection of the production of beverages for establishments associated with AFREBRAS, providing a loss of collection of the order of, at least R $ 300 million in annual taxes ”.

Sicobe, which allows the Federal Revenue to monitor, in real time, each drink (beer and soda) is one of the main government instruments to combat tax evasion and installation in the sector's factories became mandatory in 2008. Its implementation and maintenance by Casa da Moeda have a cost - set at R $ 0,03 per unit of measured product - that must be reimbursed to it. However, this amount can be deducted later when companies pay IPI, PIS and COFINS.

Thus, the TRF of the 4th region evaluated that maintaining the injunction that allowed AFREBRAS not to pay this reimbursement to the Casa da Moeda could render the tax inspection in these industries unfeasible and suspended its validity. “