For a long time, the main concern of Brazilian industries was to extract maximum productivity with the best possible quality, but today there are other unusual concerns of unexpected origin.
In the entire history of Brazilian production, it was never imagined that a tax regulation could interfere so strongly in production processes to the point of keeping many production managers awake.
Learn more about Block K and SPED fiscal in the text below.
How did Block K start?
It all started on June 15, 2010, when then-President Lula, through decree no. 7,212, regulated the collection, supervision, revenue collection, and administration of the tax on industrialized products – IPI.
The decree enacted that taxpayers must report MONTHLY to the tax authorities all production and inventory controls. Since then, bills of materials (BOM), production orders, and inventory movements related to manufacturing have become auditable tax data.
Since auditing the physical tax books of all national companies was almost impossible for the federal revenue service, the government decided to use EFD – Public Digital Bookkeeping System, to generate a set of tax data in a single file.
The data is separated into several blocks consisting of bookkeeping records of tax documents and other information of interest to the tax authorities of the member states and the Brazilian Federal Revenue Service, namely:
Block Description
0 Opening, Identification, and References
C Tax Documents I – Goods (ICMS/IPI)
D Tax Documents II – Services (ICMS)
E ICMS and IPI Calculation
G Permanent Asset ICMS Credit Control – CIAP
H Physical Inventory
K Production and Inventory Control
1 Other Information
9 Digital File Control and Closure
It is worth remembering that all SPED blocks have referential links, cross-referencing data between their records, seeking to highlight attempts at fraud and tax negligence, leading to a more thorough audit.
If any irregularity is found in any record, the audit will be retroactive to five subsequent tax years, which can generate a very high tax liability.
Impacts of the blocks on industry
Despite seeming simplistic, this regulation had a resounding effect on the entire national manufacturing park, given the fact that companies do not always maintain coherent organization in their factories, from planning to execution and control of each phase of the production process.
As in any industry, processes are dynamic and almost always tied to tight deadlines, so many basic activities are postponed or performed at inappropriate times.
However, with the requirement of Block K of SPED fiscal, the burden on production managers will increase exponentially, as well as causing a strong cultural shift in employees directly linked to production operations who need to make entries.
This is because strictly complying with the obligation and avoiding tax liabilities requires discipline and powerful computerized systems as management tools.
Let’s look at some routines that will be heavily affected by Block K:
Bills of Materials or BOM
All ERPs, MES, and other supervisory production systems have, in some way, a technical sheet describing the components and inputs and their quantities used for processing finished products. It was very common for technical reasons to alter the structures of these sheets during production.
With the advent of Block K, technical sheets, as they are mirrors of Production Orders (POs), may only be changed if there are no ongoing production orders and after the fiscal period; otherwise, errors will occur in the SPED file and it cannot be submitted, as it will present errors in the validator.
Production Orders (POs)
POs generally generate inventory reservations based on the structure of the technical sheets. Therefore, any alteration generated by a lack of components in inventories (which are not always correct) or needs for technical alterations of products must be thoroughly reported in Block K of SPED fiscal as component substitution, or it may be interpreted as a “write-off without origin” by the tax authorities and subject to a fine.
Component write-offs
It is very common for companies, due to lack of time, to postpone component write-offs to more favorable times, which can lead to forgetfulness and often does not happen, leaving inventories misaligned.
Starting with Block K, write-offs must occur within the fiscal deadline of the PO’s validity, which will require meticulous date controls or justifications from the controllership to the tax authorities.
See other items that underwent changes in Block K:
- Consigned products – Must be invoiced during the PO write-off period;
- Product Registration – Inventory divergences due to unit of measure conversion between consumption units in production and purchasing units of measure;
- Product Registration – having two products registered with different codes in inventories;
- Production Orders (POs) – Produced products and production orders with divergent numbering;
- Inventories – Divergence between inventory entry/exit balances in the declared fiscal inventory;
- Tax records – Here comes the biggest “trick” in SPED, which is the divergence between Block H and Block K of SPED Fiscal. Block H refers to the volume and value of fiscal inventories and has an annual submission, but the revenue service will compare it with the sum of the same balances in Block K, and if divergences occur, the company may be fined.
Process changes in national companies
As we could see, Block K will demand a strong culture change, as well as a redefinition of processes for many companies on the national scene.
In fact, these changes are already being felt gradually, given the fact that some branches and revenue ranges were already required to submit the simplified Block K (only records K200 and K280, referring to inventory volumes) according to the schedule of the time. Simply put:
- Since December 2016 for beverage and tobacco companies;
- Since January 2017 for companies with revenue above R$300,000,000.00, classified under CNAE 10 to 32;
- Since January 2018 for companies with revenue above R$78,000,000.00, classified under CNAE 10 to 32;
- Since January 2019 for companies with revenue under R$78,000,000.00, classified under CNAE 10 to 32, wholesalers under CNAE 46.2 to 46.9, and establishments equated to industry.
As of January 2022, the aforementioned establishments, industrialists classified in division 23 and groups 294 and 295 of CNAE, and companies with revenue above R$300,000,000.00 classified under CNAE 10, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 24, 25, 26, 28, 31, and 32 (other industries in groups 10 to 32) will be required to submit all Block K records, except for the controversial 0210, which is up to each State to exempt or not.
What happens in case of non-compliance?
The taxpayer obligated to submit Block K who fails to provide the information in the EFD ICMS IPI will be subject to fines:
- Of State jurisdiction of the taxpayer’s domicile;
- Of Federal jurisdiction, provided for in RIPI – Decree 7212/2010, art. 272, art. 453, and art. 592, as worded by art. 57 of Provisional Measure 2,158-35/2001 and subsequent modifications. These regulations impose fines for late submission, lack of information or requested clarifications, inaccurate, incomplete, or omitted information.
Since no consensus has been reached on the fine amounts, given that Block K is a federal regulation under state governance, global values are presumed to be between 1% and 3% of the period’s inventory value.
The addition will be R$500 when the company belongs to Simples Nacional and R$1,500.00 for other regimes. In addition, the company may be prevented from issuing electronic invoices.
In more serious cases, the punishment for companies collecting amounts lower than due or collecting nothing will be 100% of the generated tax amount. Furthermore, company owners can be prosecuted under tax evasion laws.
In short, all companies in the country will need the support of computerized management systems to adjust and monitor their manufacturing processes and generate SPED fiscal Block K records, forcing an unprecedented wave of automation in Brazilian production.
Author: Elcio Cadene
