discover how to save customs duty and manage customs risk

Classification and rates of customs duty on imports of different types of rice

2010-06-29T07:06:00.000-07:00

A (UK) customs information paper on this topic is here

EU-China

2010-06-29T07:01:00.000-07:00

High-level International Customs Conference EU-China, 1 - 2 September 2010 in Shanghai

The EU website states:

"Reconciling trade facilitation objectives with the need to safeguard the security of citizens, protect intellectual property rights and combat illicit trade is a core issue in the relationship between the European Union and China in the area of customs. A high-level International Customs Conference will explore this challenge from various geographical and sectoral angles focusing on EU-China." More

Supply chain security: Singapore-Canada & Singapore-Korea

2010-06-29T06:49:00.000-07:00

Singapore Customs has signed its first two Mutual Recognition Arrangements ("MRAs") on supply chain security with the customs authorities in both Canada and Korea.

Free Trade Zone: Turkey, Syria, Lebanon, Jordan

2010-06-26T06:56:00.000-07:00

Reprersentatives of Turkey, Syria, Lebanon and Jordan have signed an agreement to establish a trade co-operation council at the recent Turkish-Arab Economic Forum held in Istanbul.

The four countries intend to create a “zone of free movement of goods and persons.”

US classification: Dell - how many batteries in a computer?

2010-06-22T09:20:00.000-07:00

Follow the link to Lawrence Friedman's blog about this.

Save customs duty using the customs rules to help you

2010-05-05T03:45:00.000-07:00

Todays blog outlines how to use a key opportunity in customs valuation planning

A major yet significantly under utilised approach to reducing duties is to look at the customs valuation. A key provision in both US and EU customs law permits the customs value to be based on any earlier sale of the same goods in a chain of transactions prior to importation. For this reason it is variously described as the "prior sale", "earlier sale" or "chain of sales" opportunity.

They all mean the same thing, i.e. the opportunity to save customs duty! This opportunity will not be around for whole lot longer as the EU plans to change the law which permits it!

How does this work?

For example, if goods are sold by a manufacturer in the US for $60 to a US export company which, in turn, sells them to an importer in the EU for $100, duty can be paid on a value of $60, providing certain conditions are met. The savings achieved are the difference between duty on the £100 and the duty on $60. Savings of up to 40% on the duty costs are possible.

What are the benefits?

The chief benefit of the approach is to save customs duty by excluding the costs and profits attributable to the non-manufacturing activities undertaken in the country of export from the customs value declared at import in the destination country (US or EU).The approach also uncouples the value of the imported goods for customs valuation purposes from their inventory value for corporate income tax purposes. That's good because tax and customs values are often in tension. Direct tax authorities tend to favour a low import value (i.e. more profit to tax), whereas Customs favour a higher import value (more import duty to collect.)

Using an earlier sale approach, the price paid by the importer is no longer relevant for customs purposes, so that any increase in that price will not cause an increase in the amount of customs duty.

Who can benefit?

Any company or business importing goods into the EU or US can benefit from this opportunity providing 1) there has been an earlier sale and 2) the exporter is willing to provide the relevant invoice relating to the earlier sale.

As this involves disclosure of margins by the exporter, the approach is more attractive to international groups of companies where such disclosure is not an issue and to industries where margins are already widely known. However, exporters can still realise the benefits by importing goods into the US and EU on their own account.

So do you need help with earlier sale planning?

What could you do today to start reducing your customs duty?

Who decides how much customs duty to pay or save?

2010-04-14T02:51:00.000-07:00

Many businesses have given up control of their customs duty bill and their customs compliance by failing to manage their freight forwarder or customs clearance agent effectively.

Control - and therefore management - is handed over in the mistaken belief that outsourcing an operation such as making customs declarations and the legal responsibility for their correctness are one and the same.

Which other taxes would a business wholly place responsibiity for into the hands of a third party who was not a tax expert? So who is deciding how much customs duty you pay or save?

So who decides how much customs duty to pay at import? Very often its the import agent. And many businesses continue to struggle with who is actually responsible for what goes on with the customs duty authorities (HMRC). Sometimes this ends up with unnecessary customs audits or demands for customs duty being sent to importers years after the goods were imported, further manufactured, stored and sold. And with no propsect of passing on the additional costs.

It is common for businesses to believe that they have absolved themselves from their responsibility for those import clearance processes because they have outsourced the work to their freight/clearance agent. This is a seriously mistaken view!

A business can outsource the activity of making customs declarations and calculation of customs duty. It cannot absolve itself from the legal responsibility for the completeness and correctness of those customs declarations. (That is of course just like any other tax.) What is submitted on customs entry forms (the SAD, or form C88 in the UK) is the responsibility of the importer or exporter. This includes the customs duty calculation. Many businesses do not even know how much customs duty they pay!

