Customs Compliance and Risk
Guest Contributor: Brian Murphy – Managing Director of Global Trade Ltd
The international movement of goods in the global supply chain – that often forgotten aspect of how we receive virtually everything we consume – begins and ends with customs clearance. The customs processes at the entry and exit points of countries around the world will determine much of your immediate and future compliance obligations to local tax and customs authorities.
Customs compliance obligations live long after your goods have been delivered and consumed. And like all compliance, turning your back on an issue will only see it get bigger. The nature of customs has changed in recent years and is set to change further in the years ahead. The expansion of the EU, development of e-commerce, outsourcing of global supply chains and the increasing security risks in the world are all determining how customs processes operate.
Whatever your position is in the global supply chain, do you know what customs responsibilities you have? If you submit customs declarations or are a buyer/seller of goods, a manufacturer or distributor, your compliance obligations will be different, but they will exist. Key to understanding this is to determine who is the customs declarant in all flows you are involved in.
In some cases, the declarant is the same as the consignee, in other cases, he/she is acting in his/her own name but on behalf of the consignee. If it is the latter, then the declarant is not the same person as the consignee but is responsible for the goods at import. Article 170(2) UCC provides that the declarant must be established in the EU. Your EORI number will be used to declare you as declarant on all customs declarations.
Not understanding your customs compliance obligations in the international supply chain is a risk. This risk can be legal, financial or regulatory. Of course, risk can also cause serious reputational damage to your brand and business. Your choice of trading partners and management of third party suppliers/service providers will affect your level of customs compliance risk.
Traders have to respond to customs changes, by integrating customs management into their own processes. In the past, compliance & risk was checked at the border – import/export processes and a ’green routing’ signalled the end of your responsibilities. Today, your customs compliance obligations and risks live long after your goods have been ‘green routed’.
To expedite trade across customs borders, customs are employing complex risk analysis tools, and pushing compliance obligations back into your operations. By introducing audit based controls, customs can follow an entire transaction from purchase to payment.
The European Union’s Customs Risk Management Framework is a key element in the development of the EU’s risk management framework as it facilitates EU-wide customs intervention for the highest risks at the EU’s external frontier and within its borders.
Essentially, from an efficiency and practical point of view, some customs checks are moving inland, from virtual point of view. That may affect you operationally in a number of ways, not least in customs clearance times and complexity at ports/airports of entry.
The EU Customs Risk Management Framework (CRMF) is based on five pillars
- The identification and control of high-risk goods movements using common risk criteria
- The identification of priority control areas subject to more intense controls for a specific period of time
- The systematic and intensive exchange of risk information between customs through the customs risk management system(CRMS)
- The contribution of Authorised Economic Operator (AEO)
- Pre-arrival and pre-departure security risk analysis
Embedding risk areas into your customs compliance processes through implementing various customs procedures and simplifications will greatly reduce you compliance risk to customs authorities.
When it comes to customs risk and compliance, it is always better to be proactive rather than reactive. They key elements of customs risk for your business will be:
- Customs Valuation – determining your customs debt
- Product Tariff Classification – determining customs debt and commercial policy measures
- Product Rules of Origin – determining customs debt and potential prohibitions and restrictions
- Customs Procedure Codes on your customs declarations – determining when your various custom obligations begin and end
There are others of course, such as general data accuracy between customs invoices and customs declarations, but these can often be managed through customs declaration amendments and invalidations. And keeping proof of export of all zero VAT rated export invoices might prevent a hefty VAT bill you were not expecting.
Remember, you have up to 3 years to amend or invalidate a customs declarations and ensure you are proactive in your compliance obligations. The time limit for customs authorities to check other aspects of previously imported or exported products will differ in different customs jurisdictions. Lack of knowledge of the rules will never be a defence when customs authorities preform their checks and audits.
Brian Murphy is Managing Director of Global Trade Ltd. and a customs consultant with over 20 years’ experience working for multinationals in global roles and in international supply chain. Brian has extensive experience of international supply chains and the customs and trade facilitation measures associated with them.