25.11.2017
For actors in international trade to remain competitive at both national and international levels, it is crucial for customs and foreign trade operations to be conducted seamlessly and effectively. However, customs and foreign trade operations, as well as the legal regulations they are subject to, are becoming increasingly complex with each passing day.
A common issue in the customs field is that although a significant portion of many companies' operations involves foreign trade, there is often a limited level of knowledge and experience within the company regarding the legal compliance of foreign trade transactions. Sometimes, the monitoring of these issues is even left solely to the customs consultancy firm the company works with.
Customs penalties are still quite severe. Even the smallest mistake can result in a penalty three times the amount of the tax discrepancy. If the mistake is a systematic one repeated in the past, the penalty can reach astronomical figures. Furthermore, many violations can result in legal responsibilities, potentially leading company executives and employees to face judicial processes. For this reason, customs compliance should not be viewed as a secondary task but should be seen as one of the primary responsibilities of the company.
So, what should be considered to avoid penalties related to customs? There is much to be said on this topic, but the advice can be summarized as follows:
1. Customs Compliance Responsibility Lies with the Company
The simplest and most important detail to know is that the company, not just the customs broker, is responsible for the declaration made to the customs administration. While the customs broker also bears responsibility, it is limited to what they know or are expected to know.
Being aware of this fact can prevent exposure to fundamental customs risks.
On the other hand, having a department within the company that closely follows customs and foreign trade regulations, especially local regulations, or at least having employees dedicated to this, will contribute to preventing or detecting many potential risks.
2. Customs Declarations Should Be Reviewed by the Company Before Submission and After Completion
Customs declarations are usually prepared by customs brokers based on the information and documents provided to them. However, checking the alignment of customs declarations with company records by the relevant employee before the declaration is registered can minimize potential errors and reduce the risk of facing penalties. This process also helps increase employees' familiarity with customs declarations and allows them to interpret the declaration information more accurately.
Additionally, after customs procedures are completed, the customs declaration and its attachments sent by the customs broker should be reviewed again. It is particularly important to confirm the compliance of costs and documents incurred after the declaration has been registered. This review can be done by the employee responsible for the relevant operation or, if possible, by a different employee to ensure a third-party check before the declaration is archived.
3. Develop Internal Control Practices for Customs Activities
Companies need to obtain goods or raw materials as quickly as possible in the competitive environment. This pressure creates a race against time from the order to the receipt of goods in imports and exports. Therefore, ensuring that customs operations are monitored according to the company's internal control procedures, through testing methods, guarantees that the operations and processes are being followed in accordance with customs regulations.
In companies without an internal control department, this review can be conducted by an internally appointed employee with experience in customs or, if possible, by experienced external (independent) auditors.
4. Adopt a Voluntary Compliance Approach and Self-Report Violations Whenever Possible
A voluntary compliance approach maintains high awareness of regulatory compliance, ensures that violations are monitored and necessary measures are taken by all relevant departments including management, and increases the attention and diligence of all departments to prevent recurrence. Additionally, self-reports are generally not seen as violations of trust with the customs administration, thus preventing an increase in company risk during customs controls.
Furthermore, self-reporting customs violations that result in tax loss can lead to significant reductions in penalties. Reduced penalties resulting from such reports can be further decreased through settlements, offering the opportunity to minimize penalty amounts.
5. Customs Issues Are Not Limited to the Foreign Trade Department or Customs Brokers
A common misconception is that customs issues are solely the concern of the foreign trade department or customs brokers. Many issues not monitored by the customs or foreign trade department can still affect customs operations.
For example, royalty payments, license payments, commissions paid under various names, and fees paid abroad for cost-sharing are often monitored by finance and accounting departments in many companies. Such payments can affect the customs valuation of imported goods.
Similarly, technical analyses of origin in manufacturing firms closely involve production and planning departments. These departments need to coordinate with the export department on origin rules and have fundamental information and guidance.
6. Regularly Review Tariffs for Imported and Exported Goods and Seek Expert Support for Ambiguous Situations
Accurate determination of the HTS codes for imported and exported goods is crucial from a customs regulation perspective. Incorrect HTS code determination can lead to underpayment of taxes and result in penalties or cause critical violations related to restricted or prohibited goods.
Incorrect HTS code determination can sometimes also lead to overpayment of customs duties.
Even if no issues are encountered during customs operations, it should not be assumed that tariffs are always correct. HTS codes should be reviewed regularly. For new imports or exports, support should be sought from the company, customs brokers, and consultants to determine the most accurate tariff, and Binding Tariff Information or Tariff Information should be obtained from the customs administration if there are any doubts.
Additionally, if there are uncertainties regarding the content or characteristics of the imported product, a preliminary review known as a "customs query" should be conducted before opening the customs declaration to ensure accurate declaration.
7. Monitor Import and Export Prices and Regularly Test the Consistency of Import and Export Values with Comparable Transactions, Especially with Related Companies
The price of imported goods is a key element in determining the customs duty base. A price that does not align with comparable transactions can trigger value investigations from a customs valuation perspective. If convincing information and documentation are not provided to show that the import price is consistent with comparables, higher comparable (same or similar) prices may be used, potentially leading to significant tax discrepancies and penalties.
Sharp fluctuations in import and export prices can trigger such value investigations. Therefore, price changes should be monitored, and potential risks from price fluctuations that do not match market conditions should be considered.
Especially with related companies, prices should not be influenced by the relationship, so customs regulations should be considered in pricing, and price fluctuations should be closely monitored in such companies. Transfer pricing adjustments post-import can lead to significant customs penalties if not handled with proper methods and approaches.
8. Customs Planning Should Not Focus Solely on Financial Benefits but Also Consider Potential Penal Risks and Responsibilities
To minimize customs costs, economically efficient customs regimes (such as inward processing regimes) offer significant advantages. For example, under the inward processing regime, raw materials can be obtained without paying customs duties, reducing input costs. On the other hand, such conditional exemptions require serious monitoring, and violations of the regime can lead to severe penalties. Therefore, these advantages should be well-analyzed, and a benefit and cost (risk) analysis should be conducted to determine whether the financial advantages are sufficient to justify assuming these responsibilities.
9. Work with Experienced Customs Brokerage Firms, and If Representing Directly, Ensure That Representatives Within the Company Are Skilled and Experienced in Customs Matters
The preparation of customs declarations and the monitoring of customs operations at customs administrations are often handled indirectly through customs brokerage firms. Working with a customs brokerage firm that is specialized, experienced in the sector, and closely follows customs regulations will contribute to the accurate and complete preparation of customs declarations and minimize potential penalties.
Additionally, regular meetings with customs brokers to assess current developments and discuss the effects of regulatory changes are recommended. This ensures that both the company and customs brokers are on the same page regarding the company's operations, aiding in accurate and truthful declarations. Regular updates within the company about developments will help the customs broker become familiar with the company as if they were an "internal employee," leading to accurate declarations.
10. Regularly Participate in Training on Customs and Foreign Trade Regulations and Stay Updated
Customs and foreign trade regulations are broad and complex. Regular training on relevant topics related to the company's operations contributes to correct and complete application of the regulations. Furthermore, customs regulations are dynamic and frequently changing, so it is advisable for company employees to receive regular training on developments in this area. This will reduce the likelihood of errors in processing.