PH Customs to commence audit of firms with release of post-clearance audit...

PH Customs to commence audit of firms with release of post-clearance audit order


Philippine companies will now have to be ready for a potential customs audit with the signing of a Bureau of Customs (BOC) order finally operationalizing the agency’s post-clearance audit function.

Customs Administrative Order (CAO) 01-2019, signed by Customs Commissioner Rey Leonardo Guerrero on November 29, 2018 and Finance Secretary Carlos Dominguez III on January 9, 2019, implements the post-clearance audit function as well as the Prior Disclosure Program (PDP) as prescribed under the Customs Modernization and Tariff Act (CMTA).

With the formal rollout of its post-clearance audit function, BOC’s audit of firms will now commence, said assistant commissioner and Post-Clearance Audit Group (PCAG) head Atty. Vincent Philip Maronilla in a text message to Asia Customs & Trade.

It may be recalled that BOC’s post-clearance audit function was transferred to the Department of Finance in 2014, only to be returned to the customs bureau in 2017, a year after the CMTA, which provides new rules on the program, was signed into law.

Maronilla said BOC has identified companies for post-clearance audit and that the customs commissioner has just issued Audit Notification Letters (ANL) covering such companies profiled using parameters identified in CAO 01-2019 and aided by the customs bureau’s risk management system. ANLs inform companies they will be subject to post-clearance audit and contain information on the audit procedure.

Though PCAG as a rule does not have a target revenue collection, Maronilla said the group, on its own initiative, is aiming to collect at least P4 billion in revenues this year to contribute to the collection effort of BOC.

Provisions of CAO 01-2019

CAO No. 01-2019 covers the post-clearance audit of all records required to be kept by all importers, beneficial or true owners of imported goods, customs brokers, agents, and locators. It also implements the PDP, formerly known as Voluntary Disclosure Program, as a compliance and revenue measure.

Under CAO 01-2019, within three years from the date of final payment of duties and taxes or customs clearance, as the case may be, BOC may conduct an audit examination, inspection, verification, and investigation of records pertaining to any goods declaration, which shall include statements, declarations, documents, and electronically generated or machine-readable data. Such audit is “for the purpose of ascertaining the correctness of the goods valuation and determining the liability of the importer for duties, taxes, and other charges, including any fine or penalty.”

PCAG, the group mandated to perform the post-clearance audit function of BOC, shall prepare a set of post-clearance audit procedures, for approval by the Customs commissioner, so as “to strictly govern the audit to achieve the highest level of objectivity, fairness, efficiency, and transparency.”

PCAG will have two operating units—Trade Information and Risk Analysis Office (PCAG-TIRAO) and Compliance Assessment Office (PCAG-CAO)—each to be headed by a director.

Maronilla earlier clarified that PCAG’s jurisdiction starts when the jurisdiction of BOC’s Liquidation and Billing Division, which is within 15 days after payment, ends.

In the absence of fraud when the goods have been finally assessed and released, the assessment shall be conclusive upon all parties three years from the date of final payment of duties and taxes, or upon completion of the post-clearance audit, CAO 01-2019 notes.

Who should keep records

Among the entities required to maintain and keep their records are importers, including beneficial and true owners of goods; customs brokers and other parties engaged in customs clearance; and locators as defined by the CMTA.

Importers and beneficial or true owners of goods are required to keep all records pertaining to the ordinary course of business and to any activity or information contained in the records required by CAO 01-2019 and by the CMTA at their principal place of business for three years from the date of final payment of duties and taxes or customs clearance, whichever is later.

All parties engaged in customs clearance and processing, as well as locators or persons authorized to bring imported goods into Free Zones, are also required to keep records related to such customs clearance and processing at their principal place of business for three years from the date of filing of goods declaration.

To conduct its post-clearance audit function, BOC shall develop a computer-aided risk-based management system, whose parameters are to be based on objective and quantifiable data to be approved by the finance secretary upon the recommendation of the customs commissioner.

