How to Plan a Customs Compliance Program

Transcription

1 How to Plan a Customs Compliance Program Daniel L. Kiselbach Miller Thomson LLP I. INTRODUCTION The range and type of businesses engaged in the importation and exportation of goods to and from Canada is almost infinite. Businesses range in size from small sole proprietorships to large multinational corporations. Businesses may be resident in Canada or non-residents. Goods may be imported from or exported to countries worldwide. The types of goods can range from consumer products, to bulk commodities, to strategic goods that may have a military purpose. The laws and policies regulating those businesses are also wide-ranging. Changes are made to customs requirements on a regular basis. This may present challenges to customs compliance managers who must keep current with applicable laws and policies. Custom compliance begins with the identification and understanding of applicable laws and policies. It is implemented through the establishment of procedures and controls. It is maintained through monitoring and self-audits. Customs compliance is about risk management and being commercially effective. A compliance system can make the difference between having a reliable supply chain in a profitable business or an unreliable supply chain plagued with delays and penalties. The following pages will provide observations respecting how to plan a customs compliance program. II. DESIRABLE FEATURES OF A COMPLIANCE PLAN A good customs compliance program should meet the following priorities: 1. Effectiveness: a system should be able to make accurate and useable information available to the manager and to custom authorities in a timely way. This is critical in times where regulatory investigations, verifications, audits or enforcement activity takes place. Being able to access documents and correct information in a timely way signals that the business is being run in a compliant manner. 2. Efficiency: a system should provide information in the most productive and economical manner (e.g., using electronic rather than paper processes when possible). The advantages to using electronic processes may be self-evident. Electronic documents and information may be easier to store, easier to access and retrieve, and may be easier to send to Canada Border Services Agency (CBSA) in response to verification or audit questionnaires.

2 3. Confidentiality: a system should protect information from unauthorized disclosure. Unauthorized disclosure may be a big concern for certain clients who wish to protect such things as: (a) the cost of goods; (b) the profit margin on goods; (c) supplier s names and locations; (d) purchaser s names; (e) ingredients in goods; and (e) method of fabrication of goods. 4. Integrity: a system should provide true, accurate and complete declarations and reports. As Wyatt Earp said: Fast is fine but accuracy is everything. 1 True, accurate and complete declarations are required at the time of customs accounting. It is also absolutely critical to be true, accurate and complete when dealing with a CBSA verification or other audits. The provision of inaccurate information can quickly dampen the rapport that a business has with a verification officer or auditor. 5. Availability: a system should be able to provide information now and for the required record retention period. For example, the Exporters and Producers Records Regulations 2 and the Imported Goods Regulations 3 set out 6 year records retention periods. 6. Ability to Address All Regulations: a system should ensure that the requirements of all laws, regulations and contractual arrangements are met. Where a business has global operations it is necessary to keep track of the customs compliance requirements for each country. This may be a challenge for companies with customs transactions occurring on a world-wide basis. In such case, it may be necessary to work with local customs brokers to identify customs requirements and to monitor customs compliance. 7. Reliability: a system should provide reliable information. A system that it prone to, for example, intermittent breakdowns, can lead to disaster especially if the breakdowns occur at peak business periods or while a CBSA verification or other audit is underway. 4 III. PRIORITY COMPLIANCE ISSUES Canada s greatest trading partner, the United States, has just experienced the worst recovery from a recession since the Great Depression. 5 At this time importers and exporters may wish to reduce budgets for items that are not perceived as revenue- 1 Quotations Book: 2 SOR/97-71, as amended. 3 SORA/ , as amended. 4 See considerations identified in Daniel L. Kiselbach & Dalton Albrecht, Customs Audits, Verifications and Voluntary Disclosures in Canada, July 2011, 6(7/8), Global Trade & Customs Journal 339 and Price Waterhouse Coopers, Global (E Invoicing & E Archiving) (Price Waterhouse Coopers, Belgium) 2006, pages 28 and Peter Ferrara, Forbes January 12, 2012: 2

