SPED and its effects on the Brazilian M&A tax environment

Brazilian taxpayers are facing a change in the relationship and exchange of information with the local tax authorities. The Public Digital Bookkeeping System (“SPED”) is responsible for this.

SPED is a recently released program which intends to unify information to be provided by taxpayers to the local tax authorities in order to increase the level of state oversight of a company’s operations.

In summary, through the SPED, Brazilian tax authorities may have electronic real time access to a wide range of information. This means that improper procedures adopted may be instantly noticed.

As a consequence, it is expected that in the short-term, due to the combination of complex tax rules and a newly imposed electronic tax platform, the number of tax assessmentswill increase.

Additionally, it is important to mention that the costs of the implementation of all technical requirements to set up an efficient SPED system, fully integrated with ERP platforms, could be significant and, consequently, should be considered in the determination of the general costs of M&A transactions.

We believe however that Brazilian companies will be more likely to look for judicial protection in order to support their tax position against any demands from the local tax administration, guaranteeing the legitimacy of procedures that could be potentially questioned by tax authorities, and therefore avoiding assessments.

Despite the high level of control by the tax authorities in the future, the SPED tends to reduce some tax risks in M&A transactions, due to the fact that, after some years, its implementation will stimulate companies to adopt procedures more in compliance with tax legislation. Consequently, this should reduce the number of tax exposures, especially those related to the lack of regular monthly tax payments, recognition of revenues, ancillary obligations amongst others..

By André Massao, Supervisor – M&A Tax
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