Voluntary
Disclosure/Payment of Additional Customs Duties
AS previously written, more
than 100 companies to date have been issued
audit notices under the customs post entry audit
(PEA) system. Some of the audits, which were
first initiated in June 2004, have already been
terminated and audit reports submitted to the
Customs Commissioner for approval. Some of the
audited companies have likewise volunteered
to pay additional taxes and duties to avoid
stiff fines and penalties. One company reportedly
paid as much as P19 million in additional duties
and taxes on royalty and license fee payments.
Another paid P30 million in additional duties
and taxes for the audit period covering two
years of importation. Stiff Penalties under
PEA. It should be remembered that fines under
the post entry audit system ranges from a minimum
of 50% of the underpayment in case of negligence
to as much as 800% of the underpayment in case
of fraud. The fines are imposed over and above
the underpayment itself. To illustrate, a company
that has been found to have underpaid its taxes
and duties in the amount of P1 million shall
be required to pay the underpayment. In addition,
the company faces the risk of being penalized
in the amount of P1 million to P8 million, depending
on the existence of evidence indicating negligence
or fraud. Voluntary Disclosure. 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 are collected
for the delayed payments and no fines or penalties
are 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. Disclosure
During an Audit. In the Philippines, there are
no clear rules or programs providing for a 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. Specifically,
paragraph C of Section VI (Administrative and
Criminal Offenses) of Customs Administrative
Order (CAO) No. 4-2004 provides as follows:
"2. However, except in cases of fraud,
the Commissioner of Customs may, pursuant to
Section 2316 of the Customs Code and subject
to the approval of the Secretary of Finance,
exercise his power to compromise the imposition
of the fine prescribed in Section VI.C when
the importer makes a voluntary and full disclosure
of the deficiency prior to the commencement
of the audit on a date fixed by the Commissioner,
provided that the compromise shall only be to
the extent of the voluntary disclosure made."
What are the requirements then for a voluntary
disclosure during a customs audit? First, the
underpayment 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. From a practical perspective,
another requirement is required of the importer,
that is, the importer must have already conducted
an internal compliance review to confirm and
verify the existence of non-compliant import
transactions and to quantify the financial exposures
involved. Failing that, the importer may commit
errors in what is being disclosed and may wrongly
pay additional taxes and duties. To illustrate,
a company may erroneously volunteer to pay additional
taxes and duties on its royalty payments when,
in fact, the payments are actually not dutiable
(e.g. the royalty payments were paid on the
right to distribute the imported article in
the domestic market). Disclosure Prior to Audit.
Unlike the voluntary disclosure programs in
other countries, the Philippines does not have
clear rules and guidelines for promoting trade
compliance and specifically allowing companies
to voluntarily disclose underpayments of taxes
and duties prior to the issuance of audit notice.
Is voluntary disclosure prior to an audit therefore
allowed? If yes, what are the procedures and
what customs office do we approach for disclosure?
Do we approach the Collection District or the
Post Entry Audit group? Will disclosure involve
the re-liquidation of every import transaction
/ entry involved? While we recognize the fact
that there are no clear guidelines for disclosure
prior to an audit, our position is that it may
be done under current rules and in fact, it
has been done by some of the companies already.
It must be noted that the liquidation of an
import entry is deemed to be final and conclusive
upon all parties (government and importer) after
expiration of three years from date of final
payment of duties. Within the said period, both
government and importer may cause the re-liquidation
of the import entry to reflect the correct assessment
on the imported articles. This process may be
done at the Collection District level although
expert advice should be taken particularly when
the disclosure involves legal interpretation
or is very technical in nature. A licensed customs
broker, the writer is an international trade,
indirect tax and customs consultant. He has
a Certificate in Purchasing and Supply Management
from International Trade Centre (UNCTAD/WTO)
and is an accredited trainer of Ateneo Graduate
School of Business. Please contact aouvero@customsadvocates.com
for your comments or questions.
