9 out of 10 companies do not declare International Shipping on DIRF and ECF, understand the risks.

Why Importers and Exporters MUST declare International Freight on DIRF and ECF? 

The ME (Ministry of Economy), informed in Note (image below), when the shutdown of Siscoserv by 2020, that the capture of data for the purpose of statistics and inspection, will be made from data that are currently presented by companies to the government Exchange Contracts (BACEN) and in other ancillary tax obligations already declared, such as DIRF (Declaration of Withholding Income Tax) and the ECF (Tax Accounting Bookkeeping), which are obligations whose data and operations are most similar to those declared in the system now deactivated. 

To check out this content in a video 4 minutes watch:

But we have a problem: 9 out of 10 companies do not declare International Shipping on DIRF!

most companies is not declaring o International Freight at DIRF for using intermediaries in freight payments in Brazil and not making remittances and retentions directly, but through third parties.

This ends up confusing the accounting area of companies, which often fail to declare due to the complexity involved in foreign trade documents and payments.

THE 5 misunderstandings that lead companies and accountants not to declare International Freight in the DIRF:

1. The absolute majority of the accounting and tax sectors, even domestic and large companies, NO knows that it is necessary to declare International Freight at DIRF.
   • This occurs for several reasons, but one of the main ones is the fact that these payments are made through intermediaries domiciled in Brazil who, in turn, send or should send the funds (and prove the effective sending) to the real beneficiary / provider of the service abroad.
   • Another reason is that practically no importing/exporting company is in the habit of registering the real beneficiary of the income being paid in their corporate/ERP system. Normally, only freight forwarders and freight forwarders domiciled in Brazil are registered, who receive payments / cash locally to settle their own provision of local services, as well as pay for other services to other providers, and there are often payments abroad in amid so many fees and services paid in export and import processes.
2. “We do not declare International Freight on DIRF because we don't ship abroad!”
   • This is the most common reason for default. As was already the case at Siscoserv, many people believe, mistakenly, which, for pay locally through a third party (agent domiciled in Brazil), the exporter/importer is no longer the paying source and the payment no longer constitutes an income paid to domiciled abroad. At the time of Siscoserv, the RFB responded hundreds of query solutions clarifying this relationship.
3. “We do not declare International Shipping on DIRF because there is no withholding of income tax at source!”
   • This is the second most common reason and, again, sets up a misinterpretation. The non-withholding of Source IR in the case of international freight and related services occurs by virtue of domestic law that reduce to zero the income tax rate on that remittance/payment. There is a specific field in the DIRF (see below) to inform the reason for the non-retention.
   • ATTENTION POINT: A IR reduction to zero NOT APPLICABLE when the residence of the transport service provider is a country with favored taxation or privileged tax regime, under the terms of IN 1037/2012. As companies are unaware of the need to declare the payment of International Freight in the DIRF, consequently they also do not usually assess whether they are making payments (via intermediaries in Brazil) whose beneficiary is domiciled in the so-called "Tax Paradises", which would also end up generating an impact on the TRANSFER PRICING and other obligations.
4. “We are opting for the simple, for this reason we do not have the obligation of this declaration.“
   • In fact, this is also a simple misinterpretation, since Simples Nacional companies are not exempt from delivery, it being necessary to present the declaration in any of the cases that generate the obligation, such as payment, credit, delivery, employment or remittance to an individual or legal entity resident or domiciled abroad, it is even necessary to declare the international freight in the DIRF, even that has been paid through an intermediary domiciled in Brazil.
5. “We do not declare International Freight on DIRF because we pay the Agent / Dispatcher and it is their responsibility!”
   • This was the most common mistake at the time of Siscoserv, it took from August 2012 to October 2014 for the RFB to respond to first Cosit Query Solution (257/2014) clarifying that it is necessary to observe the role of the intermediary agent in the business, which in most cases is not the taker and provider of the transport service, but rather the agent of the same, acting (as a representative / attorney / agent) on behalf of the carrier or the Brazilian exporter/importer. In this condition, the paying source continues to be the importer/exporter, even though the contracting and even the delivery of the values in Brazil by intermediate from a third party.
   • The Income Tax Regulation is very clear in this regard: the attorney would only assume the burden of withholding, as well as the ancillary obligations arising, if he did not inform the paying source that the owner of the income is domiciled abroad, which knowledge , pardon the pun, is given by the bill of lading itself, confirmed numerous times by the RFB as the document that evidences the transport contract and that allows the identification of the beneficiary of the income.

