THE draft rules on the customs Voluntary Disclosure Program (VDP) are reportedly being finalized and should be issued in the coming weeks. The VDP is said to be akin to the amnesty and voluntary assessment programs of the Bureau of Internal Revenue 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. The VDP is an expansion of the concept of the voluntary disclosure under the old rules which provides for the benefit of compromise on the penalties but not an exemption from fines and penalties.
In general, the VDP should benefit compliant importers who are willing and ready to pay additional taxes and duties, without the imposition of fines and penalties, on errors and mistakes found on the import declarations of previous importations entered within the 3-year audit period.
International Best Practice. In most developed countries, part of the customs audit system is a voluntary disclosure program where companies are able to pay additional taxes and duties on the imported articles prior to a customs audit in case of error or mistake. Under said program, only interest charges may normally be collected for the delayed payments and no fines or penalties imposed against the importer. The voluntary disclosure program, however, does not apply when the import transactions are coupled with fraud, in which case, the disclosure may be converted into a fraud investigation.
Old Rules on Disclosure. Under the old rules, there are no clear provisions for voluntary disclosure prior to the issuance of an audit notice or even prior to the conduct of an audit. However, the implementing rules provide that a company may volunteer to pay additional taxes and duties even after the issuance of the audit notice but prior to the conduct of the audit proper. The voluntary disclosure, however, does not exempt the importer from the imposition of fines and penalties although the rules provide that in case of such voluntary disclosure, the imposable fines may be compromised.
As provided under Customs Administrative Order (CAO) No. 4-2004, there are specific requirements for disclosure in case of receipt of an Audit Notification Letter (ANL). First, the under payment must be paid in full. Second, the disclosure must be made prior to the commencement of the audit proper. Third, there must be no fraud involved. Fourth, the fines and penalties sought to be compromised must be recommended by the Customs Commissioner and approved by the Secretary of Finance.
Voluntary Disclosure Program. Under the proposed VDP, voluntary disclosure shall be available even prior to the receipt of an ANL or upon receipt of the ANL but prior to the scheduled date of field audit. The proposed program requires the importer to file an application and make a tender of payment of all underpayment resulting from any errors and mistake on import entries filed within the 3-year audit period. The disclosure must cover all relevant import entries. The application may be denied even if the payment has been accepted by customs.
Benefits under the VDP. Unlike the present rules which merely provide the benefit of compromise on the penalty, the VDP provides for numerous benefits to the disclosing party which files a valid and timely application with a tender of payment.
One, the importer shall not be subject to fines and penalties with regard to the covered import entries and customs issues disclosed. Second, the importer shall be accorded the status of last priority for customs audit selection under certain conditions such as submission of a customs compliance program, compliant behavior upon random profiling and tender of payment of an amount beyond the de minimis value as established by customs in its implementing rules.
Under the VDP, import entries not covered by the application for voluntary disclosure shall remain subject to the penalty regime provided under the post-entry audit rules in case an audit is conducted on these import entries. Also, when fraud or bad faith is uncovered, the application for voluntary disclosure shall be denied and a full formal audit shall be conducted without prejudice to the conduct of a formal fraud investigation. Any money received by customs in such cases shall automatically be applied on the deficiency in duties and taxes as disclosed.
Application and Tender of Payment. For importers qualified under the program, the importer must submit a verified (pro forma) application which shall identify, among others, the transactions being disclosed with specific reference to the import entry number and computation of deficiencies, type of article imported, and nature of the error or mistake (e.g., additions to the price paid or payable, such as assists, royalty or license fee, proceeds from subsequent re-sale; mistake in the tariff heading and duty rate; and improper use of preferential duty rate) resulting in the underpayment of duties and taxes, year of importation, and port(s) of entry.
The application must be accompanied by a tender of payment of the duty and tax deficiency on the disclosed transactions, with the undertaking that the importer shall honor the tender of payment regardless of whether it is found qualified or not to avail of the program at the time of application or at any time during the verification process.
Upon verification and once the application is accepted, the importer shall be notified of such acceptance and henceforth, avail of the benefits under the program.
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 firstname.lastname@example.org for your comments.