This requirement means that a business should always instruct its agent about what goes on the SAD. A business must have an understanding of customs duty laws and the associated compliance procedures. Clearly, what is not understood cannot be managed effectively.If a business does not know what should be put on the SAD it has to find out and decide what should be submitted … including the customs duty and import VAT calculations. The business - whether importing or exporting - is legally responsible for those decisions.This means that instructions and protocols must exist between the business and its customs clearance agent(s). More, the business must ensure that the instructions are followed by checking and auditing freight agent’s actions.

Additionally the business must take action in cases where the instructions are not followed. This can be challenging because the agent is often geographically distant. Where an entry contains an error, mistake or omission, HMRC are more likely to adopt a light touch with the business if it can demonstrate that it has done everything reasonably practicable in mandating and managing the agent.

Documentation plays an important role here. A business should maintain a customs manual, including instructions to the agent and copies of emails, meetings notes and notes of telephone discussions with the agent. When setting down these procedures, it should also involve someone who has responsibility for the management of risk in the business.

Directors, business owners and managers can take back control of import clearance and calculating customs duty. By doing so they boost profits by:

- reducing the risk of mistakes and the associated costs;

- avoiding the likelihood of time consuming customs audits,

- managing the impact of customs duty on the business; and

- saving unwelcome future customs duty demands.

How to avoid wasting your money and boost your bottom line when it comes to customs duty management

2010-01-05T01:41:00.000-08:00

The title seems uncontraversial doesn't it?; customs duty is a tax and customs compliance is an area of tax compliance.

However, pro-active management is often absent as import tax/customs duty generally has very low visibility in many businesses. Many FDs have only a fuzzy idea of how much customs duty their business pays. Yet they have a close grip on the corporation and VAT figures.

Most VAT washes right through the business. Yet customs duty is a "sticking tax" and is therefore an absolute cost. Any time no one wnats to depress profit.

In a down turn especially, minimising costs and maximising bottom line are a key focus. Every £££ of duty saved goes right to £££ on the bottom line. When margins are already being squeezed, the hidden costs need teasing out.

The low visibility of import tax is curious from this perspective. But very often, "customs" is unceremoniously lumped in with freight costs and supply chain costs. A more critical look at this area could reveal potential for cost reduction. Additionally, a lack of knowledge of duty costs being borne in a business may indicate weak compliance controls as well. Any customs compliance risk better managed reduces the risk of more duty being payable later when HMRC identify compliance failures. So there is added value in this endeavour, in addition to immediate cost saving.

Some businesses should be managing risk relating to customs duty (import tax), and the associated compliance procedures, on a par which match the visibility and resource afforded to corporation tax or VAT (for which many businesses maintain wholly dedicated teams.)

All businesses are looking to improve their margins. Individuals work furiously hard throwing valuable resources to meet the challenge to improve margin by 0.5% or 1.0%. By what number of percentage points might a business improve its margin by taking a strategic approach to customs management but otherwise struggles to achieve even a fractional improvement to its margins by more resource intensive but less effective efforts “here and there” around the buisness?

A customs duty saving goes straight to margin and the bottom line.

Thin end of a far fatter customs duty wedge?

2009-09-21T13:39:00.000-07:00

Will what is happening in Canada spread to other customs authorities?

What is happening in Canada?

A few months ago, in July 2009, Canadian Customs issued a policy document which has caught the eye of other global customs adminstrations and some professional advisors. Business, though, is probably still largely in the dark. Yet the ramifications are enormous for businesses trading in goods internationally.

What has been announced? Canadian Customs are taking a view about all realted party transactions in a way which means that all of the following could be considered as payments for goods and therefore subject to customs duty:

- payments which are contributions to related party's R&D programme

- interest paid as part of deferred payment arrangements

- payments based on reale proceeds of goods

- management service fees and similar payments paid by the importer

- overheads not already part of the selling price of the goods

- payments which contribute to global promotional and marketing activities

How long before the US or EU follows this lead? The EU has alreay indicated a broadening out of the scope of customs valuation provsions which will bring more royalty payments within the scope of duty.

So how will these developments affect you and your business?

What are some of the customs risks in international transactions?

2009-07-14T06:03:00.000-07:00

Unlike tax costs, customs costs are rarely obvious because they have low visibility. Customs duty planning is often neglected, unknown or unheard of.

Significant challenges arise with the application of customs law (and should be dealt with by appropriately designated company personnel). Here are some of the challenges and risks:

1 Customs valuation: declarations of customs values generate the possibility of contradiction with transfer prices desirable for direct tax purposes.

2 Method of valution: The majority of world trade is valued for customs purposes according to the transaction value method, that is the price paid or payable for the goods, subject to adjustments on an objective and transparent basis. The quantification of these adjustments - especially in relation to royalties and licence fees - can be difficult and complicated in practice.

3 Related party transactions: Customs values in related party transactions are not necesarilly unacceptable providing the relationship did not influence the price. UK Customs review such transcations closely. The onus is on the importing company to show that there has not been influence on the price because of the relationship. How do you answer the question to UK Customs "How do you know whether or not there is price influence?"