Back to Top
New
Rules for Imported Alcohol and Tobacco Products
A year ago, a new law governing
alcohol and tobacco products was passed by the
Philippine Congress. Republic Act No. 9334,
en-titled "An Act increasing the specific
tax rates imposed on alcohol and tobacco products
amending for the purpose Sections 141, 142,
143, 144, and 145 of the National Internal Revenue
Code of 1997, as amended", effectively
amended the provisions of the National Internal
Revenue Code (NIRC) pertaining to alcohol and
tobacco products. To most people, RA 9334 was
known for increasing the excise tax rates of
alcohol and tobacco products. The increase in
the excise tax rates resulted in higher retail
prices for these products. To further clarify
on the provisions of RA 9334, the Bureau of
Internal Revenue (BIR) recently issued Revenue
Regulation No. 3-2006 "Prescribing the
Implementing Guidelines on the Revised Tax Rates
on Alcohol and Tobacco Products Pursuant to
the Provisions of Republic Act No. 9334, and
Clarifying Certain Provisions of Existing Revenue
Regulations Relative Thereto". Other than
the increase in excise tax rates, there are
many other provisions in the new law which now
impact on how companies trade in alcohol and
tobacco products. RR 3-2006 has now highlighted
many of these seemingly unimportant provisions.
Imported Tobacco and Alcohol Products. Before
the passage of RA 9334, imported tobacco or
alcohol products bound for free trade or export
processing zones were exempted from all kinds
of duties and taxes. The new law has now withdrawn
such exemption. Specifically, Section 12 (Importation
of an alcohol or tobacco product by Duty-Free
Shops, or into Economic Zones and Freeport Zones)
of RR 3-2006 expressly provides that importation
of alcohol or tobacco products, even if destined
for tax and duty free shops or legislated free
ports, shall be subject to all applicable taxes,
duties, charges, including excise taxes thereon.
Even importation of these products by a government-owned
and operated duty-free shop, while still exempt
from duties, shall now be subject to excise
and value-added taxes. Non Payment of Taxes
and Duties. Customs has very clear rules with
regard to smuggling of dutiable articles, e.g.,
the non-payment of taxes and duties on imported
articles. As a general rule, any article imported
contrary to law shall be subject to forfeiture,
and subsequently shall be sold under such restrictions
as will ensure its legitimate use, or if the
article is unfit for use or would be used for
unlawful purposes, it shall be destroyed. With
regard to the non payment of excise taxes on
imported alcohol and tobacco products, RR 3-2006
provides that in case of violation of said regulation,
the importer shall be fined treble the aggregate
amount of deficiency taxes, surcharges and interest
which may be assessed. Also, any person found
liable for any of the acts or omission prohibited
under said regulations shall be criminally liable
and penalized under Section 254 (Attempt to
Evade or Defeat Tax), NIRC. Under the present
rules therefore, an importer found to have evaded
the payment of taxes and duties on imported
alcohol or tobacco products can be prosecuted
administratively and criminally not only under
existing customs rules but also under relevant
internal revenue regulations. Transshipment
of Imported Products. In addition to the new
rules governing importation of alcohol and tobacco
products into export processing and free trade
zones, RR 3-2006 likewise provides new procedures
for transshipment of such goods. Under present
rules, it is no longer enough that the shipment
of alcohol or tobacco products from a foreign
port into any port of the Philippines is bound
for another foreign port or destination. Additional
requirements now include the exportation of
the cargo within 15 days from arrival and the
posting of a guarantee equivalent to not less
than the amount of internal revenues taxes and
duties otherwise due from the shipment. The
submission of complete documents showing that
the shipment has arrived at the foreign port
shall be used as basis for cancellation of the
guarantee. Violation of Health Label Requirements.
Imported tobacco products, if not destined for
the Philippines, are most likely not labeled
in accordance with existing rules and regulations.
Unknown to many importers, a new law was also
passed in 2003 governing the use, sale and advertisement
of tobacco products. Otherwise known as the
"Tobacco Regulation Act of 2003",
Republic Act No. 9211 provided new regulations
with regard to the packaging, use, sale, distribution
and advertisement of tobacco products. The same
law created the Inter Agency Committee (IAC)
- Tobacco, which was tasked to implement the
law and issue the appropriate implementing rules.
Under Memorandum Circular No. 1-2004 entitled
"Rules and Regulation Implementing RA 9211,
otherwise known as the Tobacco Regulation Act
of 2003", non compliance with the health
warn-ing labels on packages of tobacco products
intended for sale in the Philippines may result
in fines from P100,000 to P400,000 and/or imprison-ment
from one year to three years. Smuggling of Tobacco
and Alcohol Products. Under present customs
and internal revenue regulations, imported tobacco
and alcohol products are highly regulated and
are subject to duties, VAT and excise tax. Imported
tobacco and alcohol products with unpaid duties
and taxes may be considered as "contrabands"
and persons found to have imported, distributed
and/or sold such contrabands may be subject
to administrative and criminal penalties. At
present, both BIR and customs rules now have
very stringent procedural rules governing the
importation and sale of these products A licensed
customs broker, the writer is an international
trade, indirect tax and customs consultant.
