Wednesday, June 22, 2016
Australian Border Force focuses on customs valuation
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23 June 2016
22 June 2016
Russell Wiese | Partner | rwiese@hunthunt.com.au | +61 3 8602 9299 Lynne Grant | Special Counsel | lgrant@hunthunt.com.au | +61 3 8602 9246
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At recent industry events the Australian Border Force (ABF) shared its customs compliance focus for the coming year. An area that has been earmarked for attention is customs valuation. The ABF are focusing on costs, in addition to the invoice price, which need to be included in the customs value. Below we set out what you as an importer can do to limit the risk of customs non-compliance.
A June 2016 ABF report highlighted a worrying 23% error rate on import declarations – what are you doing to review compliance levels?
In most cases the customs value of goods will be based on the FOB invoice price plus certain other additions. These include:
Assists can include materials or services used in manufacturing the goods, tools or dies used in the manufacturing process and design and art work (not undertaken in Australia). Importers need to consider whether they have provided their customs broker with all the information the broker needs to determine the customs value of the goods. It is necessary to ask yourself, 'What costs am I paying to have the goods produced and/or purchased and brought to Australia? If the answer is there are amounts in addition to the invoice price, it is important that you notify your customs broker. This is crucial as the customer broker will rely heavily on the commercial invoice to determine the customs value.
Packing costs - Materials and labour used in getting the goods into the state in which they are exported to Australia need to be included in the customs value. An area where we often see mistakes are costs incurred at an offshore DC or warehouse. If goods are repacked at the DC or warehouse, it is likely that the ABF will consider that the costs of repacking should be included in the customs value. This may only be a few cents per item but it will add up over years of imports. Commissions – Buying commissions do not need to be included in the customs value of goods but there is a catch. The term 'buying commission' is defined narrowly in the Customs Act. The commission is unlikely to be a duty free buying commission if any of the following occur:
The reality is there would be many genuine buying commissions that are not treated as duty free buying commissions under the Customs Act. Royalties – There is a lot of case law concerning which royalties should, and should not, be included in the customs value. Often, a royalty which is merely for the right to use a trademark in Australia will not be subject to customs duty. However, care should be taken in respect of any royalty that gives you the right to use a trademark in the manufacture of goods. EXW – Purchasing goods on an ex-works basis can mean that you have the responsibility of transporting the goods from the place of manufacture to the port of export. Depending on when the goods are packed in the container, these costs may be foreign inland freight costs which need to be included in the customs value. Assists – Do you provide any support to the manufacturer of the goods? For instance, are you supplying free of charge labels or price tags to be added to clothing, instruction manuals or warranty cards to be included with goods or moulds to manufacture goods. Alternatively, do you pay for someone to attend and help with the manufacture of the goods? All of these forms of assistance add value to the goods but will not be included in the invoice price. The ABF is likely to require them to be included in the customs value. Customs invoice – Is the invoice that is issued on the shipment of goods the same as the commercial invoice which you have paid? Often with complex supply chains the shipper will not be the commercial supplier or the shipment may be comprised of goods covered by multiple commercial invoices. The critical issue is to be able to reconcile the commercial invoice (on which the customs value is based) with the customs invoice (which may be all the customs broker receives). Transfer pricing adjustments – The customs value is based on the price payable for the goods. If, as a result of a transfer pricing adjustment, the price payable for the goods is altered (CoGS adjustment), the customs value will also be altered. This can result in additional duty or a duty refund depending on the direction of the alteration.
Customs valuation is an area that has not recently received a lot of attention from importers or the ABF. This is understandable given Australia's low duty rates and the proliferation of free trade agreements increasing the volume of goods entered duty free. However, on top of ensuring that the right amount of duty is paid, there are good reasons to ensure customs compliance. One compelling reason is the desire to avoid penalties. Recently the ABF has been issuing penalties for minor breaches of the Customs Act including breaches that do not result in an underpayment of duty. These penalties are being issued regardless of whether the importer intended to breach the Customs Act. Good levels of compliance are important for those importers seeking to be involved in the Australian Trusted Trader Programme which commences on July 1. This programme, and its related trade facilitation benefits, is only available to importers who can demonstrate high levels of customs compliance.
It is not all negative. Through careful review of the customs valuation rules you may find that you have been overvaluing goods and are entitled to a refund. Common refund opportunities arise from not accounting for vendor rebates, decreasing transfer pricing adjustments, and having used a CIF value as the customs value (the customs value should be based on the lower FOB value).
Given that the ABF has given importers a warning that it will be targeting this area it is important to actively ensure compliance. Ensure your customs broker is aware of all amounts you pay in relation to the manufacture or import of goods. On top of this, we can assist with reviewing your supply chain for key products and identifying areas of risk and opportunity. In assessing the merits of taking this step, it is important to remember that penalties can apply even where goods are entered duty free. Please contact Russell Wiese or Lynne Grant if you wish to discuss your levels of customs compliance.
RUSSELL WIESE
Russell is a Partner at Hunt & Hunt Lawyers and a customs and global trade specialist with a strong focus on helping clients proactively manage customs risks and opportunities. Over the past 10 years Russell has advised on various indirect taxes including customs duty, GST, excise and fuel tax credits. These roles have given Russell the opportunity to work with internal government stakeholders, multinationals, individual customs brokers and forwarders and small-medium businesses.
LYNNE GRANT
Lynne is a Special Counsel with more than ten years experience including customs and global trade related work such as valuation and classification of imported goods and anti-dumping investigations. Lynne also brings to the team a broad range of corporate and commercial experience, including complex contractual negotiation and drafting and domestic / international mergers and acquisitions.
The information contained in this update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal advisor.
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