LAST May, we wrote in our column about the planned Voluntary Disclosure Program (VDP) of the Bureau of Customs (BOC). The Department of Finance has now approved the new rules on the VDP as provided in CAO 5-2007. Last July 6, 2007, the BOC issued the implementing rules and regulations to implement the VDP as contained in CMO 18-2007.
To date, many importers are now reportedly preparing their applications for voluntary disclosure. We have outlined below some of the practical issues and concerns that may confront the importers when making their disclosures on tax and duty deficiencies on their past importations.
Voluntary Disclosure Program. As previously written, the VDP is akin to the amnesty and voluntary assessment programs of the Bureau of Internal Revenue (BIR) as it allows importers to disclose errors or mistakes in import declarations and make additional payments for duties and taxes without the imposition of fines and penalties. Unlike the typical tax amnesty program, the VDP does not allow compromise on the tax and duty deficiencies. Companies are, however, encouraged to disclose voluntarily under the new program considering that penalties in case of a full compliance audit ranges from a minimum of 50% to a maximum of 800%.
CMO 18-2007 provides the specific procedures for disclosing tax and duty deficiencies on previous importations arising from error, mistake, inadvertence or negligence in the import declarations which may result in undervaluation, misdeclaration, misclassification, dumping or safeguard duty evasion, improper marking or country of origin declarations or improper claim for duty preference under a free trade program or any special law.
Procedure for Disclosure. Under the implementing rules, an importer willing to disclose must first submit an application together with the valid tender of payment(s) to be made to the collection district where the import declaration was specifically filed. The application shall be signed by the duly authorized responsible officer of the disclosing company and shall be accompanied by a detailed computation of the tax and duty deficiency. The application shall likewise be accompanied by a comparative computation table showing the following information:
- product line, tariff classification or customs unit value
- import entry number
- duties and taxes originally paid; and
- additional duties and taxes to be paid.
Prior to submission of the application, the importer must first pay the additional taxes and duties with the concerned collection district or port. Upon acceptance of the payment, the collection district shall issue an Official Receipt for the payment made. After which, a copy of the receipt shall be forwarded by the Collection Division to the Post Entry Audit (PEA) Group.
Once the application is submitted, the special verification unit of the PEAG created for the purpose shall verify the completeness of the information provided in the application and review the sufficiency of the supporting documents. If the application (together with the customs compliance improvement plan) qualifies within the requirements provided under CAO 5-2007, the applicant shall be notified in writing of such acceptance. If not, the applicant shall likewise be notified in writing as to any additional documents required (to be submitted within 15 days from notice) or as to the denial of the application. In case of denial application, the payment made on the tax and duty deficiencies shall remain as valid payments for the import entries subject of the voluntary disclosure.
Specific Benefits. CMO 18-2007 expressly provides the specific benefits for the qualifying applicants under the VDP such as:
- Non-imposition of fine and penalty; and
- “Least Priority Status” in the annual audit selection
Least priority status means that the importer may not be considered for audit selection in the next two years from date of application. To qualify for such status, an applicant must submit its customs compliance program and pay a minimum of P1 million in taxes and duties for each application. Additionally, the importer must maintain compliant trade practices throughout the two-year period which may be determined through random sampling of import transactions.
Practical Issues. Prior to submission of the voluntary disclosure, an importer must look at the following practical issues to prevent complications and to ensure that the application is accepted. First, the application must cover all importations with identical issues (i.e., classification issue, royalty payments, etc.) within the three-year period. Second, the disclosed import transactions must not involve other compliance issues which are included in the disclosure. Third, the specific importations must indicate errors and mistakes, not fraudulent practices.
And finally, the importer must be able to confirm with the BIR that the VAT payment to customs is allowed as an input tax for the VAT declarations, otherwise, such payment may be treated as an expense rather than as a creditable payment.
The author is an international trade and customs consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax, customs and supply chain. Please contact email@example.com for your comments.