Changes in Customs Rules and Processes

By Stephanie G. Vicente-Nava
(Second of two parts)

First Published in Business World (3/3/2014)

In last week’s column, we discussed Executive Order (EO) No. 155 which introduced significant changes in the processes of the Bureau of Customs (BOC), and the implementing Department of Finance Order (DO) No. 11-2014, which prescribed new post-entry audit guidelines and processes. We now move on to another DO, which modifies the rules for importer accreditation.

On February 6, 2014, the DOF issued DO No. 12-2014 requiring importers to secure from the Bureau of Internal Revenue (BIR) an Importer Clearance Certificate (BIR-ICC) as a prerequisite before the BOC will issue an Importer Accreditation (BOC-IA). This is to ensure that importers are engaged in legitimate business and are paying the proper taxes. Consequently, importers will now have to satisfy the requirements of both the BIR and the BOC to be able to import goods into the country.

To implement the DO, the BIR issued Revenue Memorandum Order (RMO) No. 10-2014 on February 10, 2014 to prescribe the guidelines and procedures for the issuance of BIR-ICCs. In addition, the BOC issued Customs Memorandum Order (CMO) No. 04-2014 dated February 21, 2014 on the requirements for the issuance of BOC-IAs.
Under the new rules, importers do not have to renew their BOC-IAs every year. Instead, it is the BIR-ICC that needs to be renewed after three years from the date of issuance, in effect extending the BOC accreditation. However, the extension notwithstanding, importers may find themselves facing more complex requirements and processes in applying for a BIR-ICC.

Criteria for BIR Accreditation
The BIR’s RMO No. 10-2014 prescribes the criteria that an importer must satisfy in order to secure a BIR-ICC. An applicant must show the existence of a head office, branch or facility in the Philippines which is duly registered with the BIR, and is fully compliant with existing internal revenue tax laws, rules, regulations, and issuances, such as timely tax return filing and tax payment, the use of the Electronic Filing and Payment System (eFPS) and Interactive Forms (IAF) system, and the electronic submission of all required information returns.

In addition, the applicant must not have a record of any outstanding tax liability arising from a tax assessment, or of any unpaid delinquent account which is considered final, executory, and demandable. The applicant must also not have a record of any pending criminal complaint filed by the BIR in court or with the Department of Justice or is the subject of a final and executory judgment by court. There should not be any unresolved issues arising from discrepancies in declared income or expenses resulting from the matching of third-party information from the BIR’s Reconciliation Lists for Enforcement (RELIEF) System and Tax Reconciliation System (TRS).

Finally, RMO No. 10-2014 provides that an importer will not be given a BIR-ICC if it has an outstanding tax liability arising from its failure to appeal a Final Assessment Notice (FAN) with the Court of Tax Appeals (CTA) within the prescribed period (i.e., 30 days from the lapse of the 180-day period for the Commissioner to act on its protest), in which case the BIR’s assessment is considered final, executory and demandable.

The above requirement is in contrast with the Supreme Court’s pronouncement in the 2012 case of Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, et al., where it held that in cases of inaction, a taxpayer may wait for a positive action on the part of the Commissioner to decide on the protest before elevating the case to the CTA. In the meantime, the assessment does not become final, executory and demandable.

The Application Process
Importers should file their applications for BIR-ICC and submit the necessary documents to the Accounts Receivable Monitoring Division (ARMD).

The ARMD will initially determine the accuracy of the importer’s Tax Identification Number (TIN) and the existence of any outstanding tax liability. It will then request the Revenue Regional Director, the Assistant Commissioner – Large Taxpayers Service or Assistant Commissioner for Enforcement and Advocacy Service, as the case may be, to verify whether the importer meets the other accreditation criteria. The request for tax verification may be further endorsed to other offices of the BIR.

If the application is approved, the ARMD Chief will sign and issue the required BIR-ICC which is valid for a period of three years, unless sooner revoked or cancelled.

RMO No. 10-2014 says that the BIR-ICC may be issued within 15 working days from acceptance of the application and upon receipt of the written report bearing the results of verification with other BIR offices.

However, given the number of BIR officers involved in verifying an importer’s compliance with existing internal revenue tax laws, rules, regulations, and issuances, importers may have to wait and see whether the prescribed timeline is indeed followed.

Denial of Application
If the application is denied, the importer will receive a Notice of Denial indicating the reasons therefor. In such a case, the concerned importer may file a request for reconsideration with the Assistant Commissioner-Collection Service or Commissioner of Internal Revenue, or file another application for accreditation when the circumstances that led to the denial have been addressed.

Cancellation of BIR-ICC
In case of any non-compliance on the part of an accredited importer, the ARMD will issue a Preliminary Notice of Disaccreditation to the concerned importer, who in turn is given 30 working days from receipt thereof to undertake all the necessary actions to rectify the errors or violations and to submit proof of rectification.

If the ARMD determines that there is continued non-compliance after the 30-day period, the ARMD shall issue a Notice of Disaccreditation to the concerned importer.

In this case, such importer will be barred from applying for a BIR-ICC for one year from the effective date of disaccreditation. Consequently, such an importer cannot secure its BOC-IA and will not be able to import goods into the Philippines.

During the kickoff of the BIR’s annual tax campaign last week, Finance Secretary Cesar Purisima said that government aims to increase revenue collection from large taxpayers by 20%, and that it is targeting importers as the primary source of its higher tax take. It is in this context that the Finance department has issued new rules toward instituting reforms in the BOC.

The intention behind both DO No. 12-2014 and RMO No. 10-2014 is commendable as they aim to minimize irregularities in import practices, by giving the import privilege only to those who are tax-compliant. But the campaign to address smuggling should not adversely impact importer-taxpayers who are compliant. Administrative processes must be reasonable and not unnecessarily burdensome. However, since the rules are now in place, importers should be on the lookout for possible issues that may become stumbling blocks in securing their importer accreditations.

Stephanie Vicente-Nava is a Senior Director of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.