2016 ABF report highlighted a worrying 23%
error rate on import declarations – what are you doing to review compliance
Customs valuation principles
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).
- Commissions (other than buying
- Certain royalties
- Freight prior to the goods
arriving to the place of export
- Packing costs
- Contributions you make to the
manufacture of the goods that are not included in the price (assists).
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
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 agent receives any
additional benefit from the transaction (does the agent procure insurance or
transport for a fee?)
- The agent represents any other
party in the transaction (such a related party in the supply chain)
- The agent trades in goods
similar to the imported goods (even if it does not trade in the imported goods)
- The agent supplies any
additional services in respect of the imported goods.
The reality is there would be many genuine
buying commissions that are not treated as duty free buying commissions under
the Customs Act.
– 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
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.
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).
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
Why is customs valuation compliance important?
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's not all doom and gloom
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.
If you need any assistance, please contact Lynne Grant or Russell Wiese.
Disclaimer: The information contained in this e-alert/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 adviser.