3 producing. Budget limitations may make customs compliance more challenging. Compliance managers or customs brokers may be forced to identify immediate priorities. In such cases it may be most effective and efficient to identify the issues that may most commonly arise and which may present the most risk if the business was the subject of a CBSA verification or audit. The following is a list of potential priorities: 1. Valuation: establish the method for determining how to value goods. Some importers have been surprised that post-importation adjustments must be made to the value for duty of goods. 6 CBSA has announced valuation verification priorities for 2012 including: car, bus and lorry tire industry, video recording apparatus, pumps for liquids, jewellery and fresh cut flowers Classification: establish the method to determine how to classify goods. CBSA has announced classification verification priorities for 2012 including: specially defined mixtures, pet toys, seaweed, steel T posts and fresh cut flowers. 3. Origin: establish the method for determining the origin of goods. CBSA has announced origin verification priorities for 2012 including: vegetable fats and oils, pumps for liquids and cocoa powder. 4. Anti-dumping and countervailing duties: determine whether or not goods are subject to anti-dumping or countervailing duty or other special levies. Recently, for example, importers have been surprised by CBSA assessments of duty on aluminium extrusions on the grounds that they were subject goods. That is, subject to a Canadian International Trade Tribunal Order imposing anti-dumping duty on aluminium extrusions. Some of these assessment have been for millions of dollars. 5. Program eligibility: determine, for example, whether or not goods are eligible for preferential tariff treatment under a free trade agreement for duty relief. The CBSA has been conducting verifications of claims for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). A common compliance problem is the making of NAFTA claims in the absence of NAFTA Certificates of Origin. Another common issue is the failure to track the inputs into a finished good in order to ensure that the finished good meets the regional value content required of a specific rule of origin under NAFTA. 6. Special levies or taxes: determine whether or not goods are subject to a special import or export charge, manufacturing processing fee, value added tax or other levy. For example, in a person who exports softwood lumber may be required to account for charges under the Softwood Lumber Products Export Charge Act, Persons who imports goods into the U.S. might be required to file a 6 Post-Importation Payments or Fees Subsequent Proceeds : 7 Canada Border Services Agency, Trade Compliance Post-Release Verifications January Softwood Lumber Products Export Charge Act, 2006 S.C. 2006, c

4 Certificate of Non-Reimbursement within 12 months of the date of the original accounting, failing which U.S. Customs and Border Protection may assess additional duties on the product. 7. Certification requirements: determine whether or not the goods must meet country-specific or international safety, environmental or other standards. For example, new Canadian and American legislation imposes product safety requirements, including the potential for testing Export controls, embargos: determine whether or not goods are subject to export controls and regulations. For example, Canada s Export Control List, which is included in A Guide to Canada s Export Controls, identifies specific goods and technology that are controlled for export from Canada to other countries Import controls: determine whether or not goods are subject to import controls or regulations. For example, there are certain requirements and permit procedures for goods on Canada s Import Control List. Carbon steel, specialty steel and textiles, and clothing products are subject to permit requirements Permits: determine whether or not a permit is required in order to import or export the goods. For example, permits may be required in connection with the importation or exportation of dangerous goods, explosives, hazardous waste and hazardous recyclable material Unique country-specific requirements: determine whether or not there are unique considerations applicable to particular countries (e.g., Brazil customs authorities may have a particular interest respecting the declaration of the weight of goods). I. BEST COMPLIANCE PRACTICES Customs compliance planning may also include the following: 1. The establishment of good lines of communication with the CBSA officers responsible for the administration and enforcement of programs that apply to the 9 Canada Consumer Product Safety Act, S.C. 2010, c. 21 and Daniel L. Kiselbach, Selling consumer Products Into Canada: What Manufacturers, Importers, distributors and Retailers Need To Know November 30, 2011, Vol. 1(21) North American Free Trade & Investment Report (Thomson Reuters, Toronto). 10 See Foreign Affairs and International Trade Canada, A Guide To Canada s Export Controls, 2009 : 11 See Canada Border Services Agency Memorandum D Export and Import Permits Act (Importations): 12 See Canada Border Services Agency Memorandum D Transportation of Dangerous Goods: Administration of Explosives Act and Regulations: 1- eng.html; and Import and Export of Hazardous Waste and Hazardous Recyclable Material: 4

