There has been a marked increase in this type of transaction in recent years and the government wants to ensure the right amount of tax is being paid.

The Integrated System of Foreign Service Trade (Siscoserv) is similar to the Integrated Foreign Trade System (Siscomex), which is used to register transactions involving merchandise (imports and exports).

The new system will consist of a comprehensive database that will include key information about service and intangible transactions in Brazil.

Users of the system will be asked to provide information about the nature of the service rendered, the value of the transaction, the period during which the supply of the service was initiated and concluded, and information about the country where the buyer/seller of the service is located.

The objective of the system is to gather information that will allow the proposal, follow-up and monitoring of policies involving cross-border services.

As this information will be disclosed to the authorities, Brazilian taxpayers are being warned to review their service transactions to confirm the company is paying the required taxes and complying with the country’s transfer pricing legislation.

The system will be implemented by the Ministry of Development, Industry and Foreign Trade (MDIC) in three different stages. The first will look at service sales, which is equivalent to the export transactions included in the Siscomex. This module is expected to be implemented by the end of 2009. Next, early in 2010, service purchases, which can be likened to the import transactions included in the Siscomex, will be under scrutiny. Finally towards the end of next year, or even in 2011, Brazilian commercial presence abroad will be looked at; this is an new concept for the government, with no similar segment included in the Siscomex.

Once the system is up and running, the tax authorities can access the data, giving them more scope than ever before to question transactions undertaken by taxpayers.

One of the main items that will be of interest to the tax authorities will be whether the transactions carried out between related parties are implemented in accordance with the Brazilian transfer pricing regulations. Service transactions between Brazilian entities and foreign related entities (also with third parties located in a tax haven jurisdiction) are subject to the transfer pricing legislation.

Transactions subject to the regulations may be calculated either under a cost-plus, a resale less profit margin or a comparable method. There are no specific documentation requirements but transfer pricing calculations should be prepared on an annual basis and taxpayers must be ready to present evidence of these calculations to the authorities in case of questioning.

The Department of Trade and Services of the MDIC held a series of technical meetings across the country in early November to demonstrate the main features of the Siscoserv.