Recently emerging trend of customs challenges and how to prepare for the challenges

Transcription

1 15th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014 Recently emerging trend of customs challenges and how to prepare for the challenges Worldtrade Management Services

2 Agenda I. Thai Customs Environment II. Recent Challenges from Customs A. Free Trade Agreements B. Customs Valuation C. Licensing D. Customs Privileges E. Classification III. Other updates/development IV. Conclusion Slide 2

3 Thai Customs Environment Slide 3

4 I. Thai Customs Environment Transition from revenue collector to facilitator Government revenue needs Falling duty rates Importance of trade Mindset shift Enhanced Post-Clearance Audit activities Penalties regimes Greater experience and therefore focus on key areas Closer coordination with Revenue Department and Excise Department Slide 4

5 I. Thai Customs Environment: Customs Controls Pre-Clearance On-Clearance Post-Clearance Physical Documents Duty Payment At Customs premises At Importer premises Warehouse Surveillance Cargo Manifest Red line Goods Inspection Green line No goods inspection Goods released Regional Customs Bureau Investigation and Suppression Bureau Post- Clearance Audit Bureau Slide 5

6 I. Thai Customs Environment: Target Areas Valuation Classification Formalities Privileges Royalty Assists Adjustments Proceeds Management fee, Technical assistance Wrong tariff code Wrong duty rate Prohibited/ Restricted goods Ministry of Finance (Section 12) Hand Carry Courier BOI Section 19bis Free Zone Bonded Warehouse FTAs Slide 6

7 I. Thai Customs Environment Audit approach Audit vs. Investigation Conflict between technical experts and audit officers High Penalties in case of non-compliance Current reward regime - Up to 25% of penalties for Customs (No cap) - Up to 30% of penalties for informers (No cap) Proposal for changing of penalties and reward regime (to be discussed in updates Section) Slide 7

8 I. Thai Customs Environment Customs Offences Smuggling Importing/Exporting goods that have not duly passed through customs (i.e. no import/export entry) Evasion Importing/exporting goods that have duly passed through customs (i.e. with import/export entry) with false declaration (e.g. under-valuation of the goods) which results in duty deficiency. False Declaration Even without duty deficiency, the importer/exporter may still be deemed as having committed a false declaration offence. Purchase/receipt of smuggled goods Knowing at the time of purchase or receipt that the goods are smuggled or imported with duty evasion. Slide 8

9 I. Thai Customs Environment: Penalty Scheme (Case settlement at Customs level) Smuggling (Section 27) 3 times of CIF + 3 times of duty + 2 times of VAT Evasion (Section ) 3 times of duty + 2 times of VAT + 1.5% VAT surcharge Purchasing (Section 27bis) 1 time of CIF + 1 time of duty + 1 time of VAT Note: If the importers loses the case at court level, currently the penalty shall be 4*CIF + 4*duty or imprisonment for a term of not exceeding ten years, or both Slide 9

10 Recent Challenges from Customs Slide 10

11 A. Free Trade Agreements ( FTA ) Slide 11

12 II. Recent Challenges from Customs Current FTAs for Thailand Multilateral ASEAN ASEAN China ASEAN Japan ASEAN Korea ASEAN India ASEAN Australia New Zealand Bilateral Thailand-Japan Thailand - Australia Thailand - New Zealand Thailand India Thailand Peru Thailand Chile (not yet into force) Slide 12

13 II. Recent Challenges from Customs FTA Compliance issues indirect invoicing (3rd/4th party) Companies may choose to structure their operations to optimize the cheaper labor cost in ASEAN countries (Thailand) coupled with tax incentives in Singapore (HQ) Goods Contract Japan Thailand Contract Manufacturer Invoice Arrangement Singapore HQ Slide 13

14 II. Recent Challenges from Customs FTA Compliance issues 3 rd /4 th party invoicing P 3 rd country invoicing concept: All Thai FTAs Latest FTA: Thai Chile FTA No definition of 3 rd country invoicing O 4 th country invoicing: Allowed Only for ATIGA Thai Customs authorities reject C/O from 4 th country invoicing Slide 14

15 II. Recent Challenges from Customs FTA Compliance issues On behalf of ( O/B ) or Care of ( C/O ) Exporter: Logistic Company O/B or C/O Manufacturing Company (Temporary) Flexibility for utilizing the duty privilege under the ASEAN-China FTA. (1 January April 2011) Currently, Thai Customs authorities does not accept O/B or C/O on Form E Discrepancies Discrepancies between C/O and invoice: date, importer/exporter s name and address Declaration of marks, number on packages, gross weight or other quantity and value (FOB) Box ticking: Not ticking on -Issued Retroactively -Exhibition -De Minimis -Third Country Invoicing Wrong application/ wrong Rules of Origin (RoO) in C/O Different C/O = different rules Slide 15