4 Royalties, R&D costs, interest charges, design and development work: UK Customs sometimes take the view that such costs and charges are wholly dutiable when proper reading of contracts and agreements indicate they should not be. Many businesses are reluctant to challenge Customs because they are unsure of their ground and believe Customs must be right.

5 Additionally, the customs implications of R & D cost-sharing agreements and of royalty and financing agreements are not taken into account when these agreements are being drafted. This can lead to unnecessary exposures to customs duty when more judicious drafting could avoid the imposition of duty.

Are these challenges being managed in your business?

How?

And by whom?

Discovering how to use the customs duty rules to save customs duty

2009-05-21T05:21:00.000-07:00

This blog is about how to use a key opportunity in customs valuation planning. There's no need to go around the customs rules to find a way to save duty. This blog shows how to use one of the rules to save money for your business.

A major yet significantly under utilised approach to reducing duties is to look at the customs valuation. A key provision in both US and EU customs law permits the customs value to be based on any earlier sale of the same goods in a chain of transactions prior to importation. For this reason it is variously described as the "prior sale", "earlier sale" or "chain of sales" opportunity.

They all mean the same thing, i.e. the opportunity to save customs duty! How does this work?For example, if goods are sold by a manufacturer in the US for $60 to a US export company which, in turn, sells them to an importer in the EU for $100, duty can be paid on a value of $60, providing certain conditions are met. The savings achieved are the difference between duty on the £100 and the duty on $60. Savings of up to 40% on the duty costs are possible.What are the benefits?

The chief benefit of the approach is to save customs duty by excluding the costs and profits attributable to the non-manufacturing activities undertaken in the country of export from the customs value declared at import in the destination country (US or EU).The approach also uncouples the value of the imported goods for customs valuation purposes from their inventory value for corporate income tax purposes. That's good because tax and customs values are often in tension.

Direct tax authorities tend to favour a low import value (i.e. more profit to tax), whereas Customs favour a higher import value (more import duty to collect.) Using an earlier sale approach, the price paid by the importer is no longer relevant for customs purposes, so that any increase in that price will not cause an increase in the amount of customs duty. Who can benefit?Any company or business importing goods into the EU or US can benefit from this opportunity providing 1) there has been an earlier sale and 2) the exporter is willing to provide the relevant invoice relating to the earlier sale.

As this involves disclosure of margins by the exporter, the approach is more attractive to international groups of companies where such disclosure is not an issue and to industries where margins are already widely known. However, exporters can still realise the benefits by importing goods into the US and EU on their own account.

So start using the rules that are there rather than worrying how to get around them. Do you need help with earlier sale planning?

What could you do today to start reducing your customs duty?

How origin creates opportunties for customs duty savings ...and impacts on customs duty costs

2009-02-23T02:26:00.000-08:00

Many businesses fail to ensure that sales, purchasing, contracts and finance staff understand the concept of "origin" relating to imported or exported goods

It is still common to hear businesses talk about the origin of goods in terms of “the place goods are shipped from”. This is a complete misnomer. Often the grasp of this important concept and its commercial implications by a business is like getting hold of a bar of slippery soap. Perhaps no one in a commercial role achieves a really good grasp of the concept of origin nor the implications for their business. Because origin has implications for and is impacted upon by many different departments and functions, there is a real need for a strategic appraoch to the management of origin .......

Those responsible for the customs function itself generally have a good understanding of origin rules. But this is rarely so in, say, sales, purchasing or production planning, where knowledge can be weak. Yet here are the points at which the business touches customs rules but with no real appreciation of the significance. Purchasing and supply decisions which turn on the orgin of goods often carry significant customs implications as well as business ramifications.

Businesses are continually concluding sales contracts which may have implicit or explicit terms about the origin status of the goods. Whether recognised by the business or not, the failure to understand origin rules can have unintended consequences.

It can be embarrassing to find that goods supplied to a customer are being manufactured in a country which the customer has a deliberate policy of avoiding. So there is the risk of strained customer relations, and of commercial and reputation damage.

Ignorance about origin can also be costly in financial terms resulting in loss of preferential treatment for duty purposes; worse it can also increase the duty burden. The origin of goods is not only relevant for whether preferential import duty rates can be used, but conversely whether any additional duties (such an anti-dumping duty or countervailing duty), or tariff measures (such as restrictive limits), apply.

Origin - a cost or a saving?

As highlighted in a recent blog, customs compliance and planning is even more important in 2009. Failure to comply with origin rules leads to interruption of supply chains, delayed shipment or clearance, the drag effect of being tied up on Customs queries and audits. Yet risk management procedures rarely include reference to customs matters, eventhough non-compliance with origin rules can have significant adverse consequences for a business.

Likewise, failure to deploy origin opportunties in customs duty planning means paying too much customs duty ...

