Learn more about the back-to-back operation in logistics

When talking about logistics, foreign trade, and international transportation, there are many terms and expressions widely used in day-to-day operations that may be unfamiliar to business owners and professionals from other related fields. The back-to-back importation is one such example.

That’s why we’ve created this guide on back-to-back operations so that you can understand the main conceptual and practical aspects involved in the operation, as well as how to carry out this type of process in practice. Check it out!

Why you need to know about back-to-back operations

In an increasingly dynamic and competitive market, innovating and standing out from the competition can make all the difference in a business’s success — especially in those involving more robust logistics operations.

While access to products and services has become easier for consumers, companies face challenges: they must deliver a product that meets the expectations and demands of customers quickly and safely. And all of this while maintaining competitiveness in price and quality.

It’s no surprise that many entrepreneurs decide to buy products abroad to resell in Brazil. There are also those who invest in business abroad to expand their market and create new customer bases. Although international expansion requires in-depth market research and adaptation to cultural and regulatory particularities, it is a profitable strategy.

But what is the relationship between these business strategies and the back-to-back operation? Can it be applied in your company’s reality and optimize your operations? In terms of importation, it helps when companies choose to buy and sell abroad without necessarily leaving Brazil.

What is a back-to-back operation?

Back-to-back is an operation where a domestic company buys a product from another country and sends the merchandise to a third location, without the item entering the domestic territory.

A practical example will help you understand better: imagine a company in Brazil buys a product from the United States and sends it directly to a recipient in Italy.

Note that the product does not enter Brazil; it is sent directly from the United States to Italy. In this situation, we have a triangular operation, meaning it is neither pure importation nor exportation.

Continuing with this example, the company responsible for delivering the product is the foreign company that sold the merchandise, located in the United States. So, the U.S. company sends the product to Italy, but all the financial negotiation takes place with the Brazilian company.

This means that, although the merchandise does not enter Brazil, all financial matters are handled by the Brazilian and U.S. companies — who directly negotiated the purchase and sale of the product sent to Italy.

Thus, in back-to-back operations, instead of the product being imported first and then exported to its destination, it is sent directly from the country of origin to the final country without physically passing through the country that negotiated it.

An interesting aspect to highlight when talking about back-to-back operations is that this type of business allows a product to be exported directly from one country and then receive an enhancement abroad — from there, it is once again exported to another destination outside of the negotiating country.

It is important to note that there is no legal barrier for a Brazilian company to carry out all these operations, even though they may be less known and seemingly strange. Below, you’ll see more advantages of back-to-back importation, but first, it’s important to understand how this operation is carried out in practice.

How does back-to-back work in practice?

From the previous example, it’s clear that the back-to-back operation involves three parties: a negotiator, a supplier, and a buyer. Each part of this relationship plays a different but relevant role in the operation:

• Negotiator (N): The company that will handle the purchase and sale of the merchandise, responsible for the financial mediation process of the operation and instructing both the supplier and the buyer. It is their responsibility to find interested parties abroad, prepare the pro-forma invoice, and endorse the transaction.
• Supplier (F): The foreign company that produces the product being negotiated. They sell directly to the negotiator and ship the merchandise to the destination country — where the buyer is located. The supplier needs to issue the necessary documents for international shipping.
• Buyer (C): The foreign company that receives the product shipped by the supplier.

Thus, we can summarize the back-to-back operation chain as follows: a company located in country X sells a product located in country Y to be delivered to a third company located in country Z.

Notice that the merchandise does not pass through country Y; it is sent directly from country X to country Z. If the negotiating company that carries out the back-to-back operation is located in Brazil, for example, the operation will follow this logic:

• The Brazilian company (original buyer/negotiator) resells the merchandise to a third party (buyer) located in another country, without the merchandise passing through Brazilian territory;
• The Brazilian company negotiates with a foreign seller (supplier/sender) all terms of the deal;
• The foreign supplier sends the merchandise to the destination address of the buyer, on behalf of the third party.

The absence of a traditional import or export operation is due to the fact that the merchandise never enters the national territory. As mentioned in the example, because it does not enter Brazil, there is no triggering event that would characterize its formalization here.

However, it’s important to note that the entire back-to-back process involves a foreign exchange operation. This must be considered by the Brazilian company and the other parties involved. But, you’re probably wondering: who regulates all of this? Let’s take a look now.

Who regulates the back-to-back operation?

How does a company carry out the entire process explained above without risking engaging in illegal practices? The first thing you need to know is that the back-to-back operation is completely legal — so it is a sale that can be done without problems.

