As I indicated in my last post and my colleagues Ana Paula Maciel and Ernesto Levy note in a recent webcast, Latin America is one of the largest and fastest-growing regions for U.S. exports. Of course, many countries in the region are also renowned for the intricacy of their tax environments. Companies looking to enter or expand their activities throughout Latin America need to master the complex challenges of transactional tax data management in the region. The process of addressing these challenges begins with a high-level understanding of the nature of Latin American tax regimes, followed by a more detailed, country-by-country understanding of unique tax challenges.
And aside from the growing tax complexity, we’ve also seen more Latin American tax regimes embracing automation to support key tax processes. Some of these countries are requiring taxpayers to use specific applications when performing reporting and compliance processes.
As a result, the more tax processes that companies can automate, the more time and energy they can devote to keep pace with tax increases, policy changes, and other challenges throughout the region, these include:
- Complexity: The volume, specificity and interaction of tax rules in Latin America create intricacies that must be closely managed. This complexity stems from the fact that taxes are usually levied by three different administrative levels (federal, provincial/state and municipal/city); the sheer number of different taxes and tax rates; and numerous withholding and collection regimes. The fact that a unified approach to VAT does not exist in Latin America also poses difficulties.
- Change: Tax rate increases and policy changes occur with greater frequency in many Latin American countries. At the end of 2015, for example, Brazil introduced a series of tax changes that affect the calculation of the country’s standard indirect tax which is abbreviated as ICMS and stands for Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações. ICMS is “a value-added tax on sales and services that applies to the movement of goods, transportation and communication services, and to the supplying of any goods,” according to the Tax Executives Institute (TEI). Frequent legislative changes, as well as rulings in court cases related to major tax clashes also complicate tax compliance throughout Latin America.
- Technology: As more Latin American countries move to electronic invoicing, auditing and reporting, tax departments need to bring in technical-tax skills to adapt to these changes. More tax authorities are also requiring taxpayers to use new software for compliance and reporting purposes, which also increases the need for internal tax automation expertise.
Review the recent Vertex webcast, Tax Challenges and Pitfalls in Latin America to learn more about meeting the challenges of tax in Latin America.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.