He has a Certificate in Purchasing and Supply
Management from International Trade Centre (UNCTAD/WTO)
and is an accredited trainer of Ateneo Graduate
School of Business. Please contact aouvero@customsadvocates.com
for your comments or questions.
Back to Top
Tariff
Reduction for ASEAN-China Free Trade Area
LAST January 12, 2006, the
Philippine government issued EO No. 487, which
effectively reduced the tariff rates of certain
imported articles from China and other ASEAN
countries as part of the normal track agreement
under the ASEAN-China Free Trade Area (ACFTA)
framework.
As a background, the decision
to establish a Framework on Economic Co-operation
and to establish an ASEAN-China Free Trade Area
within ten years with special and differential
treatment and flexibility for the newer ASEAN
member states (Cambodia, Lao PDR, Myanmar and
Vietnam) and with provision for an early harvest
determined by mutual consultation was first
made during the ASEAN-China Summit held November
2001 in Bandar Seri Begawan, Brunei Darussalam.
ASEAN-China Free Trade Area
(ACFTA). A year later, the various governments
adopted the agreement to create the free trade
area, otherwise called the "Framework Agreement
on Comprehensive Economic Cooperation between
the ASEAN and the People's Republic of China".
The framework agreement was forged in recognition
of the different stages of economic development
among ASEAN member states and of the need for
flexibility, in particular the need to facilitate
the increasing participation of the newer ASEAN
Member.
It also reaffirms the rights,
obligations and undertakings of the respective
parties under the World Trade Organization (WTO),
and other multilateral, regional and bilateral
agreements and arrangements.
Objectives of ACFTA. In general,
the ACFTA aims to:
a) strengthen and enhance economic,
trade and investment cooperation;
b) liberalize and promote trade in goods and
services as well as create a transparent, liberal
and facilitative investment regime;
c) develop appropriate measures for closer economic
co-operation; and
d) facilitate effective economic integration
of the newer ASEAN member states.
Measures for Economic Cooperation. To establish
the ASEAN-China Free Trade Area within the next
10 years, the parties to the agreement agreed
to the following measures for comprehensive
economic cooperation:
a) elimination of tariffs and
non-tariff barriers in substantially all trade
in goods;
b) liberalization of trade in services with
substantial sectoral coverage;
c) establishment of an open and competitive
investment;
d) provision for special and differential treatment
and flexibility to newer ASEAN member countries;
e) provision of flexibility in the ACFTA negotiations
to address sensitive areas in the goods, services
and investment sectors;
f) establishment of effective trade and investment
facilitation measures, including, but not limited
to, simplification of customs procedures;
g) expansion of economic cooperation in areas;
and
h) establishment of appropriate mechanisms for
effective implementation of the agreement.
Tariff Reduction under EO 487.
Under the agreement's early harvest program,
live animals, meat and edible meal offal, fish,
dairy produce, other animal products, live trees,
edible vegetables and edible fruits and nuts,
as well as other specified products (Chapters
1 to 8 of the HS Code at the 8/9 digit level)
will now enjoy a 0% duty rate by 2006.
Under the normal track program
for ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines,
Singapore and Thailand) and China as implemented
by EO 487, the tariff reduction schedule by
January 2006 shall be as follows: (a) applied
MFN tariff rates above 20% shall be reduced
to 20%; (b) applied MFN tariff rates from 15%
to 19% shall be at 15%; (c) applied MFN tariff
rates from 10% to 14% shall be at 10%; (d) applied
MFN tariff rates from 6% to 9% shall be reduced
to 5%; and (e) applied MFN tariff rates from
0% to 5% shall be maintained.
More Competition, Cheaper Imports.
As a general rule, imported products must originate
from ASEAN and/or China to enjoy the ACFTA preferential
rates. To qualify for the issuance of a Certificate
of Origin Form E, the originating product must
have a 40% ASEAN and/or China content, whether
as a single country content or as a cumulative
content.
With the issuance of EO 487,
we should expect more of those cheap (but not
necessarily better) goods from China, which
is certainly a boon for most consumers and industrial
users but a bane for many competing local industries.
A licensed customs broker,
the writer is an international trade, indirect
tax and customs consultant. He has a Certificate
in Purchasing and Supply Management from International
Trade Centre (UNCTAD/WTO) and is an accredited
trainer of Ateneo Graduate School of Business.