What does the Federal Revenue say about Declaring International Freight in DIRF?

In addition to MAFON (Withholding Income Tax Manual) to be specific about the obligatoriness declaration of International Freight at DIRF, the Q&A Handbook also clarifies the main misinterpretation pointed out above, see:

AND HOW TO declare International Freight at DIRF?

The Declaration itself is reasonably simple. Usually, the great difficulty for companies is in obtaining the data and documents to know to whom the payments were destined, normally made through third parties in Brazil, which makes it difficult particularly for the accounting/tax area of companies, the identification of the true beneficiary abroad and MAINLY what is your FISCAL DOMICILE.

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💡💡💡 TIP💡💡💡 The WTM of Brazil have tools that lift free of charge and in few hours the value and quantity of processes subject to the declaration of International Freight at DIRF, give a hi on whatsapp and talk to our team right now.

See in the presentation more information and examples of how to Declare International Freight at DIRF

Watch Video Class free explaining why DIRF and ECF must supply Siscoserv data

In this free video lesson we present the answers to objective questions asked by a client's accounting manager. We decided to make this class available free of charge because we realized that many companies are in default due to the difficulties of interpretation presented in this video.

We believe that this class will be enough to clarify most doubts, but if it is necessary to delve a little further and if there is also an interest in understanding the changes with the shutdown of Siscoserv, we have reduced the cost of the Complete Course on the subject by more than 95%:

Course ➡️ Which deliveries will replace Siscoserv data?

Value: R$ 49.90 ➡️ It's about 2 hours of class distributed in 5 video classes, including the free class above.

Why does it make sense to collect in DIRF the data that were reported in SISCOSERV?

As you can see in the image above, the data on the company benefiting from the earnings at DIRF are exactly the same as those that were subject to registration at Siscoserv.

The difference between the two obligations lies in the details of the operations, since Siscoserv had the NBS, which allowed a more precise classification and identification of the service being transacted.

For example, International Freight in DIRF has a single revenue code to be informed, in NBS there was details about the modal, such as air, sea, road and also about the type of cargo or packaging.

In practice, what was stated by the Ministry of Economy that there will be no harm to the production of “statistics and inspections” is partially true in the case of statistics, which can indeed be produced, but not with such precision and assertiveness, in relation to to inspection is true 100%.

There really will be no harm to the Ministry of Economy, especially the Federal Revenue, when it comes to collection and this has two reasons:

• Siscoserv was a merely informative system, it did not guarantee collection, it did not directly impact taxes, the generating event, rate or tax incidence.
• DIRF, on the other hand, brings with it the form of taxation, whether zeroed, exempt, full or differentiated (tax havens) and, mainly, the income tax amount paid, a field that was not available in Siscoserv.

How will it be possible for the Internal Revenue Service to verify defaulters in the International Freight Declaration at DIRF?

This check will be very simple, because the numbers are blatantly different, let's look at the example of the transport service itself:

In all the notes of the Ministry of Economy on the shutdown of Siscoserv the text was:

• There will be no prejudice to the production of statistics and tax inspection, which will be promoted based on
  • Data “already presented” to the government through
    • Exchange and 
    • Other Ancillary Tax Obligations 

Well, let's do a quick survey on the consistency of this information.

Official Statistics from the Ministry of Economy show a 5 billion Reais Leak in 2019 compared to official figures from the Central Bank of Brazil

It is possible to check in statistics site from the Ministry of Economy the available data on the last “complete” year of Siscoserv (since 2020 was interrupted in July).

There, it is possible to extract raw or summarized data that identify the volume of information declared by NBS Chapter, number of reporting companies, among other data.

