Customs Demand Letters
IN recent months, many importers have been
receiving demand letters from the Liquidation and Billing
Division (LBD) of the various ports for payment of additional
assessments on previous importations. While customs has already
been doing this for many years on the ground that importations
are only Òfinally liquidatedÓ after three years
from importation, recent events seem to indicate that more
and more companies are receiving these demand letters. It
is also not uncommon for customs to hold the release of pending
shipments for non-payment of such additional assessments.
For many companies, the additional assessments involve nominal
amounts arising from adjustments in the tax and duty calculation
on the freight or insurance costs. For some importers, however,
the assessments amount to millions of pesos arising from the
rejection of the declared value and the subsequent use of
a substitute value.
Nature of the Demand. While previous demand letters only
provide additional assessments for clear and apparent errors
or mistakes in the tax and duty calculation, some of the recently
issued demand letters have been made on the ground that the
declared value is unacceptable and that a substitute value
is being applied. Also, many of these demand letters have
been issued on Super Green Lane (SGL) members.
For importers clearing goods through the regular import declaration
process, the question is whether LBD can reject the declared
value when the present procedure is for customs to raise the
valuation or classification issue during the actual import
process and that in case of dispute, the issue may be elevated
before the Valuation and Classification Review Committee (VCRC)
in the port concerned. For SGL members, where the value and
classification of the list of ‘importablesÓ is
already pre-approved and where the VCRC process is not applicable,
the question is whether the LBD may reject the declared value
and impose a substitute value instead.
Another question is whether the LBD can automatically reject
the value and classification of the importation without the
benefit of notice and hearing (due hearing) or, in such cases
when there is doubt as to the value and classification used
upon first importation, whether the proper procedure should
be for LBD to refer the matter to the PEA group for the conduct
of a compliance audit.
Legal Basis. The Tariff and Customs Code (as amended by RA
9135) and existing customs rules provides that the liquidation
of an import entry shall be deemed final and conclusive upon
all parties after the expiration of three years from the date
of the final payment of the duties due, except as follows:
(a) when fraud is committed;
(b) a payment under protest is filed;
(c) when the importation is selected for post entry audit
within the three-year period; and
(d) the liquidation of the import entry is tentative (i.e.,
release under tentative liquidation)
Prior to RA 9135, the period for finality of liquidation
was one year. Under present rules, customs may review the
assessment made upon importation during the three-year period,
either by way of review by the LBD of the port concerned or
by way of a post-entry audit (PEA).
Liquidation and Customs Audit. While present customs rules
and procedures do not clearly delineate the role and function
of the LBD from the PEA group, the general understanding is
that the LBD has jurisdiction only on clear and apparent errors
or mistakes in the tax and duty calculation made on the import
declaration resulting in the underpayment of duties and taxes.
In cases where there is doubt as to the value declared or
the tariff classification used, the matter should be properly
raised through the existing dispute settlement mechanism (i.e.,
VCRC) if raised during the import declaration process or through
the PEA system when the matter is discovered during the process
of risk assessment and trade profiling of importers.
For SGL members, it is our position that LBD should only
issue demand letters on clear and apparent errors or mistakes
in the tax and duty calculation made and, when there is doubt
as to the Òpre-approvedÓ value or classification,
a review of the SGL accreditation may be made or a custom
audit conducted.
Hold Order on Shipments. On the issue of whether customs
may hold shipments for non-payment of additional assessments
from the LBD or in case of a finding resulting from a customs
audit, it is our position that customs may issue hold orders
for pending shipments under certain conditions. In case of
non-payment of demand letters issued by LBD, the hold order
must be issued only by the District Collector after proper
notice and hearing. In case of hold orders arising from the
findings of the PEA group, the order must be part of the recommendations
made by the auditors and finally approved by the Office of
the Commissioner. As such, the common practice of the LBD
holding shipments for non-payment of additional assessments
made by way of the demand letters issued to importers has
no legal basis under existing customs rules and regulations.
Ensuring Importer Compliance. A common but wrong impression
of many importers is that the obligation to pay correct duties
and taxes on imported goods is fulfilled once goods are cleared
and released from customs custody. This is clearly far from
the truth. There are many ways for customs to re-assess the
tax and duty payments even after goods are released. At any
time during the three-year period of liquidation (and beyond
in some instances), customs may re-assess by way of re-liquidation
of the LBD, through the conduct of a customs audit or in case
of a fraud investigation.
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 agatonuvero@yahoo.com
for your comments.
