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Saturday, 13th April 2024
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When was the last time you did a Customs Duty review? Back  
Paying import duties (customs, excise and VAT) is traditionally something that companies just get on with. While VAT is usually closely monitored (and exemptions, reclaims and other mechanisms are put in place), reclaimable. Customs and Excise costs are usually often treated as a fixed cost and where possible passed onto the consumer to be, at best, factored into a sales price, end of story. However maybe it is time that Finance Directors took time out to examine Customs duty and do a full scale review.
There are two main reasons why a Customs review is important: firstly to examine whether there is any potential for tax planning, which could reduce this ‘fixed cost’, and secondly in order to ensure compliance with tax law.

Reducing your tax bill
There are a number of ways you can try to mitigate the duty you pay. The first step in this process is an examination of how much duty is currently paid, what products are involved, and where you import from. With this knowledge it is possible to look at various ways of reducing your duty bill. The following is a, non-exhaustive, list of possible options:

Classification review: Have you been correctly classifying your goods, is it possible that there is a more appropriate tariff heading with a lower duty rate? This sort of review can really reap rewards especially when done for high value raw materials or for major capital equipment purchases. Classification is a science. The most obvious classification is not necessarily the most adventagious to the taxpayer nor the correct one.

Alternative sourcing: The EU has a number of trade agreements in place which means that if you import strategically from certain countries you will pay a lower rate of duty. One of the main preferential trade agreements is the Generalised System of Preferences (GSP). GSP preference is a movable feast and it important to stay up-to-date with changing legislation where product and countries can lose or gain preference over time. For example, in the last GSP regulation Russia regained preference for imports of fertilisers into the EU and Thailand regained preference for imports of footwear into the EU.

Processing under Customs Control: A customs controlled relief procedure, designed to encourage manufacturing in the EU, whereby you can import raw materials at the duty rate applicable to the good you are manufacturing. This has been implemented extensively in the pharmaceutical manufacturing sector where finished medicinal products attract a 0p.c. duty rate while the raw materials used in their manufacture are usually dutiable at a rate between 2 – 12p.c. The customs duty savings potential is enormous.

Inward Processing: Another customs controlled relief procedure, whereby you can import raw materials without payment of duty where they are being used in the manufacture of goods that are destined to be re-exported out of the EU.

Compliance Issues
It is not surprising if Finance Directors have not considered customs as a lesser area of potential concern within the panoply of compliance areas under their remit and as typically the amount of customs duty paid is concealed in the cost figures for raw materials and for plant and does not reveal itself as a separate expense. However there are increasingly important reasons why you ought to consider undertaking a customs review.

1. In the past where a trader used to pay paid a large amount of duty, a customs and excise officer used to pay made regular visits, in certain cases they were stationed permanently on-site, to the trader to ensure that all returns were being completed correctly. In certain cases they were stationed permanently on-site. However all these services have now been eliminated. The officer from Customs and Excise that visits your plant today will either be a control officer checking your self-assessment compliance or an investigations and audit officer carrying out a structured and focussed review and assessment. Tax compliance is now the responsibility of you the trader.

2. Being compliant in C&E became even more important in the last year. Why? Until April 2004, Customs and Excise audits were carried out as single stand-alone audits with little to no inter-action with the other taxes. Since April 2004, the Revenue Commissioners extended the tax head scope of their Code of Practice for Revenue Auditors to take account of Customs and Excise audits. Under the new audit procedures a Revenue audit can now be a single integrated audit covering all the tax heads including Customs & Excise. How businesses are dealt with by Revenue in terms of making qualifying disclosures, mitigation of penalties, and prosecutions, may now be indirectly impacted by the taxpayers’ customs/excise compliance history notwithstanding that customs and/or excise duty payment may form only a small portion of the overall annual tax liability.

A qualifying disclosure is a full disclosure accompanied by payment However, for a disclosure to constitute a qualifying disclosure it must cover all tax heads including customs and excise duties and must be accompanied by a payment of the total liability arising in respect of the tax, interest and penalties.

3. The Authorised Economic Operator (AEO) concept (it will be something like US Customs – Trade Partnership against Terrorism (C-TPAT) ) is being introduced into EU legislation (a regulation framing the implementation of AEO is being finalised) as a mechanism to enhance security and safety controls relating to transfer of goods into and out of the 25 member states. A regulation framing the implementation of AEO is being finalized. It will be something like US Customs – Trade Partnership against Terrorism (C-TPAT). The principle behind the AEO concept is that compliant traders be granted a specific status as secure members of the supply chain and would identify them as ‘most reliable trading partners’ – both for their commercial operations and for customs purposes – and provide a ‘quality marking for business partners and clients’ .
At present, the draft implementing provisions, outline one of the main criteria for granting of AEO status as a detailed Customs compliance history

How to be compliant?
As with any tax, it is recommended that ‘best practice’ is followed and that your company is fully compliant with the law. In this respect it is important that, for example:
• You import goods at the correct tariff heading,

• You assign the correct value to the goods being imported (i.e. the value for customs purposes as outlined in customs legislation, which means it take into considerations items including royalty payments, buying commissions etc.)

• You have a procedure manual, which covers Customs issues, in place for employees to follow, when, for example, they source a new raw material.

• You must ensure that import declarations are being completed correctly by your customs clearance agent – the liability rests with the importer, not the clearance agent.

Where to now?
The lesson to learn is ‘Don’t treat customs duty as a second class tax’. It is your responsibility to ensure that your company is being compliant in all taxes. The only way to ensure compliance is to have a regular customs duty review. And remember compliance is necessary even when you do not pay a lot of customs.

Any customs review may well have the added benefit of uncovering money saving tax planning opportunities – always on the mind of any good Finance Director!

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