Please contact aouvero@customsadvocates.com
for your comments or questions.
Back to Top
Strategic
Issues in International Logistics
IN the last two years, we have
seen increasing consolidation, through mergers
or acquisitions, in the global logistics and
forwarding industry. For many in the industry,
the concern is how this will impact on their
business. For importers and manufacturers, will
this development help them lower their cost
and increase their level of productivity and
competitiveness? For forwarders and customs
brokers, there are fears that the global players
will stifle competition in the market and force
players to close shop or just focus on market
niches.The Global Supply Chain. The last two
decades have brought about unprecedented growth
in the information and communication technology.
Coupled with the lowering of tariffs and the
reduction in trade barriers, this has impacted
on how companies conduct business across international
borders by lowering the cost of bringing goods
through these borders.As a result of increasing
competition in the market place, companies have
shifted their focus from finding ways to maintain
their profit margins to simply looking for means
to lower production costs and maintain competitive
prices to the consumers. For many companies,
the way to reducing production costs is to overhaul
the supply chain (from the acquisition of raw
materials to the provision for sales and after-sales
service) in order to promote efficiencies and
create savings.Integrated Logistics. As logistics
cuts across the whole supply chain, companies
specifically look at possible savings opportunities
in the transport, insurance, customs clearance,
inspection, storage, packing, handling and distribution
of goods. Logistics normally refers to the proper
management of the supply of materials. This
involves securing the exact quantity of materials
for delivery at the right time and location
at a minimum cost. In international sale transactions,
logistics may include inbound (from supplier
factory or farm to the buyer in another country)
and outbound (warehousing and distribution of
the goods to the production lines or retail
shops)It is estimated that incoming logistics
costs in a typical manufacturing business accounts
for 20-30% of the total purchase cost of an
article. Clearly, logistics has a direct and
indirect impact on the operating profit of a
company and on the price of the goods offered
in the market place. Thus, many companies have
adopted an integrated approach to logistics
and distribution management. For logistics and
supply chain practitioners, the first step to
preparing an integrated logistics system is
to identify the strategic issues in the supply
chain.Identifying the Strategic Issues. Logistics
and the movement of goods and materials can
be best seen as a pipeline or flow process.
Once a detailed investigation is conducted on
each physical process of the transport, distribution
and warehousing chain, an overall logistics
plan for the company can be developed from a
strategic perspective, taking into consideration
the demands of other business concerns and business
functions - purchasing, production, sales, marketing,
warehousing and other external factors. What
are the individual steps and processes involved?
What are the issues involved in every step or
process that must be addressed from a strategic
perspective?Logistics Issues. Below is a sample
list of strategic issues in logistics:¥
Numerous transport modes and operators¥
Management of high and unreliable import costs¥
Numerous transport and logistics providers¥
Lack of insurance coverage for transporting
goods¥ Inconsistent or varying sales and
transport contracts¥ Physical distance of
suppliers requiring longer lead time¥ Need
for automation in the handling of inventory¥
Software system for scheduling and warehouse
managementEvaluating Performance. Typical of
many businesses, accounting systems normally
group costs under conventional categories -
direct costs, sales and marketing expense, etc.
There is generally no system for identifying
the logistics costs at every stage of the supply
chain. In other words, there is no activity-based
costing. Without this data, there is therefore
no way for the company to analyze and study
the impact of logistics costs against the total
costs and against the sales revenue. There are
two basic principles in logistics costing systems:
(1) that the costing system should mirror the
materials flow; and (2) that the system should
be capable of enabling separate cost and revenue
analyses to be made by supplier/customer type,
by supply/sales market segment and by inbound/outbound
distribution channel.Assuming that the logistics
cost at each supply chain stage is available,
the next stage is to identify the objectives
for each stage and establishing key performance
indicators. Examples of these indicators would
be establishing the delivery time, transport
cost per ton/kilometer, factory receiving time,
inventory turnover and order fulfillment cycle
time.Logistics Alliance and Outsourcing. A major
trend in increasing competitiveness in logistics
is by partnership and by adding value to the
supply chain. A partnership or alliance particularly
with an international operator may improve the
overall efficiency in the supply chain and reduce
the cost of logistics and inventory. An increase
in efficiency will definitely result in a higher
level of competitiveness in the domestic and
international market. By sharing information
across the supply pipeline, a logistics provider
may be able to reduce logistics and inventory
costs by, among others, maximizing transport
efficiencies and by reducing lead times and
monthly inventories.A licensed customs broker,
the writer is an international trade, indirect
tax and customs consultant. He has a Certificate
in Purchasing and Supply Management from International
Trade Centre (UNCTAD/WTO) and is an accredited
trainer of Ateneo Graduate School of Business.