Proposed Changes to RA 9280
and Their Implications
By ATTY AGATON TEODORO O. UVERO
IN the coming months (or by next year), we
expect possible amendments to RA 9280 either by way of the
approval of the pending legislation in Congress or upon adoption
and implementation of the Revised Kyoto Convention (RKC).
In relation to RKC and other international practices, below
is a discussion on the standards and best practices on the
customs declaration process and how this relates to the customs
broker practice as defined under RA 9280 and the proposed
amendments.
What is a Declarant. A declarant is generally the owner of
the goods and is responsible for ensuring accurate and complete
declaration in the import/export entry. The declarant will
generally be liable for any false declaration committed in
the import/export entry. If the owner is a corporation or
partnership, the declarant should be a person authorized by
the corporation, normally through a special power of attorney.
Another term commonly used for a declarant is importer/exporter-of-record.
In the US, an importer may hire a customs broker (individual,
partnership or corporation) and when authorized, such customs
broker may prepare and file the entry declaration as the Òimporter-of-record.
US Customs does not allow anyone to sign the entry declarations,
whether manually or electronically, except the importer or
a duly authorized customs broker.
In the Philippines, only the importer or the customs broker
may be the declarant as provided under Sec. 1301, TCCP. Originally,
three persons may, in the alternative, enter the imported
article into the customhouse at the port of entry: (1) importer;
(2) customs broker; and (3) agent or attorney-in-fact. In
case the import entry is signed by the customs broker or agent/attorney-in-fact,
the same section requires that the importer is required to
declare under oath and under the penalties of falsification
or perjury that the declarations and statements contained
in the entry are true and correct. With the enactment of RA
9280, the interpretation now is that an agent may no longer
be allowed to sign the import declaration.
Who May Transact with Customs. International best practices
provided in the RKC allow importers to assign any third party,
not necessarily a customs broker, to represent him in transacting
with customs. While only importers and customs brokers are
generally allowed to be a declarant in the import/export declaration,
any third party may generally represent the importer in other
transactions with customs. In most countries, however, certain
types of "customs businesses or transactions" are
limited only to the importer or a customs broker. This limitation
usually applies when the nature of the transaction is highly
regulated by the customs authority concerned.
Under RA 9280, only customs brokers may be allowed to transact
with customs in behalf of importers and with regard to import/export
declarations entered with customs. Also, present customs rules
in the Philippines provide that the handling and representation
of seizure cases is limited to lawyers and a customs broker
is not allowed to handle such cases.
Proposed Legislative Amendments. The House of Representatives
and the Senate have accordingly approved on third reading
the proposed amendments to RA 9280. The proposed amendments
will now be submitted to a bicameral committee to resolve
the conflicting provisions. Once approved by the bicameral
committee, the final version shall be submitted for ratification
by both houses, hopefully sometime June of this year.
House Bill No. 6063 specifically amends Section 29 of RA 9280
by changing the section sub-title "Prohibition Against
Corporate Practice" to "Admission to Professional
Practice" and by deleting the phrase "No firm, company
or association may be registered or licensed as such for the
practice of customs broker profession". Other than the
proposed amendments to Section 29, the house bill does not
provide for other amendments. Senate Bill No. 2597 is likewise
limited to amending Section 29 by changing the section sub-title
to "Admission to Professional Practice" and by providing
the phrase "Nothing in this shall prohibit a corporation
from hiring the services of an in-house customs broker for
purposes of accreditation by the Bureau of Customs and facilitation
of activities mentioned in Sec. 6."
Implication of the Amendments. While HB 6063 may seem to have
implied removal of the prohibition on corporate practice by
deleting the last paragraph of Section 29 and by changing
the sub-title, this interpretation is not exactly correct
as Section 28 of RA 9280 (which has not been amended) expressly
provides that only an individual customs broker (one who has
passed the licensure examination) may practice the profession
and advertise as a customs broker. HB 6063, as it is, did
not expressly remove the prohibition on corporate practice
considering that other provisions of RA 9280 still provide
for such prohibition, both expressly and by implication.
SB 2597, on the other hand, retained the prohibition on corporate
practice (as contained in the last sentence of Section 29)
but provided that customs brokers may be hired by corporations
to perform customs broker services. Depending on how this
will be interpreted in the future, the concept may be akin
to lawyers being hired as in-house counsel to provide legal
services or in the alternative, to doctors providing health
services to health institutions or hospitals. In the first
example, the lawyer is an employee while in the second, the
doctor is an independent professional.