The management of originin customs duty compliance and customs duty planning impacts on customer relationships, business reputation with customs authorities and impacts directly on finance and profits.

Origin - a cost or a saving?

Customs duty will hurt more in 2009

2009-02-03T00:44:00.000-08:00

There is a never going to be a good time to incur a customs penalty or suffer a delay in import clearance. Still worse if too much customs duty is paid or a penalty incurred because of business non-compliance.

Clearance delays or excessive customs duty paid have a greater impact in a business when things are tight.

When business or profits are down, the impact of delays or paying penalties, or paying too much customs duty, is a bigger number against the bottom line.

For this reason, customs duty compliance is even more important in 2009. Interruption to supply chains, delayed shipment or clearance, the drag effect of being tied up on avoidable Customs queries and audits, paying too much customs duty…these impact on customer relationships, business reputation with Customs, and impact on finance and profits.

The highs and lows of customs valuation v transfer pricing

2009-01-26T13:43:00.000-08:00

This linked article reflects discussion at a WCO seminar asking whether a customs valuation policy is needed for businesses in the same way as transfer pricing agreements are required.

http://www.engineeringnews.co.za/article/convergence-between-customs-valuation-and-transfer-pricing-2008-12-12

The rules for transfer pricing and custom valuation are in tension, Corporate/business tax revenues authorities favour a low inventory value giving higher profits to tax. Customs authorities tend towards a higher inventory (import) value as this provides a higher value on which to levy customs duties.

Having said that, if a transfer pricing policy is in place and this evidences fully costed arms length values for corporate/business tax purposes, it is difficult to see how customs values in the same transaction can be challenged since the arms length standard has been met. If the "price paid or payable" for goods (using customs terminology) has not been influenced by the relationship between the parties, because the transfer pricing evidence is of arms length trading - then is the need for some sort of customs valuation policy wholly unnecessary?

Question is whether arms length trading one the one hand and lack of price influence in related party transactions on the other, actually mean the same.

how to save customs duty in your business

2009-01-19T04:09:00.000-08:00

Looking how to reduce customs duties in your business?

There are many ways to reduce customs duties. Ina recesion you hav reto all you can to save cost. Duty is a cost; a sticking tax. What does saving duty mean to your margins?

The amount of duties paid depends on four "whats". Managing the impact of any of these "whats", will improve business profit.

1 What the goods are, (i.e. their nature and characteristics) determines tariff code and therefore the duty rate
2 What the origin of the goods is, (i.e. where dug up, grown, farmed, further manufactured or processed NOT just shipped from) determines whether preferential, standard or additional duties are payable
3 What the structure of the transaction is (i.e. whether sale, leased, loaned, free of charge, under warranty or repair arrangement), determines customs value
4 What happens to the goods once imported (i.e. sold, further manufactured, repaired and returned, stored and re-exported) determines whether various reliefs from customs duties are available.

How to use a key opportunity in customs valuation planning

A major yet significantly under utilised approach to reducing duties is to look at the customs valuation. A key provision in both US and EU customs law permits the customs value to be based on any earlier sale of the same goods in a chain of transactions prior to importation. For this reason it is variously described as the "prior sale", "earlier sale" or "chain of sales" opportunity. They all mean the same thing, i.e. lower duty!

How does this work? For example, if goods are sold by a manufacturer in the US for $60 to a US export company which, in turn, sells them to an importer in the EU for $100, duty can be paid on a value of $60, providing certain conditions are met. The savings achieved are the difference between duty on the £100 and the duty on $60. Savings of up to 40% on the duty costs are possible.What are the benefits?

The chief benefit of the approach is to save customs duty by excluding the costs and profits attributable to the non-manufacturing activities undertaken in the country of export from the customs value declared at import in the destination country (US or EU).

This uncouples the value of the imported goods for customs valuation purposes from their inventory value for corporate income tax purposes. That's good because tax and customs values are often in tension. Direct tax authorities tend to favour a low import value (i.e. more profit to tax), whereas Customs favour a higher import value (more import duty to collect.)

Using an earlier sale approach, the price paid by the importer is no longer relevant for customs purposes, so that any increase in that price will not cause an increase in the amount of customs duty.Who can benefit? Any company or business importing goods into the EU or US can benefit from the opportunity providing there has been an earlier sale and the exporter is willing to provide the relevant invoice relating to the earlier sale. Since this involves disclosure of margins by the exporter, the approach is more attractive to international groups of companies where such disclosure is not an issue and to industries where margins are already widely known. However, exporters can still realise the benefits by importing goods into the US and EU on their own account.

Need help with earlier sale planning?

What could you do today to start reducing your customs duty? And visit www.sayeconomics.com for other articles on finance and economic issues in a recession

In a recession, discover how to save customs duty if you are a manufacturer

2009-01-12T12:49:00.000-08:00

First of all "manufacturing"* is a very broad term in customs law. (* Certain types of processing, handling, even checking and repacking of goods are included in the meaning of "manufacture".)

