CUSTOMS UPDATE & MANAGING POST-ENTRY
AUDIT
By: Atty. Mark Anthony P. Tamayo, CPA
Partner, Tax & Global Trade & Customs Services
June 4, 2014
Page 1
A member firm of Ernst & Young Global Limited
Transfer of Post Entry Audit
Presentation Outline
Executive Order (EO) No. 155

Transfer of Post Entry Audit Functions from BOC-PEAG to DOF-FIU

DOF Department Order (DO) - 11-2014





Page 2
General guidelines to be followed by the FIU and importers
 New rules vs. Old rules
 Record keeping
Basic Audit Process
Summary of Changes
Best Practices
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Transfer of Post Entry Audit
Introduction
“Customs’ post
audit team
abolished”--- Philippine
“Finance assumes customs audit”--Manila Standard Today, February 10, 2014
Daily Inquirer, February 9, 2014
“DOF releases post-entry audit
rules to catch ‘big time’
smugglers”--- Manila Bulletin, February
“New DOF unit
takes over BOC’s
post entry audit
functions”--- The Philippine Star,
January 1, 2014
9, 2014
Page 3
Managing Customs Audit: A Workshop on Customs Laws and Updates
March 25, 2014
Transfer of Post Entry Audit Functions
FIU as the new customs audit per EO No. 155
►
Executive Order (EO) No. 155
►
►
►
►
Page 4
Official Title: Amending EO No. 160 (s. 2013) and for Other Purposes
Signed by the President on December 18, 2013
Took effect upon publication in Manila Bulletin on December 28, 2013
Essence: The post-entry audit functions, which were previously exercised by the
BOC’s Post Entry Audit Group (PEAG), were transferred to the DOF’s FIU.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
What is the nature of the post entry audit functions transferred to
FIU?
►
Under Section 1 of EO No. 155, the following functions of the PEAG per EO No. 160,
and other tasks inherent or incidental thereto, were transferred to the FIU:
Trade Information and Risk Analysis Office (TIRAO):
►
Set the framework and benchmarks for compliance measurements of
industry groups
Direct the development of a computer-aided risk management system
(xxx).
Implement the computer-aided risk management system to develop
audit selection parameters based on objective and quantifiable data
Establish and recommend audit targets to the Commissioner of
Customs
Set policies and guidelines relating to the audit (xxx)
►
Perform other related functions
►
►
►
►
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Compliance Assessment Office (CAO):
►
Formulate audit work plan for approved audit targets
Conduct audit examination, inspection, verification or
investigation in accordance with the set policies, guidelines,
manuals and standard operating procedures.
Prepare and submit audit reports
Develop and implement a customs compliance program
►
Perform other related functions
►
►
►
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
FIU audit preparations
►
In accordance with the winding-up of PEAG functions under Section 2 of EO No.
155, and the Transitory Provisions of DO No. 011-2014:
►
►
►
►
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The PEAG was ordered to submit an inventory of ongoing audits and pending VDP application to
the FIU.
There is an ongoing physical turnover of dockets to FIU.
The audit of all pending cases will be continued by the FIU
The FIU formed a new set of examiners (around 48), who are currently undergoing
customs audit trainings.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
FIU audit preparations
►
The DOF issued DO No. 011-2014, or the general guidelines to be followed by the
FIU and importers.
►
►
►
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Signed on February 5, 2014
Took effect on February 28, 2014 (or after 15 days from its publication in Manila Standard Today
last February 13, 2014).
TheDOF is also preparing a separate set of compliance audit guidelines that will
strictly govern the conduct of audit examination (Section 11 of DO No. 11-2014).
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
FIU audit procedures
The way to look at the new rules vs. old rules
►
Based on Section 20 of DO No. 011-2014, “all order, memoranda, circulars or other
issuances or parts thereof which are inconsistent with this DO are hereby deemed
repealed and/or modified accordingly”.
New FIU rules:
Old PEAG rules:
 DO No. 011-2014
 CAO No. 04-2004 or the PEAG Audit Guidelines
VS.
 Separate set of Compliance Audit
Guidelines (to be issued by the FIU)
 CAO No. 5-2007 and CMO No. 18-2007 or the
Rules on Voluntary Disclosure Program
 Other pertinent issuances
Page 8
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
►
All importers are required to keep importation records at their principal place of
business for a period of ten (10) years from the date of filing of the import entry.