Unless a consolidated version that is totally different from
the proposed amendments comes out in the bicameral committee
(which we doubt), the proposed amendments to RA 9280 may have
failed to address many of the issues raised by those in the
trading industry. For one, the requirement that all import
and export entries should be signed only by a customs broker
provided under Section 27 has been retained. This requirement
is contrary to international best practices which allow importers/exporters
the prerogative to be the declarant themselves without any
assistance from a customs broker.
Second, it is not provided in the amendments that a third
party other than a customs broker may be allowed to represent
the importers when transacting with customs. In other words,
while Section 6 of RA 9280 provides that the preparation and
processing of import/export entries is deemed as a practice
of the customs broker profession, it is not provided that
corporate entities or its employees are allowed to perform
such functions (e.g. processing of entries with customs) or
that customs may issue rules allowing employees of corporations
to perform some of the functions of the customs broker.
Unresolved Issues. While there is a strong possibility that
the proposed amendment to RA 9280 may finally be approved
this year, we do not expect the situation to substantially
change and we foresee the trading community to remain confused
as to what the law exactly allows or prohibits. From the very
start, any proposed amendment should have properly defined
certain concepts (e.g. what is a declarant, what is a customs
transaction, who can transact with customs, what is the scope
of customs broker professional practice) which is really the
root cause of all the confusion. Additionally, the proposed
amendment should delineate the jurisdiction of customs and
PRBCB in regards to the practice of the customs broker profession
and professional transactions with customs. Failing that,
concerned government agencies will remain at odds on how to
implement the law and contending parties will continue to
debate and argue (and file suit and counter suit) on what
the law exactly allows or prohibits.
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 agatonuvero@yahoo.com
for your comments.
Resumption of Customs Audit
IN our last article, we mentioned that customs
has appointed a new head for the Post Entry Audit Group (PEAG)
and that, with the reorganization of the group, we expect
a better and more aggressive custom audit program resulting
in the issuance of many Audit Notification Letters (ANLs)
in the coming months.
In recent weeks, the PEA group has accordingly
issued new sets of audit notices to numerous companies. With
this development, at least 150 companies are now being audited,
most of whom are multinational companies and major local trading
entities belonging to the same industry (e.g. garments and
textile, automotive, pharmaceutical, food, steel, consumer
goods and other major importing industries).
Many customs brokers and importers are asking
how they can prepare for the forthcoming customs audits. We
are outlining below our understanding of the possible focus
areas in a customs audit, and how customs brokers and importers
can prepare for such audit.
Focus Areas for Audit. In an enforced compliance
audit, customs auditors will most likely look at the following
areas when conducting their field audits:
a. Internal Control and Customs Declaration
Process
b. Record Keeping
c. Tax and Duty Calculation (Freight and Insurance Costs)
d. Customs Value Information
e. Customs Classification and Product Description
f. Inventory Control; Goods Quantity
g. Licensing, Marking and Rules of Origin
h. Tariff Preferences (e.g. AFTA-CEPT, AFMA)
i. CBW, BOI and PEZA operations.
Internal Control and Record Keeping. Under
RA 9135 and its implementing rules (e.g. CAO 4-2004), importers
and customs brokers are obliged to keep records within 3 years
from date of importation and failure to keep records or refusal
to give customs access to these records may result in penalties
to both importer or customs broker. As provided in CAO 4-2004
and related rules, the records required to be kept does not
only refer to import documents but also to other business
records (financial, inventory and other information) related
to the correct and accurate assessment of the duties and taxes
payable on the imported article.
Other than the availability and accessibility
of the import and related business records, customs will verify
the correct payment of duties and taxes (excise and VAT).
It is not uncommon for many importers to allow customs brokers
to advance the payment of taxes and duties, and in many cases,
many importers have been audited by both BIR and customs on
the underpayment of duties and taxes resulting from unscrupulous
practices of customs brokers. As a profiling technique, customs
may thus verify the duty and tax payments of an importer as
against the input VAT declaration made to BIR, with focus
on the discrepancy between the customs data of importation
as against the data of importation in the VAT return filed.
Tax and Duty Calculation. The proper assessment
of duties and taxes on an imported article is generally dependent
on several factors as follows:
a) transaction value (price paid or payable)
and quantity
b) freight and insurance costs
c) duty rate based on proper classification/tariff heading
d) marking duty or special duty preference
Customs audit will normally involve a review
of the tax and duty calculation of a sample set of import
transactions. For many companies, errors and mistakes in the
calculation in any of the above factors are commonly committed
due to the volume of import transaction and due to negligence
in the preparation of the import declarations. These errors
and mistakes in the calculation may result in a finding of
underpayment.