Post-clearance audit of importers shall be undertaken when firms are selected on any, but not limited to, several criteria. These include the relative magnitude of customs revenue to be generated from the firm; rate of duties of the firm’s imports; compliance track records of the firm; assessment of the risk to revenue of the firm’s import activities; compliance level of a trade sector; and non-renewal of an importer’s accreditation.

For customs brokers and the importer’s other duly authorized agents, audit may be conducted to validate information provided by their importer client and fill information gaps revealed during the audit.

If needed, the customs commissioner may also authorize a compliance audit of importers, locators, or specific group of importers or other patties engaged in the customs clearance process.

Importers, customs brokers, and duly authorized agents acting in behalf of the importer shall give authorized BOC officers full and free access to the premises and to the records, wherever they are kept. The customs officer, in turn, shall present a written evidence of his authority.

Consequences of non-compliance

Those who fail to maintain and keep records, or fail or refuse to give customs officers full access to such records, will be imposed with the following penalties: suspension or cancellation of accreditation as importer or customs broker with BOC; surcharge of 20% on the dutiable value of the goods which is the subject of the importation for which no records were kept and maintained; hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment; and criminal prosecution punishable with imprisonment of not less than three years and one day but more than six years, and/or a fine of P1 million.

Failure to maintain and keep records can also result in the waiver of the right to contest the results of the audit based on records kept by BOC.

Failure or refusal to give customs officers full access to required records, on the other hand, will also be imposed with punishment for contempt, for contumacy or refusal to provide access, from the proper court having criminal jurisdiction over the matter; and reassessment of the importations that are the subject of audit.

If the importer is found to have been deficient in the duties and taxes paid for imported goods and fails to pay the correct dues based on the audit, then the importer will be penalized according to two degrees of culpability: negligence or fraud.

Negligence shall be penalized with a fine equivalent to 125% of the revenue loss, while fraud shall be penalized with a fine six times the revenue loss, and/or imprisonment of not less than two years but not more than eight years.

Availing of the Prior Disclosure Program

PDP, meanwhile, is a program based on international best customs practice, authorizing the customs commissioner to accept, as a potential mitigating factor, prior disclosure by importers of errors and omissions in goods declaration resulting in deficiency in duties and taxes on past importations. It may also include disclosures on royalties and other proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller.

Importers who have received an ANL may still avail of the PDP by submitting the duly accomplished application form prescribed by BOC within 90 calendar days from the receipt of the ANL.

Not qualified to avail of PDP are goods declarations which are the subject of pending cases with any customs office; goods declarations covered by cases already filed and pending in courts; and goods declarations involving fraud.

Instead of penalties for negligence, importers availing of the PDP shall be penalized with payment of the deficiency in duties and taxes due plus legal interest for the applicant who has not yet received an ANL; and payment of the deficiency in duties and taxes due plus a penalty of 10% of the basic deficiency and legal interest for an applicant who has already received an ANL.

For a PDP applicant who has disclosed royalties and other proceeds, the penalty is payment of the deficiency in duties and taxes due without penalty and interest, provided the applicant files for PDP within 30 calendar days from the payment or accrual of subsequent proceeds to the seller, directly or indirectly, or from the date the adjustment to the price paid or payable is made.

CAO 01-2019 states that an interest of 20% per annum, counted from the date of final assessment, shall be imposed on PDP availment, deficiency duties, taxes, and other charges, and fine or penalty, if any.

If the request for reconsideration or reinvestigation is denied by the customs commissioner, in whole or in part, the importer may appeal such denial to the Court of Tax Appeals within 30 days from the receipt of the adverse ruling or decision of the customs commissioner.

Remedies for BOC, meanwhile, shall be obtained by distraint of goods, chattels or effects, and other personal property, including stocks and securities, debts, credits, bank accounts, and interest in and rights to personal property; levy upon real property and interest in rights to real property; and civil or criminal action.

CAO 01-2019 repeals, amends, and/or modifies all orders, memoranda, circulars of parts thereof that are inconsistent with the new order. – Roumina Pablo


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