If we add the values declared as a transport service and the so-called “related services”, we arrive at the value of:

• 9.6 Billion Dollars informed by more than 9000 companies in Siscoserv

If we check and cross this information with the same year of 2019, from the BACEN Balance of Payments, we will notice that:

• 4.3 Billion Dollars is the sum of ALL exchange closings, in all modes of more than 40,000 importing and exporting companies

There are still no statistics available on the value of income paid and declared for International Freight in the DIRF under the revenue code “9412 – International Freight”, but judging by the huge number of companies that did not even know of the existence of the obligation to declare Freight International in DIRF, it is possible to estimate that, in a simple crossing of data, it will be possible to verify that 9 out of 10 importers and exporters do not comply with this obligation.

See below the comparison and evolution of the discrepancy of the numbers declared by the companies in the Siscoserv of how much they paid for freight (generally still within Brazil) and how much is actually sent abroad through exchange contracts:

And who is the main villain in this story?

It's simple! Payment intermediation!

Every time a professional from foreign exchange banks or from BACEN itself hear the expression “payment through third parties”, they take 10 steps back and distrust the transaction, but in a way that borders on the unbelievable, a market that moves values in the billions of dollars, seems to have a special “limbo” that allows this type of remittance to continue being made year after year, with serious and explicit problems of exchange, tax and tax compliance.

The importers and exporters of goods, when they mistakenly understand that, by paying (delivering / making available) the values related to freight (and other expenses) in Brazil, through intermediary agents, they are transferring to them the fiscal, exchange and tax responsibilities of the operations , allow (even if involuntarily) that not all amounts still delivered in Brazil, destined for domiciled abroad, are duly settled through official exchange channels, offered for taxation and, consequently, declared in the accessory tax obligations.

In practice, importers and exporters get rid of some immediate problems to (obviously unknowingly) run the risk of having problems in the future.

The immediate problems would be, from having to directly close payments via exchange or account abroad for a greater number of transactions, with a smaller ticket, which would generate a job for which many are not prepared.

Registering each beneficiary of international transport service in the corporate system, with address, country and NIF would be another task that most accounting and tax sectors would like to avoid, due to operational difficulties and the usual low fiscal quality of the documents presented by the logistics service providers.

The 8 years of Siscoserv helped many providers in the logistics chain to improve the quality of their documents and better separate what are services provided by companies domiciled in Brazil and what are income destined for domiciled abroad.

This practice needs to be encouraged and charged by borrowers of international logistics services.

What are the problems that may arise from non-compliance with Fiscal, Exchange and Tax Compliance arising from payments for international transport services? Let's see next.

What are, truly, the risks of not observing the declaration of International Freight in the DIRF?

The “Lowest” Risk

The direct and most immediate risk of not declaring international freight in the DIRF is the penalty arising from the default on the obligation.

Here we do not want to get into the legal aspect of the difference between not fulfilling the obligation as a whole (which includes a series of other transactions) and omitting a part of the transactions (such as freight).

The fact is that, with regard to penalties, DIRF has a much more solid legal basis than Siscoserv during the time it was in force. So much so that we never got to have an expressive move by the RFB in the sense of penalizing companies in that obligation, but in the DIRF it is different.

We had an important decision in this regard in August 2020:

The highest risk

If we realize that in most cases International Freight at DIRF has the Income Tax reduced to zero percent, based on the Law 9481/1997, then we will realize that the biggest risk is not the (up to) 20% fine on the amount of tax due, since there is “no” tax, right?

This is where the danger lies for the most unsuspecting importers and exporters, who believe that by "paying" in Brazil, through third parties, they get rid of any tax, fiscal and exchange burden, when in fact, in most cases, they continue to be the paying source of income referring to the transport service for beneficiaries domiciled abroad.

And to have this “comfort” of not having to pay directly to providers abroad, they end up making the payment through third parties (cargo/maritime agents) who, in theory, should remit the amounts in full to the beneficiary with:

• Income tax reduced to zero, provided they are not (the beneficiaries) domiciled in tax havens
• 25% retention of IR source WHENEVER
  • THE RESIDENCE of the Carrier is considered Favored Taxation, pursuant to Art. 1st of IN RFB No. 1037/2010
  • The transport company is in one of the countries with privileged tax regimes and falls within the hypotheses provided for in Art. 2nd of IN RFB No. 1037/2010

Therefore, even if the importer/exporter don't know, if the actual provider of the transport service (which is informed, for example, on Siscomex) is identified by the RFB in future data crossing as domiciled in a tax haven or with a privileged tax regime, the risk for the company is that of have a liability of 25% to 33% of IR due (33 due to Gross Up), in addition to any fines that may be imposed on non-payment of income tax.