Marking Duty and Tariff Privileges. In addition
to the regular taxes (VAT and excise) and duties due on an
imported article, many imported articles are subject to additional
duties such as marking duties (if improperly marked), or dumping
or safeguard duties. Non-payment of such duties upon importation
may be uncovered during the conduct of the field audit.
In the case of companies importing articles
with lower duty rates under existing free trade agreements
(e.g. ASEAN FTA or ASEAN-China FTA) or in case of duty-free
articles entered into PEZA or free trade zones, customs auditors
may also verify if an importer has improperly claimed such
duty preference and privilege. Interestingly, customs jurisdictions
from other ASEAN countries have recently conducted audits
on the special preferences granted on Philippines exports.
Likewise, Philippine customs has in one instance reviewed
the claim for such duty preference on importations from another
ASEAN country.
Penalties under the PEA regime. The conduct
of a customs audit may result in findings of violations of
customs laws and regulations such as 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. The penalties for such violations found during the audit
may result in the obligation to pay the underpayment, the
imposition of a penalty ranging from 50%-800% and the possible
recommendation for criminal prosecution (in case of fraud).
Customs Trends & Developments
for 2007
WE have just started the year and a lot of
people have been asking me for the latest trends and deve-lopments
in the customs front for 2007. Except for the controversial
law for customs brokers (RA 9280), we have not seen major
changes and developments in the customs front in the last
year. This early, however, we foresee significant changes,
mostly arising from the regulatory and policy reforms being
promoted to effect a better environment for the trading community.
We will outline below some of these changes and developments.
E-Customs and AsycudaWORLD. We expect customs
to fully implement its computerization program before the
end of the year, with the migration of the present system
to AsycudaWORLD and the adoption of additional applications
to address the specific requirements of customs.
As we wrote last year, the impact of the
customs computerization program to importers can be immediately
felt in the area of trade facilitation and trade compliance.
An enhanced online system with simpler procedures and documents
starting with the filing of import entry to releasing of the
imported goods should result in time savings and lower transactions
costs.
For the export community, the same should
likewise happen particularly in the area of liquidation of
raw materials and surety bonds. In terms of trade compliance,
a better and more transparent selectivity system for importations,
supported by an enhanced VRIS system, will simplify the procedures
for assessment. With better information system, customs should
likewise be able to implement a computer-aided system for
risk management at the border.
RA 9280 – Customs Brokers Act. Issues
on the implementation of RA 9280 will remain contentious and
controversial for this year and we do not foresee this matter
to be resolved soon. As the contending parties continue to
sharpen their knives, so to speak, we expect matters to be
elevated to the courts and we expect suits and counter suits
to continue. As early as 2004, as the one who first publicly
wrote and discussed about the new law, we already noted that
the law is full of gray areas incapable of being Òfilled
upÓ by mere issuance of implementing rules and guidelines.
Our observation then was that unless the
law is amended or unless there is a final court ruling on
the proper interpretation of the controversial provisions,
there will be conflicting interpretations of the law and government
agencies (BOC, PEZA, PRC/PRBCB, etc.) will have difficulties
in implementing the law. Our observation made 3 years ago
remains the same and has become more apparent today.
Customs Compliance Audit. Early last year,
we wrote that customs has issued Audit Notification Letters
(ANLs) to at least 100 companies, most of whom are multinational
companies and major local trading entities in various industries
(e.g. garments and textile, automotive, pharmaceutical, food,
steel, consumer goods and other major importing industries).
With the appointment of a new head and the reorganization
of the Post Entry Audit Group (PEAG), we expect a better and
more aggressive customs audit program and consequently, the
issuance of many ANLs in the coming months.
To prepare for possible audit, importers
and customs brokers should first verify if import records
(e.g. import entry, commercial invoice, packing list, bill
of lading) are kept within three years from importation. Additionally,
companies must ensure that financial and accounting records
for value declarations to customs are not only available but
also readily accessible to customs. In general therefore,
companies must not only keep the records but must also ensure
that the records are available and accessible.
This, however, poses a problem to many companies
for three main reasons: (a) companies look at customs operations
more from a logistics perspective rather than from an indirect
tax compliance concern; (b) customs operations are normally
outsourced to logistics companies which are mostly not concerned
with compliance issues; and (c) companies do not have internal
knowledge and competence for ensuring customs and trade compliance.
ASEAN Single Window. In 2004, we wrote about
the agreement of ASEAN leaders to facilitate the establishment
of the ASEAN Single Window, which aims to ensure the expeditious
clearance of imports through single submission of data, single
data processing and single decision-making for the release
of imported goods. A pilot program is being tested and numerous
trainings have been conducted for the trading community. The
implementation of the single window concept mainly depends
on the technological and computer capabilities of customs
and other government agencies.
