Highlights of the new BOC audit rules
Credit to Author: MARK ANTHONY TAMAYO| Date: Thu, 24 Jan 2019 16:18:07 +0000
(First of two parts)
The regulation on the guidelines of the Post Clearance Audit (PCA) and Prior Disclosure Program (PDP) has finally been signed by the Department of Finance (DOF)
Secretary last Jan. 9, 2019. Embodied under Customs Administrative Order (CAO) No. 01-2019, said CAO shall take effect on February 15 (30 days after its publication on January 16 at The Manila Times).
CAO 01-2019 implements Executive Order No. 46 series of 2017 (signed last Oct. 20, 2017) which created an empowered post clearance audit group (PCAG) of the Bureau of Customs (BOC) that is expected to aggressively commence the examination and verification of importers’ records pertaining to their goods declarations for the purpose of ascertaining their correctness and determining their potential liabilities for duties, taxes and other charges, including fine or penalty.
This power can be exercised within 3 years from the date of final payment of duties and taxes or customs clearance, as the case may be.
The PCAG, which is directly under the supervision of the BOC commissioner, is headed by a BOC assistant commissioner who shall exercise direct supervision and control over the management of its operating units, which include the Trade and Information and Risk Analysis Office (which, among others, recommends to the BOC commissioner potential priority audit candidates) and the Compliance Assessment Office (which conducts the actual audit).
Who can be subjected to PCA?
The CAO categorically provides an expanded definition of an “importer” subject to PCA. The term not only covers those tagged as importer-of-record or consignee, owner or declarant, its agent, or those who withdraws admitted goods from the free zones into the customs territory for consumption or warehousing, but also includes, among others, those who knowingly cause the importation or transportation or storage of imported goods as well as those ordering imported goods from a local importer or supplier in a “controlled” domestic transaction.
Selection criteria
The importers targeted for PCA are carefully chosen based on a “computer-aided risk management system” that takes into consideration the highest level of risk to (and the greatest impact upon) customs revenue and other priority objectives of the administration.
Under the CAO, the criteria are based on, among others, the relative magnitude of customs revenue from the importer, the rates of duties, compliance track record, an assessment of the risk to revenue of the firm’s import activities, the compliance level of trade sector and non-renewal of an importer’s customs accreditation.
Customs brokers may be audited to validate audits of their importer-clients or fill in information gaps revealed during an audit of their importer clients. Locators in the economic zones and those enjoying duty and tax incentives are likewise covered and thus, are not exempt from BOC compliance audit.
Once selected for PCA, the audit process will be triggered by the issuance of a BOC Audit Notification Letter (ANL) served to the importer-auditee through any of the following modes: a) personal service at the principal place of business, b) by registered mail; or c) by electronic notice.
The coverage of the compliance audit is 3 years (10 years in case of fraud) from the date of the ANL counted backwards.
Audit procedure
An ANL (which bears the names of authorized PCAG team members) must be served to the importer within a period of 30 days from its issuance, subject to revalidation by the assistant commissioner, for another 30 days prior to its expiry.
The audit team shall then commence the audit proper not later than 60 calendar days from the service of the ANL. The audit must be completed within 120 calendar days per year of audit period (subject to a possible extension of 30 days) from the date the importer receives the ANL. The audit is considered completed when the Final Audit Report (FAR) with a demand letter, or a PCAG-Clean Report of Findings (PCAG CRF), as the case may be, has been submitted by the audit team and endorsed by the assistant commissioner for subsequent approval by the commissioner.
The importer adversely affected may file a request for reconsideration (plea for the re-evaluation of the audit findings based on existing records) or reinvestigation (plea of the re-evaluation based on newly discovered or additional evidence) to the commissioner within 15 days from receipt of the demand letter.
Expected audit issues
The main aim of the PCA is to, among others, determine any short payments on past import transactions resulting from non-compliance with or violation of customs rules, focusing mainly on valuation and/or classification issues.
With respect to valuation, the PCAG will, as a matter of procedure, check whether the value of the imported goods previously declared is correct and has reflected the price actually paid or payable by the importer to the supplier. Along with this, the PCAG will also review whether the required dutiable adjustments were properly declared and that the appropriate customs valuation method had been correctly adopted.
As to classification, the focus area will mainly be on whether the imported goods were properly described, and the correct tariff classifications vis-à-vis the duty rates were properly used.
Other review areas typically include the verification of the correctness of the quantities of goods, declarations as to country of origin, entitlement of special or preferential tariff rates, record keeping and other compliance requirements.
Apart from the above focus areas, the BOC, as a matter of approach, likewise compares specific figures contained in an auditee’s records with that of their own data. Discrepancies will usually require the submission of a detailed reconciliation document from the auditee.
Any deficiency duty assessment issued by the BOC after audit would normally include a deficiency VAT (on importation) assessment since the import VAT base, under the rules, includes, as components, the dutiable value and customs duty. Thus, any under declaration of customs duty shall, as a consequence, result to undervaluation of the VAT and vice versa.
In next week’s article, I will discuss the penalties imposable during a PCA and the remedies available to importers under the CAO.
(Mark Anthony P. Tamayo is a CPA-Lawyer and a Partner of Mata-Perez, Tamayo & Francisco Law Offices (MTF Counsel). He is a professor of law and a regular MCLE lecturer. His areas of practice include, among others, corporate, tax advisory, controversy and litigation as well as international trade & customs.) This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
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