5 business. Global customs managers may need to establish a rapport with customs authorities in various countries. For example, there may be a program manager responsible for a particular customs program (for example, duties relief under the Exporters of Processing Services). 13 Further, contacts should be established with officers and with other government authorities (e.g., Environment Canada for the transportation of hazardous recyclable materials or the Export Controls Division of Foreign Affairs and International Trade Canada for export controls established pursuant to Canada s Export Control List). 2. Understanding any country-specific laws and policies that affect goods or technology that will be imported or exported. For example, the exports of all goods and technology as defined in Item 5400 on Canada s Export Control List, regardless of their nature and destination, require permits Conducting regular periodic self-audits to determine compliance levels. Compliance audits may focus on the high risk priorities and may follow the methodology set out by CBSA verification officers or other auditors responsible for the administration and enforcement of particular programs (e.g., the Export Controls Division). 4. Creating a compliance committee involving a compliance manager and representatives for the regions or countries in which the company or group of companies does business. The responsibility of the compliance manager may include the following: (a) (b) (c) (d) (e) Identify applicable customs laws and policies. Establish business systems and controls to ensure that those requirements are met. Establish a customs compliance team, including representatives of the importer or exporter and its service providers. For example, an importer may create a centralized electronic information and document sharing system via cloud computing. In this way the importer can obtain up-todate information respecting the status of purchase orders, shipment date, reports (such as advance reporting of goods by carriers), permits (for example any import or export permit) and declarations from filed forms (such as B3 Canada Customs Coding Forms filed by customs brokers). Establish contact with the officials responsible for the administration and enforcement of applicable laws and policies. Monitor compliance. 13 Canada Border Services Agency Memorandum D7-4-1 Duties Relief Program Rhttp://cbsaasfc.gc.ca/publications/dm-md/d7/d7-4-1-eng.pdf 14 Government of Canada, Export Control Handbook (Export Controls Division, (Foreign Affairs and International Trade Canada, 2011) p. 11 C.2 Important note on U.S.- Origin Goods. 5

6 5. Create a customs compliance and procedures manual which sets out a record of past decisions and current procedures. A compliance manual is to record the decisions made in respect of transactions that may be the subject of verification and the procedures which should be followed to ensure that the business is compliant. V. PLANNING FOR VERIFICATION AND AUDIT COMPLIANCE Canada has established a self-reporting and self-assessing customs scheme. To some extent, self-reporting and self-assessing schemes rely upon the honesty and integrity of the declarations provided by importers and exporters. However, officers conduct verifications and audits to: (a) (b) (c) (d) audit or verify compliance; correct non-compliance; assess or re-assess duties, taxes and charges; and assess interest, penalties and other consequences for non-compliance. A customs verification or audit can be a confusing, difficult and time-consuming experience in the absence of compliance planning. Disorganized, incomplete or inaccurate responses to customs authorities may lead to findings of non-compliance and assessments of duty, penalties and interest. With compliance planning, an importer or exporter may stand a better chance of obtaining a successful verification or audit result. Some steps that importers or exporters can take in order to plan for verification and audit compliance include the following: (a) (b) (c) (d) Ensure that a business representative is responsible for receiving and responding to correspondence, verification letters, Detailed Adjustment Statements and other similar customs related documents in a timely way. Many audits result in the assessment of Administrative Monetary Penalties for failure to respond to the requests issued by CBSA officers. If a CBSA verification officer conducts a verification or an auditor conducts an audit, ensure that only one person is responsible for communicating with the verification officer or auditor. Also ensure that all other relevant personnel are advised of the purpose of the verification or audit and the identity of the business point person. Ensure that the business leaders understand the consequences for failing to respond to CBSA correspondence, verification questionnaires, Detailed Adjustment Statements and the like. Obtain the resources (internal staff, customs brokers, consultants, legal counsel) necessary to deal with requests that are issued by the CBSA. For example, the CBSA may issue a verification questionnaire relating to 25 sample transactions. The CBSA officer may request relevant supply documents including the purchase orders and B3 Canada Customs Coding Forms. The CBSA officer may also request related documents 6

7 such as royalty agreements in order to verify whether or not royalty payments should be included in the value for duty. It may be necessary to obtain assistance from persons within the verification team in order to comply with the request. 15 VI. SUMMARY This outline has provided information respecting how to plan a customs compliance program. Desirable features of a customs compliance system include: effectiveness, efficiency, reliability, confidentiality, integrity, availability, the ability to address all regulatory requirements. Customs managers may find it more effective and efficient to identify high-risk or most common substantive issues. In addition, best compliance planning practices include establishing a rapport with relevant government officials and setting up a compliance team. Further, compliance planning should include measures for dealing with a CBSA verification or other audit. It takes time to plan for customs compliance. However, the reward is the improvement of business operations and cost savings. After all, business leaders like to avoid penalties, protracted audits and appeals. Daniel Kiselbach is a partner in the International Trade, Customs and Commodity Tax Group of Miller Thomson LLP in Vancouver. He can be reached by phone at (604) or by at dkiselbach@millerthomson.com Miller Thomson LLP This article is provided as an information service and is a summary of current legal issues. This information is not meant as legal opinion and readers are cautioned not to act on information provided in this presentation without seeking specific legal advice with respect to their unique circumstances. 15 Supra, note 4, pages 28 and 29. 7