Yes its true, the EU (or UK Customs) will give you money** if you are manufacturing in the UK (or EU) or overeseas. How does that work ? (** give you money = they don't take it off you)

If you import items or goods into the UK/EU and then carry out further manufacture or processing and then re-export thegoods overseas to non-EU country then you can save customs duty through processing relief.

If you export items or goods overseas from the UK/EU in order to get further manufacture or processing done and then re-import the goods, then again you can save customs duty through another processing relief.

If you import stuff to make other goods, and those later goods would have had a lower duty rate if imported than the stuff you actually brought in to make them from (!), you can get relief from customs duty as well.

If you import for further processing and keep the finished goods in the EU afterwards you can also save customs duty, this time through the tariff suspension arrangements.

Relief from customs duty is effectively free money that the EU or UK Customs give you. Are you getting what you're entitled to? If not, what's the impact on your margins, competitive edge and bottom line? In a recession, money saved goes straight to the bottom line..

AEO (what's that???)

2009-01-03T09:29:00.000-08:00

AEO stands for "Authorised Economic Operator"

Will you be one?

It's here now; since July 2007; AEO status is in force from 1 January 2008.

This is a really important change for businesses; AEO could turn out to be a sleeping giant .............

What's it got to do with customs duty? It's enshrined in customs law now and demonstrating customs duty compliance (and other stuff) will affect whether AEO status is awarded to individual businesses.

Some businesses have been told by suppliers and customers, particularly in the US, that they won't continue to do business unless they acheive AEO status in the UK (or EU).

What will AEO - whether you apply or not - mean to businesses and how will you respond. What do you see as the challenges that this important change will bring to affect customs compliance and international trade management ????......

Discover how to take back control of importing and save customs duty

2008-09-29T08:48:00.000-07:00

Many businesses in the UK - and probably around the globe - still struggle with who is responsible for what goes on with the customs authorities (HMRC in the UK). Sometimes this ends up with customs duty bills being sent too importers years after the goods were imported.

Mistakenly, it is not uncommon for businesses to behave as if they have absolved themselves of any responsibility or involvement in those import clearance processes just because they have outsourced everything to do with customs entries at import and export to their freight/clearance agent. But itis not so!

A business can outsource the activity of making customs declarations but it cannot outsource the legal responsibility for the completeness and correctness of those customs declarations. What gets put on customs entry forms (the SAD, or form C88 in the UK) is the responsibility of the importer or exporter. Reliance on a third party is no defence…..

This means a business must always instruct its agent with regard to everything that goes on the SAD. Consequently a business has to have an understanding of customs laws and the associated compliance procedures. What is not understood cannot be managed.

If a business does not know what should be put on the SAD it has to find out or work out what should be put on it. The freight agent may be able to assist (as can HMRC, customs consultants and trainers and documentary resources both paper and on line.) At the end of the day though, the importer or exporter has to decide what to do and is legally responsible for that decision.

This means that instructions and protocols must exist between the business and its customs clearance agent(s). More, the business must ensure that the instructions are followed and must take action in cases where the instructions are not followed.

Where an entry contains an error, mistake or omission, HMRC are more likely to adopt a light touch with the business if it can demonstrate that it has done everything reasonably practicable in mandating and managing the agent.

Documentation plays an important role here. Keep a customs manual which includes instructions to the agent and keep copies of emails, meetings notes and notes of telephone discussions with the agent.

When setting down these procedures, involve a person who has responsibility for the management of risk in your business.

Sleep easier at night! Take back control of import clearance, reduce costs caused by mistakes and expensive customs audits and save future customs duty demands.

How you can use customs duty planning to increase profits

2008-09-26T02:31:00.000-07:00

Many businesses that import into the EU (including the UK) fail to match customs planning opportunities to their commercial arrangements. Customs duty is just import tax, so this failure wastes money = lost profit margin!

The exposure of a business to customs duty is, as with any other tax, susceptible to planning tools and techniques. These eliminate, reduce or defer payment of it, depending on the specific commercial circumstances. So why not do it? No business would pay more more corporate tax or VAT than it needed to. Business owners and managers do not pay more income tax than they need to. So why pay more import tax than necessary?

Failing to manage this import tax exposure means that UK businesses waste hundreds of thousands of pounds a year in unnecessary customs duty payments and in cash flow cost.

For example, to acheive some weightly savings consider ……

chain of sales valuation planning for imports into the EU or US;
manufacturing reliefs available for domestic manufacturers and overseas production;
suspension of the EU tariff on imports of materials or components not available from EU sources;
cash flow benefits and management controls afforded by customs reliefs and customs warehousing ....

There are more!!

Unlike the complex tax planning and business re-engineering sometimes required to achieve savings for other taxes, these customs duty planning opportunities easily dovetail into the different types of commercial arrangements which many importers and exporters already operate.