16 II. Recent Challenges from Customs FTA Compliance issues: Back-to-Back certificate of Origin (C/O) 1# Shipment 40 pcs Exporter (ASEAN) 100 pcs Singapore (Intermediate country) 2# Shipment 30 pcs 3# Shipment 30 pcs Thailand Restrictive interpretation by Thai Customs - Bonded warehousing required in intermediate country - Back-to-Back C/O IS NOT ALLOWED for 3 rd party invoicing transactions Slide 16

17 II. Recent Challenges from Customs s observation Moving responsibility from authorities to exporters Moving responsibility from exporter to importer Increased use of automated systems Different interpretations by exporting and importing FTA members Inconsistent interpretations among each FTAs by Thai Customs Increased post audit reviews by authorities on origin Slide 17

18 B. Customs Valuation Slide 18

19 II. Recent Challenges from Customs: Customs Valuation Import price + Adjustments (either additions / deductions) = Price actually paid or payable Royalty / License fee Proceeds Customs Valuation Commissions / packing Invoice price Assists Total payment Invoice price Slide 19

20 II. Recent Challenges from Customs: Customs Valuation Considerations for dutiable royalties/license fees Royalty/ License fee Manufactured by licensor s IP Incorporate the IPR Non-Dutiable Condition of Sales Dutiable Slide 20

21 II. Recent Challenges from Customs: Supreme Court Thailand - 3rd party Royalty payment dutiable? - Customs value of goods $100 or $105? 3rd party (Licensor) Royalty Manufacturer (Exporter) 5 Goods Buyer (Importer) 100 Slide 21

22 II. Recent Challenges from Customs: Advisory Opinion 4.15 Supply Agreement: - Manufacturer to manufacture goods with Licensor s Trade Mark under Licensor s control - Sell exclusively to buyer or others as Licensor determines Manufacture under control/ know-how 3rd party (Licensor) Royalty Manufacturer (Exporter) 5 Goods Buyer (Importer) 100 Slide 22

23 II. Recent Challenges from Customs: Comparison 3rd party (Licensor) Royalty Supreme Court 5 Goods Manufacturer (Exporter) Buyer (Importer) 100 Manufacture under control/knowhow 3rd party (Licensor) Royalty 5 AO 4.15 Manufacturer (Exporter) Goods Buyer (Importer) 100 Slide 23

24 Advisory Opinion 4.15 s observation A more cautious approach for Customs consideration on royalty Customs would not only look into the royalty agreement, but also sales surrounding circumstances (other agreements in connection with royalty agreement). Influence of licensor over manufacturer and buyer is also taken into account. Expect more challenges from Customs on 3rd party royalties. Slide 24

25 C. Licensing Slide 25

26 II. Recent Challenges from Customs: C. Licensing Are the goods prohibited from import? Are the goods subject to import/ export license? Are the goods prohibited/ restricted under more than one relevant laws and regulations? Is a Certificate of Free Sale considered as an import license? Could import license be issued retroactively? Slide 26

27 II. Recent Challenges from Customs: C. Licensing Administrative Court ruling, dated 3 December 2012 Repeal of Hazardous Substance Control List B.E & Hazardous Substance Control List (No. 2) B.E Only reference to English names of the hazardous substances Omission of the names of hazardous substances in Thai Slide 27

28 II. Recent Challenges from Customs: C. Licensing New Hazardous Substance Control List in effect on 28 September 2013 Key changes: Addition of Thai names for each substance with the English name in the parentheses; Each identification number refers to each substance; A categorization of the substances based on 6 responsible institutes / agencies ; Department of Agriculture (DOA) Department of Livestock Development (DLD) Department of Fisheries (DOF) Food and Drug Administration (FDA) Department of Industrial Works (DIW) Department of Energy Business (DOEB) An addition/ re-categorization of certain substances; An indication of restricted concentration (if any); Separate lists for groups of substances and products. Slide 28

29 II. Recent Challenges from Customs: C. Licensing Penalties under the Hazardous Substance Act B.E Imprisonment Fine (THB) or Both Type I: < 6 months < 50,000 / Type II: < year < 100,000 / Type III: < 2 years < 200,000 / Type IV: < 10 years < 1 million / Penalties under the Customs Act B.E Importing of restricted goods without import license. - Surrender of the goods OR - In lieu of goods surrendering, liable to value of the goods (CIF + Duty+ VAT) * Proposal for reduction of the penalty is recently raised. Slide 29

