2023 ECF: is your company fully prepared? Find out the importance of a preventive review

A preventive review is the company's greatest ally in maintaining compliance and avoiding penalties

By Maykon Santos 

 

The 2023 ECF must be submitted to the Federal Revenue Service by July 31, but it is not too early to talk about this obligation. With tax authorities getting stricter every year, it is time to start planning this submission in advance to remain in full compliance.

This added stringency is due to the Federal Revenue Service’s capacity to cross-check data in a way that is increasingly faster and more accurate.

It could be said that the ECF connects accounting and tax data together, which shows that this ancillary obligation can identify misinformation supplied through other means.

Companies should be aware of the complexity of filling in the numerous bookkeeping records and entries, a situation that may escalate depending on the business. To ensure full compliance with the rules, it is worth resorting to a practice that has proven to be an invaluable one: the ECF preventive review.

Find out below what the ECF is, who is required to comply with this requirement in 2023, how it relates to other ancillary obligations and how a preventive review can make a difference to reduce risks.

What is the ECF?

The Tax Accounting Bookkeeping (ECF) is a statement that consists of accounting information obtained from the Digital Accounting Bookkeeping (ECD), information related to the assessment of the Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL), and data arising from transactions, such as those carried out with related parties, transfer pricing, import and export transactions etc. In a way, the ECF "validates" data that has already been declared by the company in other occasions.

Who is required to file the 2023 ECF?

All companies, including tax-exempt entities, are required to fill out the 2023 ECF, whether they are taxed by the actual, estimated or deemed profit method, with the following exceptions: 

• Companies under the Simplified Taxation Treatment; 
• Government bodies, agencies and public foundations; 
• Companies that have not carried out any operating or non-operating activity nor activities pertaining to their equity or finances, such as financial or stock market investments over the course of 2022.

If the company has silent partners in unincorporated joint ventures, each of them must fill out and file their own ECFs by entering the Corporate ID Number (CNPJ) of the general partner and those of each silent partner.

ECF preventive review: why it is important

Before filing the ECF to the Federal Revenue Service, companies should perform a thorough check of the accuracy of the information supplied. Hence, carrying out a preventive review greatly reduces the company's risk of being fined for errors and misstatements.

Thus, at this preliminary stage, you should make sure that information across different registries is properly aligned:

ECF x ECD  

The ECD serves as a basis for filling out the ECF. Failure in the former’s preparation can result in mistakes in the latter. It is worth pointing out that the ECD cannot be amended once the accounting books have been ratified. Replacements are allowed, but only so far as the misinformation cannot be corrected through later submissions, as per the Brazilian Accounting Standards. Thus, the preparation of the ECD together with the ECF is essential for the compliance with ancillary obligations.

The 2023 ECD must be submitted to the Federal Revenue Service by May 31. Companies should consider this requirement as one the stages for being in good standing with the ECF obligation.

ECF x Assessment of IRPJ and CSLL 

A prior review of the assessment of direct taxes should also be carried out, which includes checking the accuracy of the IRPJ and CSLL debits against the amounts declared in the DCTFs. In addition to ensuring the lawfulness of the submission, this analysis can identify tax credits for eventual offsetting, providing opportunities for the business to get some cash flow relief.

ECF x Other records and anclllary obligations

It is also important to extensively cross-check the information against other records and obligations, as this can identify further inconsistencies. For instance, it is necessary to check whether the revenue informed is in line with the amounts reported in the EFD-Contribuições, and whether the amounts withheld on account of Withholding Income Tax (IRRF) and Withholding Social Contribution (CSRF) match the income reports provided by third parties and the information supplied by withholding agents.

Throughout this verification stage, Domingues e Pinho Contadores uses analytical software set up to automatically crosscheck all ancillary obligations in order to validate information.

Thanks to this troubleshooting, once an error is found, early action can be taken to perform the necessary amendments and avoid problems with the Tax Authorities.

Penalties can be harsh

Fines can go as high as BRL 100,000 for companies that recorded gross revenue amounting to BRL 3.6 million or less in the previous accounting year. In other cases, taxpayers may be fined up to BRL 5 million for committing a tax offense.

 

2023 ECF in good standing

DPC brings together a team of experts and accounting and tax-smart software to support its clients in the preparation and submission of their obligations. Our regular clients can already count on our services to carry out this preventive review.

However, we also provide this service on a one-off basis for companies with which DPC does not work regularly. In these cases, we can review the submissions due or already made and provide guidance to help with eventual adjustments and rectifications.

Count on DPC's support to file the 2023 ECF and other accounting and tax obligations in compliance with the regulations: dpc@dpc.com.br.