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:
- Customs brokers can no longer advance the expenses for storage, arrastre, wharfage,taxes, duties and other port charges.
- 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.
- 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.
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 email@example.com and firstname.lastname@example.org