It is effectively just free money.

Discover the "whats" of how to save customs duty

2008-04-30T15:25:00.000-07:00

There are many ways to reduce customs duties.

The amount of duties paid depends on four “whats”. Managing the impact of any or all of these “whats”, will improve business profit.

1 What the goods are, (i.e. their nature and characteristics) determines tariff code and therefore the duty rate

2 What the origin of the goods is, (i.e. where dug up, grown, farmed, further manufactured or processed NOT just shipped from) determines whether preferential, standard or additional duties are payable

3 What the structure of the transaction is (i.e. whether sale, leased, loaned, free of charge, under warranty or repair arrangement), determines customs value

4 What happens to the goods once imported (i.e. sold, further manufactured, repaired and returned, stored and re-exported) determines whether various reliefs are available.

Formula for how to save customs duty

2008-03-23T11:12:00.000-07:00

Customs Valuation = CV

Tariff Classification (rate of tax) = TC

Customs Duty = CD

CV x TC = CD (the duty or import tax you pay)

P = Planning

Planning can be around reducing customs values (R1), tariff re-engineering (R2), using reliefs (R3) or origin preferences (OP).

Therefore (CV-R1) x (TC-R2) - R3 - OP = a whole lot less duty to pay!

Can your business afford to pay more than you need to?

How to avoid wasting money and boost your bottom line when it comes to customs duty management

2008-01-22T01:16:00.000-08:00

The title is self explanatory (isn't it?) ; customs duty is a tax and customs compliance is an area of tax compliance.

Yet pro-active management is often absent as import tax/customs duty generally has very low visibility in many businesses. Many FDs have only a fuzzy idea of how much customs duty their business pays. Yet they have a close grip on the corporation and VAT figures. Most VAT washes right through the business. Yet customs duty is a "sticking tax" and is therefore an absolute cost. Any time no one wnats to depress profit. In a down turn especially, minimising costs and maximising bottom line are a key focus. Every £££ of duty saved goes right to £££ on the bottom line. When margins are already being squeezed, the hidden costs need teasing out.

The low visibility of import tax is curious from this perspective. But very often, "customs" is unceremoniously lumped in with freight costs and supply chain costs. A more critical look at this area could reveal potential for cost reduction. Additionally, a lack of knowledge of duty costs being borne in a business may indicate weak compliance controls as well. Any customs complinace risk better managed reduces the risk of more duty being payable later when HMRC identify compliance failures.

There are some businesses where the management of risk relating to customs duty (import tax), and the associated compliance procedures, merit treatment on a par which match the visibility and resource afforded to corporation tax or VAT (for which many businesses maintain wholly dedicated teams.)

All businesses are looking to improve their margins. Individuals work furiously hard throwing valuable resources at the problem in an effort to improve by 0.5% or 1.0%. By what number of percentage points might a business improve its margin by taking a strategic approach to customs management but otherwise struggles to achieve even a fractional improvement to its margins by more resource intensive but less effective efforts “here and there” around the buisness?

A customs duty saving goes straight to margin and the bottom line.

Royalties - save customs duty or pay more?

2007-12-13T03:59:00.000-08:00

The landed cost of imported goods is set to rise. Why is this?

Its because the treatment of royalty payments is changing. The EU is adopting a new approach (set by the WCO) about the treatment of royalties for customs duty purposes. This will impact on importers and their customers. Exporters will be affected if they import.

So what's the actual change? Some royalty payments already have to be added into the customs values of imported goods to calculate the base on which duty is charged. Some don't have to be but are often wrapped up in one agreement, so that all the payment is mistakenly charged to duty.

The changes mean that Customs will start charging customs duty on royalty payments which relate to trademarks. This was NOT the case in the EU up until now. This change will amount to £millions more customs duties being charged worldwide. So landed costs will rise. Consequently, some one, somewhere in the supply chain, will have to bear that additional cost.

A lesson about the customs duty costs of failure to manage origin for duty

2007-12-07T02:46:00.000-08:00

There once was a company that sent out its purchasing staff to source goods for a contract.

These staff were given financial incentives by the HR department linked to what they could achieve in reducing purchasing costs.

Therefore they were despatched and motivated only to buy goods at the cheapest price they could find - which they did successfully, duly receiving their financial incentives for their acheivements.

Later, when the contract was completed, the financial controller could not understand why they had made less profit on the deal than expected.

After some investigation, the customs manager had the task of explaining to the FD that the imported goods had been subject to additional duties because of their origin, something the purchasing staff and the HR department were wholly unaware of.

So rather than planning to use orgin to save duty cost, the business was hit with costs in three ways:

1 no duty saving

2 additional duties paid

3 additional personnel costs (the staff incentives paid out)

And so whatare the lessons ???

