Customs gives importers a helping hand
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The VDP provides importers the opportunity to correct erroneous, inaccurate, or insufficient information declared to customs because of mistake or negligence. Under the rules, an importer who files and qualifies for voluntary disclosure will be allowed to tender payment only to the extent of the amount and the issues that was disclosed. In effect, the importer will be exempted from payment of the fines or penalties that normally would have attached to the deficiency.
Of royalties, assists, and roo’s
With trade and customs rules being subject to constant change at both the international and local levels, it would no longer come as a surprise for most importers to miss particular details in their transactions. Certain dutiable cost items, such as royalties (which are paid after importation) and assists, may have been omitted in the declared value. Products may have been classified under incorrect tariff headings with lower rates of duty, thus making the company liable for underpayments. It may have erroneously availed of a preferential tariff rate (under the AFTA CEPT Scheme for instance), or failed to secure a valid Certificate of Origin, or prepare the necessary supporting documentation. Each of these is a potential area of exposure for companies.
Post entry audits and VDP
The VDP is an offshoot of the BoC’s Post Entry Audit (PEA) program, which is designed particularly to seek out areas of non-compliance in companies for transactions going back as far as three years. The outcome of an audit may range from a clean report, to findings of gross negligence which may expose affected companies to harsher penalties amounting to more than twice the government’s computed revenue loss.
The introduction of the VDP program thus affords importers an alternative avenue or breathing space before being picked for an actual audit. Companies would be encouraged to go through the program as this allows them to take a proactive look at their internal customs policies with a view to aligning them with the prevailing rules and regulations. It would also give them time to take stock and apprise themselves of the latest requirements, best practices, and systemic approaches to sound customs management. Such would be particularly applicable to large companies with substantial import values and duty payments to the BoC.
What gives the VDP program even greater significance is the fact that undergoing it may mitigate the probability for companies to be subject to future Customs audits. To note, compliance (provided certain conditions are met) entitles the importer to the status of “last priority” or “least priority” in the annual audit selection process for all its auditable importations for a period of two years from the date of application for the VDP.
One possible (albeit unrecommended) alternative to participating under the VDP is to keep everything under wraps until the company receives an audit notification letter (ANL) from the PEA Group of the BoC. This tact, of course, would not be advisable unless a company is fully confident of its compliance with customs rules. One disincentive for this is that once an ANL is issued to a company and a field audit has already commenced, the company would automatically lose its eligibility to avail of the VDP. In this regard, also excluded from participating in the VDP program are importers that are: a) covered by a final assessment issued by the BoC Commissioner, b) covered by cases already filed and pending in courts, and c) those involving cases of fraud, including those covered under Section 3611 of the Tariff and Customs Code.
Nevertheless, the VDP does not constitute a panacea to all present and prospective BoC liabilities. It must be considered that during the verification, if it is discovered that importations or non-disclosures were done with fraud or bad faith, the application for voluntary disclosure shall be denied and a full audit shall be conducted.
Do-it-yourself VDP? Better not
Although the requirements and guidelines for enrolling under the VDP seem fairly straightforward, preparations for such are actually complex affairs (one example of a complex issue is “transfer pricing” which involves “opposing” rules from the BoC and BIR perspectives). Companies should aim to make a full and comprehensive disclosure of their issues in the first instance. Those who wish to participate in the VDP would therefore have to do so fully prepared, having reviewed their records and internal policies thoroughly so as to ensure that all areas of disclosure are effectively communicated to the BoC. This is to mitigate the possibility of the BoC mis-appreciating the transactions involved and to ensure a smoother review.
Unless a company has an experienced internal team working on trade and customs, it is recommended that it gets outside help before, during, and even after the VDP or PEA has been conducted. As mentioned, there are four areas of probable non-compliance that companies have to look out for: customs valuation, tariff classification, rules of origin and record keeping. The rules, particularly those applicable to the first three, are more often than not found in international organizations and sources, and are rarely found here in the
(Jeremy I. Gatdula is a Principal for International Trade and Customs Services of Manabat & Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email [email protected] or [email protected]).
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