►
“Importer” shall include:
(1) Importer of record/consignee,
(2) Beneficial owner
(3) Agent of the persons effecting the importation
(4) Any other person who knowingly causes the goods to be imported.
►
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There is a similar 10-year requirement to keep records on handling customs brokers.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
►
Since the 10-year period to keep records is prejudicial to the importer, it should be
applied prospectively.
►
Hence, for importations made in February 2014, the records should be kept until
February 2024.
February
2014
February
2024
10 years
Period to keep records
Page 10
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
►
Under a more aggressive application, the DO No. 011-2014 can be interpreted to
apply to importations made in February 2011 (which should not yet be disposed,
and be kept for an additional 7 years).
February
2011
February
2014
February
2021
3 years
+ 7 years
Period to keep records
Page 11
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
Required Documents*
Importers
Brokers
(a) Company or entity structure
Yes
-
(b) Ordering and purchase documentation
Yes
-
(c) Shipping, importation, exportation and transportation documentation
Yes
Yes
(c1 to c13)
(d) Manufacturing, stock and resale documentation
Yes
-
(e) Bank documents, financial statements and other accounting information
Yes
-
(f) Charts and codes of accounts, ledgers, financial statements, accounting
instruction manuals, and systems and program documentation
Yes
-
(g) If applicable, papers, books, registers, discs, films, tapes, sound tracks, and
other devices or things where items (a) to (f) are recorded or stored
Yes
Yes
(c1 to c13)
* To the extent relevant for the verification of the accuracy of the transaction value declared and for collecting the proper duties and taxes on imports.
Page 12
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
►
Penalties for failure to keep records (Section 13):
(a) Imposition of administrative fine equivalent to 20% ad valorem on the articles for which no
records were kept;
(b) Cancellation of accreditation privileges;
(c) Criminal prosecution punishable with a fine of Php100,000 to Php 200,000 and/or
imprisonment of 2 years and 1 day to 6 years
Page 13
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
DO No. 11-2014
Record Keeping
►
Penalties for failure and/or refusal to give full and free access to records:
Same as (a), (b), and (c) for failure to keep records
(d) Punishment for contempt, for contumacy or refusal from the proper court having criminal
jurisdiction (in relation to Section 12)
(e) Re-assessment of the importations subject to audit applying the correct valuation method
based on available data, the declared transaction value being presumed inaccurate (in relation to
Section 12).
Page 14
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Basic Audit Process
PREPARATORY
PRE-AUDIT
AUDIT
FINAL
STAGE
STAGE
STAGE
STAGE
Profiling
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Issuance of ANL
and submission
of documents
Pre-audit
conference
Audit Proper
Exit Conference
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance
of FARR
Profiling
Who shall be audited
Under Section 4 of DO No. 011-2014:
►
Importers selected by a computer-aided risk management system (based on importer
profiling factors):
►
►
►
►
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Relative magnitude of customs revenue from the importer
Rates of duties of the importer’s imports
Compliance track record of the importer
Assessment of the risk to revenue of importer’s import activities
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Profiling
Who shall be audited
►
When errors in the import declaration are detected
►
Importers who voluntary request to be audited, subject to the approval of the
Commissioner of Customs, upon recommendation of the FIU
►
Brokers, to validate audits of their import clients and/or fill in information gaps
revealed during an audit of their importer clients
Page 17
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Profiling
Who shall be audited
►
As in the past, the audits can cover importers from various industries.
►
Even PEZA, SBMA, CDC and other importers enjoying duty and tax incentives are
subject to audit.
►
Basically, all importers may be audited.
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Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance of ANLs
What is an Audit Notification Letter (ANL)?
►
►
►
►
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It is the equivalent of the BIR’s Letter of Authority (LOA) or Letter Notice (LN)
Signed by the BOC Commissioner
Authorizes the conduct of audit (i.e., 3 years from the date of final payment/settlement of duties)
Defines the specific period covered by the audit
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance of ANLs
Procedure for Issuance of ANLs
► If the FIU determines that there is basis to conduct an audit, it shall inform the BOC
Commissioner in writing.
►
Within 15 days from receipt of notice from FIU, the BOC Commissioner shall issue
an ANL to the concerned importer and the broker.