Lesson 1: going with the cheapest price in sourcing goods does not always equate to the lowest landed cost nor the lowest overall cost for the business

Lesson 2: getting the business functions connected is key in saving customs duty and in managing customs exposures

Tax Advice Week - save more customs duty

2007-10-15T02:05:00.000-07:00

This week (15 -19 October) is Tax Advice Week .... promoted by The Chartered Institute of Taxation. When you see a tax adviser using the letters CTA, ATII, CTA(Fellow) or FTII you can be confident that they have reached the gold standard in tax qualification with The Chartered Institute of Taxation and are professional experts in their field. For Clear Tax Advice always use a professionally qualified tax adviser. Why would you take your tax advice from anyone else?
---o0o---
You know that you would not ignore deductions, credits and reliefs when paying corporate business tax in your organisation or personal tax on your own income.
You would also do all you could to reduce the amount of VAT you pay.
So .......
WHY are so many busineses ignoring customs duty savings, customs management, customs compliance risk and customs planning when paying import taxes and customs duties?
What's stopping you taking professional advice?

Safeguarding business continuity = staying up to date on customs duty changes

2007-10-10T00:32:00.000-07:00

Failing to keep up to date with changes in customs duty laws and customs compliance requirements introduces risk around customs management and prejudices operational continuity in a business.

Many businesses are still unsure of how the changes taking place in 2007 and 2008 affect them. In some way though, they affect all importers and exporters. Some of the changes come into effect on 1 January. These changes relate to the SAD and to commodity codes. These changes are extensive.

New Customs Procedure Codes ("CPC"s) determine the customs treatment given to goods at import and export including, importantly, reliefs from customs duty. Get that wrong and relief may be denied.

Again, changes to commodity codes means there's increased risk of misclassifying goods. That means the wrong amount of customs duty could be paid. Because of coding changes, many Binding Tariff Information ("BTI") rulings will cease to have effect because the codes they relate to no longer exist. There is no automatic re-issue by HMRC. New ones must be applied for.

Bulgaria and Romania became members of the EU on 1 January 2007. This means that in technical terms, trade between these countries and the EU is no longer an import or export. Instead they are now treated as intra-EU movements of goods. So out go "imports" and "exports" but in comes the need to capture such movments in the Intrastat reporting system.

During 2007 there has also been progress on the re-write of the Customs Code and, significantly since 1 July, the introduction of AEO status.

Failing to keep up to date always increases the risk of compromising the continuity of business operations and compliance with HMRC requirements.

Compliance matters of the type highlighted above always appear to be low level operational matters, but they impact on managing financial, commercial and reputation risk in a business.

Failure to understand customs duty treatment of intangibles = failure to save customs duty

2007-10-01T03:25:00.000-07:00

"Customs duty on goods I understand. Customs duty on intangibles? How does that work?"

It's not uncommon to hear this. Businesses are generally unaware that there can be any customs implications of royalty and licence fee payments. Lack of awareness and understanding can often result in increased duty costs.

Personnel who deal with corporate tax and finance, trademark use and protection, product innovation and licensing of technology, processes and so on are familiar with the terms and mechanics of royalty and licence fee agreements. Despite this, many businesses have no knowledge of the customs implications.

Believe it or believe it not, payments for such intangibles sometimes have to be included in customs values declared at import. This is what the law says. Generally speaking, this happens when the royalty relates to the imported goods and when payment of it is a condition of the sale of those goods. There are exceptions and qualifications to this, but this is the basic rule.

Problems arise when agreements are poorly drafted or cover a range of rights and services, so that only a proportion of the payment should be included. Often the customs duty bill just goes up and it can take months or even years to agree such treatment with HMRC. Taking advice at drafting stage means saved time, money, effort and saved customs duty.

Cut customs duty and increase profit as an importer

2007-09-25T07:21:00.000-07:00

Import taxes and customs duties continue to be significant elements in the cost of international trade. Yet many companies and businesses still pay more duties than the law requires – which impacts adversely on landed cost and ultimately on business profitability. Why is this?

Have you heard of ways to reduce customs duty but not used them? Are you looking for ways to save customs duty? What would it feel like if you could save your business more tax?

A planned approach to managing customs duty costs would look to eliminate, reduce and delay payment of customs duties. At the same time you learn how to manage customs risks more effectively. So how will you reduce customs duties in your business?

There are many ways to reduce customs duties. The amount of duties paid depends on four “whats”. Managing the impact of any of these “whats”, will improve business profit.

1 What are the goods? The type of goods, their nature and characteristics determine the tariff code to be used and in turn this determines what duty rate applies when working out customs duty at import.

2 What is the origin of the goods? This can mean where are they dug up, grown, farmed, further manufactured or processed, or finally manufactured. It does not always mean where they are shipped from. Origin status determines whether preferential, standard or additional duty rates are payable.

3 What is the structure of the transaction of the goods? Is it a sale, lease, loan, free of charge, under warranty or repair arrangement? Are there royalties or licence fees or other payments which relate to the goods which are charged as well as the invoice costs? All these factors determine the customs value used.