How to avoid these risks?

BEFORE: When contracting the services:

Ideally, the importer/exporter (both their comex and tax/accounting areas) understand the subject, know the service providers they hire in Brazil well and obtain full transparency from them about who their partners are abroad, where are domiciled and if the amounts delivered in Brazil are actually settled and sent abroad, under the terms of the articles 8, 9 and 141 of Bacen Circular 3691/2013.

DURING: Upon Payment for Services:

Following the "do it yourself" line, it is possible for exporters and importers to carry out, themselves, the remittance of values referring to international freight abroad.

It is safer, the company (not only the comex area, but also financial, tax, accounting) will learn about who the beneficiary is, which country, etc. and will be able to gather, within the deadline and with good quality, the necessary data both for compliance with DIRF, ECF... and for the eventual collection of taxes, when applicable, or even find suppliers that are not domiciled in tax havens, which increases the cost of the transport service.

Most companies do not want to make these payments on their own because the amounts are smaller and more dispersed, which creates work that often overloads the company's financial and accounting area.

It was with this in mind that WTM do Brasil created the service WTM Finance, where we take care of the entire international freight payment process and make our system available, which automatically generates the declaration in DIRF and ECF, all at no cost! Just register for free with us and start trading. Click here and chat with our team on WhatsApp about WTM Finance.

AFTER: Trust is good, monitoring is better:

For importers and exporters who will continue to make payments through intermediary agents, but want to monitor the amounts and volume of transactions that are taking place, there are a few options.

One of them is to ask the intermediary service provider to prove the settlement of the remittance abroad, under the terms and to avoid the penalties provided for in article 141 of Bacen Circular 3691/2013.

Another solution is to check in Siscomex the processes that are being registered by your customs brokers and, from this database, check the names and addresses of the carriers informed in this system by the agents of these carriers in Brazil.

This monitoring is possible through the tool created by WTM do Brasil, the WTM Extract, where you can monitor all records made in your CNPJ at Siscomex and automatically feed the generation of the International Freight declaration in DIRF with each new transaction. Click here and chat with our team on WhatsApp about WTM Extract.

What to launch in ECF

The ECF has a little less data to be informed: Country, payment method (exchange, Reais...), what is the nature of exchange and amount paid.

It is important to note that there is a difference in the nature of the exchange rate when it comes to imports, exports and the mode of transport.

It is important that there is consistency between the declared value as International Freight on DIRF and declared on ECF.

Accounting and Tax Sector

In the video that inspired this post about International Shipping at DIRF we quickly demonstrate how to make the declaration.

We also explain that, with the termination of Siscoserv, the obligation is no longer of the Comex sector and passes to the Accounting and Tax area of the company.

Many understood that it was the foreign trade area that should declare operations at Siscoserv, but it is difficult to defend that this is the area required to declare International Freight in DIRF, something quite far from the reality of the import and export professional.

Support and guidance to companies and their internal or external accounting

At this moment, we are guiding and helping companies and their accounting regarding DIRF 2021 (calendar year 2020), with a deadline of 26/02/2021.

We have noticed that more than 90% of the companies and accountants we serve were not reporting International Shipping in DIRF, so we decided to produce this and other content, free video lesson, presentation, videos on youtube and we leave a channel on our whatsapp exclusively to clarify doubts of the companies.

Don't take unnecessary risks

Your company or your accounting will have the necessary support and help so that you do not run the risk of defaulting due to lack of information.

WTM has a consultant at your disposal for a chat about the problem and our solutions to solve it.

It will be a pleasure to help! Thank you for reading this post so far and let us know!

This post about International Shipping at DIRF was originally written by Raimundo de Freitas Souza, based in this video and was revised and supplemented by Lisandro Trindade Viera.