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By Ed Taylor
Oct. 4 — Brazil is cracking down on large companies that may have illegally claimed and used tax credits to avoid paying tax.
Brazil's revenue department Oct. 3 launched a program that will audit 796 large companies that have made use of $10 billion in tax credits they have claimed this year to pay tax assessments.
According to the revenue department's undersecretary for tax collection, Carlos Roberto Occaso, the use of credits has increased by 39 percent this year and in August soared by 80 percent compared with August 2012, totaling $2.2 billion in one month.
Occaso told a news conference that officials are concerned companies are claiming credits they don't deserve. Under the department's system, companies can claim and use credits before final verification by tax officials.
“We discovered a dangerous tendency for an increase in compensation using tax credits and for this it became necessary to create a national operation,” Occaso said. “We suspect that companies are doing this illegally.”
Occaso said the operation will last until the end of the year. Companies found to have claimed and used tax credits incorrectly will be forced to pay the tax debt covered by the credits plus a fine of 50 percent.
If the investigation uncovers evidence of fraud, the fine will increase to 150 percent, Occaso said. He added that the revenue department expects the operation will generate at least $3 billion in collections and fines.
Tax consultant Marcel Cordeiro, a partner at PricewaterhouseCoopers in the Sao Paulo area, said the dramatic increase in the use of tax credits to cover debts is more likely the corporate response to Brazil's current two-year recession, the deepest since the Great Depression.
“It is difficult to say with certainty if there was something special in August,” he said, but “the number of companies accompanying this issue is greater. We have been called more and more to explain this use of credits as compensation,” he said Oct. 4.
Occaso also announced two other areas under investigation by his department: the alleged existence of a group of attorneys offering to create tax credits for companies, and the illegal suspension of tax payments on the grounds they are subject to non-existing judicial appeals.
“We have created a system to cross-reference judicial cases with the data from company declarations,” he said. “Sometimes, the case does not even exist and the taxpayer suspends payment, claiming it is under appeal.”
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