Please contact aouvero@customsadvocates.com
for your comments or questions.
Back to Top
New
Rules for Customs Assessment Disputes
THE Bureau of Customs (BoC)
recently issued new rules gover-ning assessment
disputes (valuation and classification issues)
brought before the Valuation and Classification
Review Committee (VCRC) as originally provided
under Customs Memorandum Order (CMO) No. 37-2001,
which implemented Customs Administrative Order
(CAO) 5-2001. Issued on March 15, 2006, CMO
7-2006 established a Central Valuation and Classification
Review and Ruling Committee (CVCRRC) mainly
to provide a mechanism for the review of VCRC
resolutions and to provide rulings, opinions
or policy guidelines upon the request of importers
pertaining to application of customs valuation
and classification rules. Valuation and Classification
Disputes. In general, when valuation or
classification issues are raised against a particular
shipment (either by the customs computer system
or by the appraiser/ examiner), an importer
has two options. One, the importer may raise
the issue before the VCRC of the port concerned.
Another option would be the payment under protest
of the amount of duties and taxes additionally
assessed. The VCRC process is an internal customs
procedure at the level of the collection district.
A protest or payment under protest, on the
other hand, is a process that will require the
importer securing the final approval of the
Secretary of Finance. The VCRC Mechanism. In
case customs rejects the invoice price of the
imported article, the importer may raise the
issue before the 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. 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.VCRC Hearings. 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 require the
following:(a) 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. (b)Submit
a list of name of officials and employees 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. The decision of the
VCRC, if favorable to the importer, shall be
final and immediately executory, without the
need for review by any higher office or body.
In case the decision is unfavorable, the importer
may either file a formal protest pursuant to
Section 2308, TCCP, as amended (CMO 27-99, as
amended by CMO 27-99-A) or in the alternative,
file an appeal with the Commissioner of Customs
within 15 days from receipt of the adverse VCRC
decisions. Automatic Review of VCRC Rulings.
The above rules have now been amended by CMO
7-2006. Under said CMO, the CVCRRC, headed by
the Commissioner, shall now automatically review
or take cognizance of the following cases:(a)
VCRC cases filed after effective date of CMO
7-2006 and pending for three calendar months
from filing;(b) VCRC cases pending for 6 months
prior to effective date of CMO 7-2006;(c) VCRC
rulings favorable to the importer or adverse
to the governments, except those rulings issued
prior to the effective date of CMO 7-2006;(d)
Appeals from the VCRC rulings filed within 15
days;(e) Review of the Commissioner of Customs,
motu propio or upon written request by any office
or unit of the customs organization; and(f)
Request by
importers for customs valuation or tariff classification
rulings or opinions or policy guidelines pertaining
to the application of the Transaction Value
system or the AHTN involving no actual importation
or involving shipments that are the subject
of an ongoing post entry audit. Additional Procedures,
Shorter Process. By and large, additional procedures
have been provided for the resolution of customs
and valuation disputes. The main purpose for
the new rules, however, is to
provide uniformity and consistency in the VCRC
rulings, and to accordingly expedite the resolution
of cases with the VCRC. A licensed customs broker,
the writer is an international trade, indirect
tax and customs consultant. He has a Certificate
in Purchasing and Supply Management from International
Trade Centre (UNCTAD/WTO) and is an accredited
trainer of Ateneo Graduate School of Business.
Please contact aouvero@customsadvocates.com
for your comments or questions.
Back to Top
RMC
9-2006: BIR Rules for Customs Brokers
TO those in the importing and
logistics industry, it is common knowledge that
un-receipted expenses are incurred every time
shipments are processed and cleared from customs
custody. These small amounts, multiplied against
the thousands of shipments entered into customs
everyday, can translate into a substantial figure.
For some companies clearing numerous shipments
everyday, the amount can reach hundreds of thousand
pesos - a staggering figure if accumulated over
time. Non-Application of RMC 9-2006. With the
issuance of CAO 3-2006 to implement RA 9280,
the question for many customs brokers, forwarders
and importers is who will take the hit for the
tax exposures on these un-receipted expenses.
