Changes in Customs Rules and Processes

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

First Published in Business World (2/24/2014)

Towards the end of 2013, President Aquino issued Executive Order (EO) No. 155, which effectively dissolved the Post Entry Audit Group (PEAG) of the Bureau of Customs (BOC) and transferred its post entry audit functions to the Fiscal Intelligence Unit (FIU) of the Department of Finance (DOF), in an effort to institute reforms in the BOC. EO No. 155 took effect on December 28, 2013. To implement EO No. 155, the DOF recently issued the following Department Orders (DO) affecting importers and brokers:

• DO No. 11-2014 dated February 5, 2014, prescribing the new general post-entry audit guidelines and procedures to be adopted by the FIU;

• DO No. 12-2014 dated February 6, 2014, modifying the rules and regulations on importer accreditation, which requires importers to undergo a tax verification process and secure an Importer Clearance Certificate (ICC) from the BIR as a prerequisite for BOC accreditation; and

• DO No. 13-2014, dated February 6, 2014, authorizing the FIU to process pending applications for the provisional lifting of suspended accreditation of importers, which were pending with the defunct PEAG as of December 2013, thereby prescribing a 60-day period for provisional lifting and permanent lifting of the suspended accreditation upon the lapse of the 60-day period without any further action from the DOF-FIU and/or BOC.

In this week’s article, we discuss DO No. 11-2014 and highlight the changes in the post entry audit rules and processes to be adopted by the FIU.

DO No. 11-2014 amends the previous Customs Administrative Order (CAO) No. 4-2004, which guided the PEAG in the audit of importers. In some areas, DO No. 11-2014 appears to be almost identical to CAO No. 4-04, particularly with respect to the record keeping requirements and the compliance audit process. This can be seen in the retention of the CAO’s provisions on the lengthy list of records to be kept by importers, the mode of selection of the importers to be audited, and the imposable penalties for deficiency customs duties and taxes.

At the same time, DO No. 11-2014 introduces many changes designed to strengthen post entry audits. Here are some of them:

Preservation Period of Importation Documents
DO No. 11-2014 now requires importation documents to be preserved for a period of 10 years from the date of filing of the Import Entry Declaration; this is up from the previous 3-year requirement. This aligns with the BIR’s Revenue Regulations (RR) No. 17-2013 which required taxpayers to preserve all their books of accounts and accounting records for 10 years.

Importers must therefore keep in mind that the failure to keep or maintain the required records shall be subject to a hefty administrative fine of 20% ad valorem on the imported goods for which no records were kept and maintained. In addition, accreditation privileges may be cancelled and criminal prosecution may be instituted.

Audit Notification Letters (ANL)
The Audit Notification Letter (ANL) is the official document that notifies the importer of the FIU’s authority to conduct an inspection, verification and/or investigation of their records of importation. Under DO No. 11-2014, after the FIU performs profiling and information analysis activities on importers, a written report for issuing an ANL is submitted to the Commissioner of Customs (CoC). In turn, the CoC is mandated to issue ANLs within 15 days from his receipt of the FIU’s report.

Based on this new procedure, importers should expect more ANLs to be issued. Moreover, there is a greater chance for importers who have not yet been selected for post-entry audit in the previous years to receive ANLs in succeeding years.

Errors in Importer’s Declarations
Under CAO No. 4-04, an importer may be subject to a post-entry audit when there are errors in his import declaration, which, if uncorrected, would result in substantial revenue loss or grave distortion of relevant statistical data. DO No. 11-2014 deleted the phrase qualifying the type of errors committed by importers in their import declarations.

The scope of the post-entry audit has been expanded to cover importers who commit plain and simple errors in the import declarations. Such being the case, importers must exercise caution in preparing any statement, document or declaration presented for customs valuation purposes. They must be cognizant of importation laws, rules and regulations so that import entries are accurate and error-free.

Cancellation of Accreditation Privileges
For failure to keep records or refusal to give full and free access to the required importation records, CAO No. 4-04 authorizes the CoC to hold the delivery or release of subsequent imported articles of an importer to answer for the fine, any revised assessment and/or penalties for customs violations. Under DO No. 11-2014, a more severe penalty may be imposed for the same violation. FIU may now recommend the outright cancellation of an importer’s accreditation privileges.
The importer in this case will be required to file a new application for accreditation with the BIR and the BOC, following the recently issued DO No. 12-2014, which will be tackled in next week’s column.

With all these changes in customs rules and processes, the best practice is to ensure informed compliance with importation laws, rules and regulations. This will help avoid unwarranted exposure to penalties and unnecessary additional import costs.

Stephanie G. 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.