30 II. Recent Challenges from Customs: s observation Preparation for transition period on new Licensing Notification Expect more audits on licensing issue Keep an eye on updated regulation Slide 30

31 D. Customs Privileges Slide 31

32 II. Recent Challenges from Customs: D. Customs Privileges: Manufacturing Bonded Warehouse ( MBW ) Council of State s opinion No. 247/2548 (2005) Form D Form D Importer = A Vietnam Company A MBW Customs Challenge Importer = A Company B Thailand Council of State Slide 32

33 II. Recent Challenges from Customs: D. Customs Privileges: Free Zone ( FZ ) Potential Portion of local raw materials Issues! Manufacturing process under the FZ Clarification on the definition of Profit o Acceptable threshold? o Trading vs manufacturing profit Certificate issued by Independent institutes Slide 33

34 II. Recent Challenges from Customs: D. Customs Privileges: Section 12 of Customs Tariff Decree B.E.2530 ( Section 12 ) Example of discrepancy Customs Approval Part no Imported Part no. 1234A Slide 34

35 II. Recent Challenges from Customs: D. Customs Privileges: Section 12 of Customs Tariff Decree B.E.2530 ( Section 12 ) Challenges by Customs Could not enjoy the right for duty reductions/exemptions under Section 12, Liable to a fine of: Exposure Offence Evasion (Section ) (1) Fine Case settlement at Customs Level 2*duty + 1*VAT (2) Duty shortfall 1*duty + 1*VAT + 1.5% of VAT Total 3*duty + 2*VAT + 1.5% of VAT Slide 35

36 II. Recent Challenges from Customs: D. Customs Privileges: Section 12 of Customs Tariff Decree B.E.2530 ( Section 12 ) Key consideration Comply with the Ministry of Finance ( MOF ) Notification s requirement Goods meet the rules and procedures specified under the MOF s Notification Non-compliance with customs formality is a minor mistake? Slide 36

37 II. Recent Challenges from Customs: D. Customs Privileges: s observation Bonded Warehouse and FTA benefits may continue (pending guidance from Customs) Free Zone continues to be focus area for Customs. Section 12 compliance more important given recent challenges from Customs. Slide 37

38 E. Classification Slide 38

39 II. Recent Challenges from Customs: E. Classification Imported CKD? CKD CBU GRI 2 (a) and Section 6 of Customs Tariff Decree The CKD were imported with matching quantity (despite not the same shipment) Slide 39

40 II. Recent Challenges from Customs: E. Classification: relevant laws General Rules of Interpretation 2 (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled. Section 6 of Customs Tariff Decree Where it appears to the Director General of Customs that the duty chargeable upon any complete article is being evaded by means of importing, either simultaneously or otherwise, such article in separate parts, the duty chargeable upon such separate parts shall integrally be assessed at the rate for the complete article. Slide 40

41 II. Recent Challenges from Customs: s observation Customs tends to apply rules to attract a higher rate Placing deposit guarantee/ Reserve the right to argue on classification issue upon importation Seeking for classification s ruling? Slide 41

42 Other Updates/Developments Slide 42

43 III. Other Updates/Developments FTA Under Negotiation Thai EU FTA Thailand will be delisted as beneficiary country under GSP by early rounds of negotiation done Next round in December 2013 Controversial issues? - Intellectual Property Right ( IPR ) - Services - Investor state disputes - Government procurement - Duty drawback Time is ticking for Thailand? (Singapore-EU FTA = Concluded, Vietnam-EU FTA and Malaysia-EU FTA = Advanced stage Slide 43

44 III. Other Updates/Development Future FTAs Trans-Pacific Partnership ( TPP ) High-Standard FTA Original: Brunei, Chile, New Zealand and Singapore (P4) Attempt to conclude by the end of 2013 Under negotiations: - Original signatories: Brunei, Chile, New Zealand and Singapore - Negotiating members: Australia, Canada, Japan, Malaysia, Mexico, Peru, Vietnam and the United States Controversial issues? Where is Thailand? Slide 44

45 III. Other Updates/Development Future FTAs Regional Comprehensive Economic Partnership (RCEP) ASEAN (10) + 6 (Australia, China, India, Japan, Korea, New Zealand) Intended to be the largest FTA globally ASEAN + 1 remain valid Attempt to be concluded by the end of 2015 Slide 45

46 III. Other Updates/Developments AEC Self- certification ASEAN - 1st Pilot project on Self Certification: Brunei, Malaysia, Singapore and Thailand participating. Myanmar indicated intention to participate in the 1st Pilot Project. (extended till 31 December 2015) - 2nd Pilot project on Self Certification: Indonesia, Laos PDR, the Philippines and Vietnam participating. (Thailand possible participant) The two projects will run in parallel until Developing a single system is required by 2015 Slide 46