At present, there are many more hurdles to
pass before the single window project is implemented. We expect
the project to be operational only by 2009.
Revised Kyoto Convention. Part of the agreements
of the ASEAN countries involves the adoption of numerous customs
and trade facilitation programs, including the adoption of
the Revised Kyoto Convention, formally known as Òthe
International Convention on the Simplification and Harmonization
of Customs procedures (Kyoto Convention)Ó.
The Philippine government has announced its
plan to accede to the Revised Kyoto Convention (RKC) this
year and thus, adopt the international best practices on customs
procedures. Accession to RKC will not only result in major
changes in existing rules and procedures but will require
an overhaul of the present tariff and customs code. Preparations
for implementing the RKC will start this year and once completed,
we expect major policy and regulatory changes to be implemented
in the coming years.
ASEAN & the Transport
Industry
AT the opening of the 12th ASEAN summit,
the ASEAN heads of states endorsed a proposal for the creation
of an ASEAN Charter similar to the integrated regional bloc
of the European Union. Amidst the call for greater cooperation
and integration to support intra and extra ASEAN trade in
goods and services, local industries fear that integration
will result in more competition rather than complementation.
For the trading and transport industries, integration creates
both opportunities and risks. Integration creates more opportunity
for the free flow of goods, whether raw materials and finished
goods and for a bigger common market place. On the other hand,
the entry of more players and service providers provide stiffer
competition in the market place, to the detriment of inefficient
and stagnant industries and companies. For the logistics industry,
integration will mean continuing structural and policy reforms
in the air and maritime transport sector coupled with overall
improvements in the land, air and maritime infrastructure.
ASEAN Initiatives for Trade in Services.
ASEAN first launched their joint effort to liberalize trade
in services with the signing of the ASEAN Framework Agreement
on Services (AFAS) on 15 December 1995 by ASEAN Economic Ministers
(AEM) during the 5th ASEAN Summit in Bangkok, Thailand, consistent
with international rules for trade in services as provided
by the General Agreement on Trade in Services (GATS) of the
World Trade Organization (WTO). At present, ASEAN has concluded
services commitments in the following services sectors:
• Air transport (sales and marketing of air transport
services, computer reservation, aircraft repair and maintenance)
• Maritime transport (international passenger and freight
transport, storage and warehousing)
• Business services (IT services, accounting, auditing,
legal, architecture, engineering, market research)
• Financial services (banking, insurance, securities
and broking, financial advisory, consumer finance)
• Telecommunication (public telephone services, mobile
phone services, business networks services, data and message
transmission)
• Tourism (hotel and lodging services, food serving,
tour operator, travel agency)
• Construction (construction of commercial buildings,
civil engineering, installation works, rental of construction
equipments)
Cooperation in the Transport Industry.
Obviously, the integration process in the transport and logistics
industry will take many more years before full implementation
due to the complexity of the work required and the policy
and regulatory changes necessary to effect such integration.
Developments, however, will come faster in some areas of the
transport industry.
ASEAN has specifically targeted specific areas for greater
cooperation which in the years to come will slowly change
the landscape of the domestic transport and logistic industry.
Among these areas are as follows:
• Greater door-to-door transport and clearance facilitation
• Improvement of land transport network infrastructure
to link with international maritime and air gateways
• Rationalization of shipping and maritime services
to allow multimodal transport interface
• Promotion of open-sky arrangements to allow unlimited
fifth freedom traffic rights (passenger and cargo) across
the region
• Cooperation on security and safety networks
• Coordination with international organizations (e.g.
ICAO, IMO, UNCTAD, etc.)
• Involvement of private sector [ (ASEAN Airlines Meeting
(AAM), ASEAN Federation of Forwarders Associations (AFFA),
ASEAN Ports Association (APA), Federation of ASEAN Shipowners’
Associations (FASA) and Federation of ASEAN Shippers’
Councils (FASC)]
Integrated Logistics in an Integrated Economy.
Integrated logistics normally refer to the provision for an
efficient and seamless flow of the goods starting from the
suppliers to the customers of finished goods. Also known as
third party logistics, this involves services such as: air
and sea freight, multi-modal transport, customs brokerage,
and warehousing and distribution. In the coming years, the
challenge for logistics providers will be how to operate efficiently
within a bigger geographical territory against stiff competition
from regional and global players.
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The author is an international trade
and customs consultant, and a licensed customs broker. He
is a regular lecturer on logistics, indirect tax, customs
and supply chain. Please contact aouvero@dlugms.com
for your comments.
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