This is the third part of a series of articles on the subject of customs valuation. Our previous article was on “why customs reject the invoice price of imported goods”. At the outset, let me point out that under present customs rules and procedures, customs has the right to satisfy itself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes. Thus, when customs rejects the declared price of the importers upon filing of the import entry, it becomes the burden of the importer to prove the acceptability of the declared price to customs. In such a case, the importer normally has 2 options: (a) pay under protest and (b) request for release under tentative liquidation.
Payment under Protest. Customs rules provide that when there is a dispute as to the assessment of the collector of customs as to the liability of the importer for taxes and duties payable on the imported goods, the importer may file a written protest within 15 days from payment of taxes and duties (Section 2308, TCCP). The protest is normally filed with the law division of the port concerned. In case of a favorable ruling, the same shall be automatically reviewed by the Commissioner of Customs and the Secretary of Finance. A final ruling favorable to the importer should result in the issuance of a Tax Credit Certificate. This process is quite tedious and cumbersome, and may take months and even years before a final ruling is secured.
Release under Tentative Liquidation. In case customs rejects the invoice price of the imported article, another option for the importer is to raise the issue before the Valuation and Classification Review Committee (VCRC) of the port (collection district) concerned. Where the “valuation” screen under the Automated Customs Operations System (ACOS) hits the imported article, the importer will have to post a cash bond prior to release of the imported article. If the issue is raised by customs based on other reference values of identical or similar goods, the importer does not have to post a cash bond.
In contrast to the procedure in Payment under Protest, the procedure in the VCRC is summary in nature, and in case of a favorable ruling, a tax refund may be issued to the importer. In addition, the resolution of the issue is limited to the VCRC and a review by a higher office is not necessary.
VCRC Procedures. At the VCRC, the importer will be required to submit a position paper as well as relevant documents to support the declared price to customs. As far as the VCRC is concerned, it will have to satisfy itself that the declared price satisfies all the conditions as provided under Method 1 of the Transaction Value system. In case there is legal or technical basis to reject the declared price, the VCRC will have to adopt the reference value of identical or similar goods.
What exactly happens at the VCRC? To illustrate, the VCRC Notice of Hearing from the Manila International Container Port (MICP) will notify an importer to appear before the committee and will require the following:
- Submit a position paper outlining the chronological order of events from the beginning of the negotiation up to the conclusion with corresponding proof of what transpired during the transaction (e.g. letter, e-mail, offers, confirmation, bank documents, etc.
- Submit list of name of officials, and employees, that are involved in the transaction (e.g. purchasing officer, finance officials, etc.)
Failure to respond to the notice or to submit the requirements will result in the waiver of the importer to present his evidence or arguments before the VCRC. Consequently, the committee will decide on the case based on the documents at hand.
Supporting a “Sale for Export”. The documentary requirements for submission to the VCRC are normally required to support the following premises: (a) that there is a sale for export and (b) that the declared price is the price actually paid for the imported article covered by the sale.
To answer the question whether there is a “sale for export”, the following basic questions must first be addressed: (a) who are the parties; (b) is there property involved; (b) is there a transfer of ownership involving a financial consideration; and (c) is there exportation from one country to another. As previously mentioned, a sale requires a “buyer” who agrees to obtain certain goods for a certain amount and a “seller” who agrees to transfer ownership of those goods for he said amount. And when parties agree, there is a sale.
Evidence of “Sale” and “Price Paid”. What are the documents that should prove a “sale for export”? From a commercial perspective, a sale should start with a tender offer or a purchase order, followed by a confirmation or contract of sale. The sale contract itself may contain the provisions for payment. Normally, international sale transactions are executed through banking institutions.
Financial consideration in a “sale for export” usually refers to the payment. Payment may be made directly or indirectly, may be made to a third party if the supplier provides so, or may be made in cash or in kind. An example of an indirect payment is the settlement of a debt. Commercial transactions usually involve the use of banking instruments such as such as letters of credit, cable transfers, negotiable instruments, etc. The submission of the documentary evidence of the “sale for export” and “price paid” should serve as one the bases for the acceptability of the declared price to customs.
(Our next article will discuss customs use of reference values in relation to Method 2 and 3 of the Transaction Value system.)
The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at agatonuvero@yahoo.com and agatonuvero@customstrade.asia