47 III. Other Updates/Developments National Single Window (NSW) Integrate customs clearance process (e.g. import, export and transit) into a single system. Exchange cargo clearance data electronically across ASEAN borders (as a part of ASEAN Single Window). Allow single submission of applications for licenses and permits through relevant authorities e.g. Customs Department, Excise Department and Board of Investment. Slide 47

48 III. Other Updates/Development Authorized Economic Operator (AEO) The rise of terrorism during the past 12 years has raised concern on security in global supply chain management. WCO developed Framework of Standards to Secure and Facilitate Global Trade and AEO guideline Some countries may implement AEO program under different name; - U.S.: Customs Trade Partnership Against Terrorism (C-TPAT) - New Zealand: Secure Export Scheme - Singapore: Secure Trade Partnership - China: Classified Management of Enterprises Slide 48

49 III. Other Updates/Development Authorized Economic Operator (AEO) Thailand: AEO launched 1 January 2013 Who can become an AEO? - Importers Exporters - Customs Brokers But there are more parties involving - Manufacturers/Suppliers - Warehouse Operators/Owners - Port Operators - Transport Operators - Freight Operators Slide 49

50 Other Updates/Development Authorized Economic Operator (AEO) Responsibilities of an AEO - Develop security system - Perform security risk assessment - Implement security measures as recommended by customs - Develop document on security system to support application And why should you consider doing all of these? - Privileges on customs clearance - Privileges on duty refund - Limit post clearance audit to 2 years - Privileges on case settlement Future AEO Mutual Recognition Arrangement ( MRA ) Slide 50

51 Other Updates/Development Authorized Economic Operator (AEO) s observation Key criteria o No smuggling offence; o Continuous profitability/ Secure financial status o Security compliance Obstacles Uptake low Gold Card / Licensed Broker expired at the end of September 2013 Slide 51

52 III. Other Updates/Development New Excise tax calculation on liquors New Notification effective from 4 September 2013 onwards. New tax base: Last Wholesale Price Previous Specific rate or Ad valorem rate New Ad valorem rate +Specific rate + Additional excise on each degree exceeding threshold level Slide 52

53 III. Other Updates/Development New Excise tax calculation on liquors: example Excise tax / consumption tax payable = (1) + [(2) or (3)] + (4) Ad Specific Rate Excise Rate in relation to products valorem (2) or (3) whichever is higher with "exceeding degrees" Wine and sparkling Rate wine of grapes (2) (3) (4) (1)* THB/Litre/per THB/Litre/ THB/Litre Condition 100 Degree Exceeding Degree 1) the last wholesale an alcoholic strength price excluding VAT, by volume exceeding 0 1, not exceeding degrees THB 2) the last wholesale price excluding VAT, exceeding 600 THB 36 1, an alcoholic strength by volume exceeding 15 degrees 3 Slide 53

54 III. Other Updates/Development Licensing Potential reduction of penalty Proposal by the Joint Standing Committee on Commerce, Industry and Banking To separate offences arising from technical mistakes from other offences under Section 27 e.g. import of restricted goods without license To specify appropriate penalty, not exceeding the penalty under the major law Cabinet resolution: assign Ministry of Finance for further consideration Slide 54

55 III. Other Updates/Development Customs Laws Penalty regime -Draft revision of Customs Act B.E.2469 (1926) - Duty fine 0.5 to 4 times of the CIF value - Customs audit period limited to 2 years Reward regime - Up to 15% of penalties for Customs (capped at 5 million baht) - Up to 30% of penalties for informers (capped at 10 million baht) Slide 55

56 Conclusion Slide 56

57 IV. Conclusion: Key takeaway 1. Hot issues a. Royalty paid to 3rd party b. Privilege utilization c. Licensing a. Self assessment/ external expert review => self disclosure d. FTA challenges b. Training and development 2. Minimize your risks c. Regulation updates 3. Defend yourself 4. Maximize your opportunities a. Check legal precedents b. Obtain ruling where possible a. Sign up for trade facilitation measures c. Seek expert s advice b. Use duty incentive schemes d. Develop best practices c. Stay on top on FTA opportunities and updates Slide 57

58 Contact Paul Sumner Partner Tel: +66 (0) Santi Krongsithidej Director Tel: +66 (0) Nu To Van Director Tel: +66 (0) Slide 58

59 Thank you PricewaterhouseCoopers WMS Bangkok Ltd. All rights reserved. 'PricewaterhouseCoopers' and/or '' refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a separate and independent legal entity. Please see for further details.