►
According to the standard ANL form, the ANL shall be served within 30 days from
date of issuance.
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Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance of ANLs
The FIU notice and the ANL shall state the
following:
►
►
►
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The names of the members of the audit team
Date, time and venue of pre-audit conference
Date of commencement of audit proper
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Submission of Documents
►
Based on the standard ANL form, the ANL shall be accompanied by the following:
►
►
►
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A list of documents for compliance audit; and
A General Customs Questionnaire (to be accomplished).
These documents are required to be submitted to the FIU prior to the Pre-Audit
Conference.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance of ANLs
►
The documents to be submitted shall be certified by the importer and/or broker as
true copies (Section 9).
►
The FIU may require the submission of additional documents, as may be necessary
(Section 10).
Page 23
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Pre-Audit Conference
►
DO No. 011-2014 is silent as to the details of the conduct of the Pre-Audit
Conference.
►
Based on previous PEAG practices, the audit team and the auditee meet during the
Pre-Audit Conference to discuss the following:
►
►
►
►
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Purpose and scope of audit
Audit timetable
Records to be retrieved/reviewed
Working space requirements
Company systems
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Audit Proper or “Field Audit”
►
DO No. 011-2014 is silent as to the details of the conduct of the Audit Proper.
►
Based on previous PEAG practices, there is no definite timetable for the audit proper.
The review heavily depends on the nature and complexity of the issues raised.
Page 25
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Audit Proper or “Field Audit”
Audit Procedures Previously Adopted by the PEAG
1. Random sampling of importations (based on high value shipments, duty rates or
duties and taxes paid) or full audit (all importations), as may be deemed necessary.
For this purpose, the examiner may refer to either:
►
►
MISTG data; and/or
Submitted schedule of importations
2. Raising of default issues, such as:
►
►
►
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Royalties and license fees;
Various payments by importer to supplier;
Other possible issues (such as record keeping)
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Audit Proper or “Field Audit”
Audit Procedures Previously Adopted by the PEAG
3. Preparation of issues and initial findings
4. Requiring importer-auditee to submit explanations and supporting documents
5. Cancellation of the issues (if explained/supported) or Reiteration of issues (during
audit or at the Exit Conference stage, preparatory to issuance of a Final Assessment
Report and Recommendation [FARR])
Page 27
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Audit Proper or “Field Audit”
Focus on Computation of Duties and Taxes
DUTIES
Cost
Insurance
Freight
Other Dutiable Charges
Dutiable Value in Foreign Currency
Conversion rate
Dutiable Value in Pesos
Duty Rate (based on classification)
Customs Duty
xxx
xxx
xxx
xxx
xxx
xxx
(Sec. 201 TCCP, as amended)
xxx
(CMO No. 22-07)
xxx
(CMO No. 22-07)
(CMO No. 16-10)
(CAO No. 14-02)
xxx
(Section 104 TCCP, as amended)
VAT
Dutiable Value
Customs Duty
Excise tax, if any
Add: Other Charges
Bank Charges (1/8 of 1%)
Brokerage fee
Wharfage
Arrastre
Customs stamps
Import Entry Processing fee
VAT Base
VAT rate
VAT
Page 28
xxx
xxx
xxx
xxx
xxx
xxx
xxx
(CAO No. 01-01)
xxx
(CAO No. 26-95/CMO No. 32-09)
xxx
(CAO No. 26-95)
(CAO No. 02-01 & Sec 188 NIRC)
(CAO No. 02-01)
xxx
12%
xxx
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues
Categories of Issues
►
For customs duties:
►
►
►
For VAT on importation:
►
►
Correctness of landed cost (VAT base)
Other issues
►
►
►
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Valuation issues
Classification issues
Industry specific issues (i.e., issues of auditees with incentives)
Record keeping
Reconciliation of Discrepancies
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues
Customs Duties (Valuation Issues)
Issues
Sub-Issues
Basis
Correct
Valuation
Method
Method 1-TV of the Goods
Method 2-TV of Identical Goods
Method 3-TV of Similar Goods
Method 4-Deductive Value
Method 5-Computed Value