There is no doubt these expenses are subject
to VAT and income tax. While the Bureau of Internal
Revenue (BIR) has issued Revenue Memorandum
Circular 9-2006 last February 2, 2006, many
of its provisions have been rendered irrelevant
and inapplicable with the resulting issuance
of CAO 3-2006 and the accompanying changes in
how importers transact with their forwarders
and customs brokers. For one, the provisions
under the BIR circular on the VAT treatment
for reimbursements of receipted expenses can
no longer apply considering that customs brokers
are no longer allowed to advance expenses such
as storage, arrastre, wharfage, duties, taxes
and other port charges. Receipted and Non-receipted
Expenses. For customs brokers and importers,
there are basically two kinds of expenses incurred
when releasing goods from customs custody -
receipted and un-receipted expenses. Customs
brokers either charge their brokerage fees based
on standard rates as provided under CAO 1-2001
or on an agreed fixed rate on a per shipment
basis. Expenses outside of the brokerage rate
are either paid by the importer or, of late,
the forwarder or advanced by the customs broker
for the account of its clients. For receipted
expenses, most are incurred in behalf of the
importer (the forwarder or the customs broker
in exceptional instances) and the
receipts are issued in the name of said importer.
Considering customs brokers will not likely
advance the payment of such receipted expenses,
the most probable scenario is that forwarders
will continue to advance such expenses mainly
to facilitate the release of goods from customs
custody. It would simply be too impractical
and tedious to arrange payments for such expenses
- without delay in the release of the shipments
- unless these expenses are advanced by the
forwarders. In fact, many service providers
now provide online facilities for payment of
such charges.VAT on Un-receipted Expenses. For
un-receipted expenses, this is where customs
brokers, forwarders and importers encounter
a lot of issues. The question here is, will
the customs broker bill his professional fees
inclusive of the un-receipted expenses? In such
a case, he will have to declare a substantial
amount of output VAT and, with the high gross
receipts, subsequently pay higher income taxes.
If the customs broker reimburses the un-receipted
expenses from its client (forwarders and/or
importers), the clients cannot support the un-receipted
expenses with the necessary documents and as
such, will treat the expenses as not allowable
and thus pay income taxes thereon.Too much VAT.
An issue for many forwarders dealing with mostly
VAT-free importers (e.g. PEZA-registered companies)
under the post-RA 9280 regime is that the billing
of the customs
brokers to the forwarders will be subject to
VAT and the subsequent billing by the forwarder
to the importers will be VAT-free. In such a
case, the forwarder will have substantial input
VAT as against very minimal output VAT. The
situation here can probably be remedied if the
customs broker will issue its billing under
the name of the importers even if the forwarder
will be the one directly paying the customs
broker. The billing of the customs broker will
be treated as a reimbursable expense when the
forwarder bills the importer for its services.
Obviously, the issuance of RMC 9-2006 does not
provide much answer to many of the tax implications
brought about by the post-RA 9280 changes. Companies,
importers, customs brokers and forwarders, will
have to study their particular situation and
make the necessary tax planning to ensure that
tax laws are complied with and at the same time,
taxes are legally paid to the minimum. Rule
of Thumb. Notwithstanding the issuance of RMC
9-2006 and its implementation under the post-RA
9280 regime, it would seem that there are really
no hard and fast rules for addressing tax compliance
issues. However, there are a few basic principles
which companies will have to comply with in
relation to the business model established for
customs brokerage services. Among these basic
principles are as follows:
a) Customs brokers can no longer advance the
expenses for storage, arrastre, wharfage,
taxes, duties and other port charges. b) Un-receipted
expenses if included in the statement of account
or billing shall be subject to VAT. Even if
included, these expenses will not be an allowable
expense and, as such, income tax will have to
be paid thereon. c) Receipted expenses should
be issued in the name of the importers and if
issued under the name of the broker will not
be allowed as a reimbursable expense and will
form part of the gross receipts of the customs
broker. A licensed customs broker, the writer
is an international trade, indirect tax and
customs consultant. He has a Certificate in
Purchasing and Supply Management from International
Trade Centre (UNCTAD/ WTO) and is an accredited
trainer of Ateneo Graduate School of Business.
Please contact aouvero@customsadvocates.com
for your comments or questions.
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The
author is an international trade and customs
consultant, and a licensed customs broker. He
is also a regular lecturer on logistics, customs
and international business. Please contact aouvero@dlugms.com
or (632) 4050021 / 29 for your comments.
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