4 What happens to the goods? Once imported are they sold, further manufactured, repaired, returned, stored or re-exported? This determines whether various customs duty reliefs can be used.

The answers to these “whats”, provides the basis for identifying customs duty savings.

Contact me now to discuss further!

02392 261 486

pbb@quadrel.co.uk

How customs values affect customs duty - a quick note

2007-09-01T08:09:00.000-07:00

Lots of businesses do not understand what must be included and what can be left out of customs values. So both compliance risks and customs duty savings are overlooked. Some businesses underdeclare customs values on purpose - this is unwise. Not only is this wrong, there is a high chance that this will come to light later on.

Many importers pay the wrong amount of customs duty because they do not understand how customs valuation works – even though it is one of the fundamentals of how customs duty is calculated. (Think "customs value x duty rate - customs duty relief = customs duty paid". Change any one of these and the customs duty bill changes.)

So back to customs valuation then ............ either ......

an importer pays too little customs duty – in which case a customs duty demand from HMRC for the last 3 years will be a nasty shock and unwelcome

an importer pays more customs duty than they need to - which is a wholly unnecessary cost and therefore a complete waste of money.

Both outcomes result from the same shortcomings; businesses do not realise they should check customs values, but often those that do realise, do not know what or how to check.

Is this a situation that would be permitted in a business with regard to any other tax? So why with customs duty?

How businesses waste customs duty they thought they'd saved

2007-08-15T08:53:00.000-07:00

.... by failing to prepare applications for customs duty authorisations correctly – and to check what is actually issued by HMRC – and to make sure they get renewed before they run out.

The history of customs duty management in the UK is littered with examples of businesses who apply for authorisations which are duly granted, only to discover some time later that either the application or the authorisation itself contained a glaring error such that whatever they thought they were authorised to do and had therefore been doing, was not actually covered at all.

What might you be authorised for? To use IPR, OPR, PCC, customs warehousing, a customs valuation method, a classification code based on a BTI and so on...

As well as mistakes, its easy to overlook renewing the authorisation and one day sooner or later (usually later) it comes to light (usually to HMRC) that it's long since run out and expired. That costs you money as well as time and diverted resource dealing with HMRC.

So, for example, it is not difficult to make a classification error or use the wrong commodity code in an application. Nor is it odd to be in the position where business operations develop beyond the scope of what was applied for. But the implications can be significant if it later turns out that the goods or what was being done to them were not actually covered by the original terms of the authorisation or that the authorisation has not been updated or modified with HMRC.

So there is preparatory work to do before applying, the authorisation issued should be checked against what was actually requested, its scope should be kept under periodic review – the review should be more frequent in a fast growing or fast changing business.

Very often authorisations run out. They are date limited. The date is way off in the future at the time the authorisation is granted. In all the enthusiasm of receiving and starting to use the authorisation, no one plans ahead by putting a date in a forward diary system (if there is one) to ensure continuity of business benefit by timely renewal.

These are all simple steps to obtain, protect and preserve financial benefit derived from effective customs duty management.

AEO - a saving or a cost?

2007-06-21T04:08:00.000-07:00

So AEO is nearly here - from 1 July you can apply.

So what are businesses doing? What are you doing?

There's a myriad of responses ranging from "no benefit to us" through to "we must have it as soon as possible" .....

Some commentators characterise the whole AEO concept as mysterious. Awareness is characterised as "patchy". Is this accurate? There seems to be plenty of information available, plus seminars and talks to attend ..... Why not Go-o-o-o-o-ogle it!.

Many businesses seem to be playing a waiting game... waiting to see what other businesses do first, before deciding themeslves. Some feel that they will be obliged by partners in their supply chain to apply, even though AEO accreditation status is completely optional. There is a sense that commercial rather than customs imperatives will determine whether or not to apply. Others feel that AEO will give them a competitive advanatge and are forging ahead in their plans and preparations to apply without waiting to see what others are doing.

What remains unclear is the real level of interest in applying for AEO. This has potential political implications. The genesis of AEO lies in the WCO's SAFE initiative post 9/11. What are the implicastions for this political imperative to secure international trade supply chains against terror and dispruption if AEO in the UK and wider EU proves unpopular and is not taken up?

Some commentators and consultants suggest that AEO in Europe (and similar arrangements in other countries/regions) will then become compulsory. The ramifications of such a move would be immense. It would mean for example that any business which did not meet AEO standards would be unable to trade and therefore unable to conduct business internationally - or even within a national state. Would such businesses have to cease doing business?

On the one hand this seems drastic; on the other..... businesses are already subject to various limitations such as safety requirements, security standards, environmental standards, financial and banking restrictions, prohibited parties trading, defence considerations etc, because of the types of goods they deal in or where in the world they do business.

AEO - a necessary part of doing business internationally in the future?