Method 6-Fallback Value
Section 201 of
TCCP, as
amended
Cost
Accuracy of the “price actually paid or payable”
Section 201 of
TCCP, as
amended
Existence of relationship between the parties (which may have influenced the
price)
Price adjustments / Fluctuation of prices
Parallel importations
Triangular shipments
Interest payments for imported goods
Page 30
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues
Customs Duties (Valuation Issues)
Issues
Other
Dutiable
Charges
Forex Rate
Page 31
Sub-Issues
Basis
Commissions and brokerage fees (except buying commissions)
CMO 16-10
Cost of containers
CMO 16-10
Cost of packing, whether for labor or materials
CMO 16-10
Assists
CMO 16-10
Royalties and license fees
CMO 16-10
Proceeds of subsequent resale
CMO 16-10
Cost of transportation (i.e., freight, ex-works)
CMO 22-07
Loading, unloading and handling charges associated with the transport (i.e.,
terminal handling charges)
CMO 16-10
Cost of Insurance
CMO 22-07
Use of the correct forex rate issued by the BSP (i.e., applicable Friday rate)
CAO 14-02
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues
Customs Duties (Valuation Issues)
Issues
Applicable tariff classification
Applicable duty rate
- Use of regular MFN rates
- Use of preferential rates under a FTA
- Use of special rates under special laws
Page 32
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Basis
Section 104 of the TCCP, as
amended
(subject to applicability of FTAs
or special laws)
Common Issues
VAT on Importation (Landed Cost Issues)
Issues
Landed cost
Sub-Issues
Basis
Dutiable value
CMO 16-10
Customs duties
Various
Excise tax
Title VI of NIRC
Bank charges (1/8 of 1%)
Page 33
Brokerage fee
CAO 1-01
Wharfage
CMO 26-95 and CMO 32-09
Arrastre
CAO 26-95
Documentary customs stamps
CAO 2-01 and Section 188 of
NIRC
Import Processing Fee (IPF)
CAO 2-01
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues
Other issues – Record Keeping
►
Page 34
All importers are required to keep complete copies of import documents for a period
of 10 years from the date of filing of import entry (DOF Department Order No. 0112014).
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues during Post Entry Audit
Other issues – Reconciliation
►
Page 35
The reconciliation exercise may involve:
►
MISTG records vs. Schedule of Importations.
►
MISTG records vs. VAT returns.
►
Schedule of importations vs. GL or Audited FS.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues during Post Entry Audit
Other issues – Industry Specific (PEZA)
As a rule, importations by PEZA locators are not subject to customs laws, rules and
regulations.
Section 1, Rule XV of the IRR of RA No. 7916:
“Raw materials, supplies and articles brought into the ECOZONE and used in the processing and
manufacturing activities of PEZA locators, whether directly or indirectly related in such activity, shall
not be subject to customs and internal revenue laws and regulations nor to local tax ordinances.”
Page 36
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues during Post Entry Audit
Other issues – Industry Specific (PEZA)
Foreign
Suppliers
For EXPORT
Locators in other
PEZA zones
Other Locators within
PEZA zone
For EXPORT
PEZA locatorimporter
For EXPORT
For Local Sales
Page 37
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Common Issues during Post Entry Audit
Other issues – Industry Specific (PEZA)
The audit team may check if:
►
►
►
►
►
►
►
►
Page 38
PEZA company has secured the BIR ICC and BOC accreditation as importer
Importations are covered by Import Permits, etc.
Imported goods actually reach ECOZONE (Swing importations)
Imported goods are used in Registered Activities
Imported raw materials are actually exported (vis-à-vis sales to customs territory)
Scrap sales
Liquidation is properly made (shortage/overage)
Procedures and documentation requirements are duly complied with under PEZA rules.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Exit Conference
►
DO No. 011-2014 is silent as to the details of the conduct of the Exit Conference.
►
Based on previous PEAG practices:
►
►
Page 39
The audit team shall meet with the auditee during Exit Conference to discuss the audit findings.
The auditee is given the chance to comment, file position papers and submit supporting
documents to challenge the audit findings.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Exit Conference
In case of failure to pay proper customs duties and taxes on importation, the importer
shall be subject to administrative penalties (Section 15 of DO No. 011-2014).