Currently, there is no specific Brazilian agency that closely monitors back-to-back operations. However, there are guidelines from the Central Bank of Brazil (BCB) that should be followed in this regard.

For example, the BCB defines that carrying out back-to-back importation is free. Any company can carry it out without needing prior authorization — and the same applies to the foreign exchange aspect of the deal.

However, it’s important to pay attention to one detail: foreign exchange contracts need to be executed at a financial institution using the correct nature of the operation code, as defined in Circular 3.690/2013 from the Central Bank of Brazil. Take a look:

ANNEX I TO CIRCULAR No. 3,690, DECEMBER 16, 2013
Operation Classification Codes Related to Foreign Trade
(….)
NATURE OF THE OPERATION: Back-to-back operations
Code: 12029

Additionally, it’s good to follow updates on the Portal Único de Comércio Exterior, an initiative from the federal government that restructured the processes of importation, exportation, and customs transit, creating the Sistema Integrado de Comércio Exterior (SISCOMEX) — used for foreign trade operations in the country.

Although back-to-back is not considered a traditional type of import or export, it’s useful to stay informed on the subject. Another recommendation is for companies to keep records of international documents related to the back-to-back operation, which may include:

• Purchase and sale contract
• Pro-forma invoice
• Commercial invoice
• Bill of lading

If the company has the proper structure and commercial conditions to carry out a deal involving back-to-back importation, they can proceed without fear. But before starting negotiations for this type of operation, it’s essential to evaluate strategic aspects. The first step is to assess the feasibility and financial and business advantages of execution — as we’ll see next.

What are the advantages of this type of operation?

One of the main advantages of back-to-back is that the process does not classify as either importation or exportation. Since the goods do not circulate in Brazilian territory, there is no incidence of taxes that are typically applicable to entrepreneurs:

• Tax on Circulation of Goods and Services (ICMS)
• Tax on Industrialized Products (IPI)
• Import Tax (II)
• PIS/Cofins Importation Taxes

In addition to exempting the collection of the above taxes, other fiscal obligations are also waived, such as:

• Single Export Declaration (DU-E)
• Import Declaration (DI)
• Import License (LI)

Despite this, the back-to-back process requires the issuance of some documents:

• Freight bill — proof of product shipment
• Commercial invoice, used as a customs declaration
• Pro-forma invoice
• Purchase and sale contract

Since there is no specific legislation, the risks of problems are lower. However, despite the absence of detailed regulatory guidelines, doubts may arise, also due to the fact that no law clarifies how to proceed.

In any case, another benefit of back-to-back is the reduction of costs, as the operation saves on taxes that would otherwise apply. However, it’s important to note that there is taxation on the profit of the operation, as well as on the amount received by the Brazilian company:

• PIS and COFINS taxes on the amount received by the company in Brazil
• Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) taxes on profit — calculated as the difference between the sale price and the purchase price of the operation.

Another advantage that stands out is the speed of the logistics process. Since the goods do not pass through Brazilian territory, the delivery process to the final recipient is much quicker — a positive point when considering competitive differentiation.

Finally, we must mention the bureaucratic processes. Back-to-back operations are known for not involving so much bureaucracy. This simplification is due to the fact that the merchandise, not passing through Brazil, does not require registrations, licenses, customs declarations, or even the issuance of entry and exit invoices.

How to carry out this type of operation?

If you enjoyed learning more about back-to-back importation and want to start using this type of operation in your business, the first factor to assess is the economic and managerial feasibility.

The operation should be carried out by companies that are capable of operating in other markets. Additionally, it is essential to understand that back-to-back is a foreign exchange operation involving currencies with different exchange rates.

In this sense, the transactions — involving payments to the supplier and the receipt of funds by the buyer — must only be conducted with financial institutions authorized by the Central Bank to operate in the foreign exchange market.

You don’t need specific authorization from the Central Bank, as stated at the beginning of this article, but you should be familiar with all the logistical processes and rely on professionals with practical knowledge and experience in back-to-back operations.

Back-to-back importation offers a streamlined and secure way to conduct international business, avoiding the movement of goods through national territory. With fast and simplified processes, this model reduces risks associated with customs and taxes.

Back-to-back importation allows for efficient exploration of international markets, simplifying processes and ensuring secure transactions. However, it is essential to develop careful planning to understand the involved legislation and analyze costs and risks — to ensure the success of this operation.

Did you like this content about back-to-back importation? Take the opportunity to get to know Wilson Sons, the largest maritime agency in Brazilian territory, and find out how we can assist you in your operations.