Fines and penalties depending on the degree of culpability
Failure to pay
Proper duties and
taxes
 Negligence  ½ to 2 times the revenue loss
 Gross Negligence  2½ to 4 times the revenue loss
 Fraud
 5 to 8 times the revenue loss
 Criminal prosecution
Page 40
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance of FARR
►
DO No. 011-2014 is silent as to the details of the procedure for issuance of the Final
Audit Report and Recommendation (FARR).
►
Based on previous PEAG practices:
►
►
Page 41
The audit team prepares and submits a FARR to the BOC Commissioner.
Upon approval of the FARR, the auditee will be issued a Management Letter in the form of a
Demand Letter (stating the amount of deficiency duties and taxes, inclusive of penalties).
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Basic Audit Process
Applicable Rules
PREPARATORY
PRE-AUDIT
AUDIT
FINAL
STAGE
STAGE
STAGE
STAGE
Profiling
Issuance of ANL
and submission
of documents
Covered by
DO No. 011-2014
Page 42
Pre-audit
conference
Audit Proper
Exit Conference
Issuance
of FARR
Not covered by DO No. 011-2014, and may be the subject of
Compliance Audit Guidelines
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Authority to Compromise Penalties
►
DO No. 011-2014 retains the BOC Commissioner’s authority to compromise
penalties for failure to pay proper customs duties and taxes.
►
►
►
The compromise is subject to approval of the Secretary of Finance.
It does not cover cases of fraud and other cases specified by law.
It applies when the importer makes a voluntary and full disclosure prior to the commencement of
the audit stated in the ANL.
(Based on Section 2316 of the TCCP, as amended, CAO No. 4-04, and the VDP rules per CAO No. 5-2007
and CMO No. 18-2007).
Page 43
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Voluntary Disclosure Program
Overview
►
It is a remedy offered by the BOC to erring importers (under CAO No. 5-2007 and
CMO No. 18-2007).
►
It allows importers to voluntarily correct any erroneous, inaccurate or insufficient
information declared to the BOC at the time of entry of the goods.
►
Errors covered are due to sheer mistake, inadvertence or negligence.
Page 44
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Voluntary Disclosure Program
Benefits
►
VDP is not time bound.
►
Waiver of the penalties imposable for deficiency duties and taxes.
►
Grant of “Least Priority” status in audit selection process for the succeeding 2 years
from date of filing (subject to certain conditions).
Page 45
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Voluntary Disclosure Program
Period to Avail
PREPARATORY
PRE-AUDIT
AUDIT
FINAL
STAGE
STAGE
STAGE
STAGE
Profiling
Issuance of ANL
Pre-audit
conference
Audit Proper
Exit Conference
Avail of the VDP
Page 46
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Issuance
of FARR
Summary
►
The post-entry audit functions are now exercised by the FIU, no longer by the PEAG.
►
The period to keep records is now 10 years from date of filing of the import entry.
►
Failure to keep records or give full/free access to records may now result in
cancellation of accreditation privileges.
Page 47
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Summary
►
DO No. 011-2014 covers the procedures on Profiling and Issuance of
ANLs/Submission of documents.
►
DO No. 011-2014 is silent as to Pre-Audit Conference, Audit Proper, Exit Conference
and Issuance of FARR.
►
►
►
Page 48
The previous PEAG rules (which are not inconsistent) may apply
Subject to issuance of separate Compliance Audit Guidelines
DO No. 011-2014 retains the BOC Commissioner’s authority to compromise
penalties for failure to pay proper customs duties and taxes.
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014
Best Practices
►
►
►
►
►
►
►
Page 49
Strict compliance with customs and tax laws, rules and
regulations
Pre-importation valuation and classification review
Secure BOC ruling
Secure Tariff Classification ruling
Customs Broker management
Customs Compliance Review
Customs Manual
SGV Contact Details
NAME / POSITION
CONTACT DETAILS
Mark Anthony P. Tamayo
Partner
Tel No. 894-8391
Stephanie G. Vicente-Nava
Senior Director
Tel No. 894-8319
Email: stephanie.g.vicente@ph.ey.com
Victor C. De Dios
Director
Tel No. 894-7929
Email: victor.c.de.dios@ph.ey.com
Page 50
Email: mark.anthony.p.tamayo@ph.ey.com
Thank you!
Page 51
Managing Customs Audit: A Workshop on Customs Laws and Updates
April 8, 2014