Dividends, risks and compliance with customs reforms

By Jia Xiaoning and Ning Jing, AllBright Law Offices
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With the nationwide rollout of customs clearance integration reforms, completely new customs procedures and regulatory systems will have to be dealt with. What are the system dividends and risks of these reforms? And how is compliance to be handled?

Reform dividends

AllBright Law Offices Jia Xiaoning customs
Jia Xiaoning
AllBright Law Offices

In recent years, representative customs system reforms have included:

(1) Advance declaration system. With the approval of customs, an import/export consignee/consignor, or an appointed customs declaration agent, may make an advance declaration with customs once it has secured the bill of lading (waybill) or the cargo list (manifest) data. Subject to satisfaction of the conditions, a combination of the two declaration steps allows unloading and direct pickup of imported goods, and shipment and direct pickup of exports. Dividends: Enhances customs clearance efficiency, reduces the holdup time in port due to customs clearance review, and reduces costs.

AllBright Law Offices Ning Jing customs
Ning Jing
Senior counsel
AllBright Law Offices

(2) Innovative tax security method. Customs subjects the duties and taxes payable by qualified import/export taxpayers that import/export goods multiple times within a certain period of time to consolidated collection. Furthermore, such methods as customs duty guarantee insurance, blanket tax security, enterprise credit enhancement security, etc., are also available. Dividends: A suitable tax security method can reduce customs clearance costs, ease the pressure on funds, and alleviate operating burdens.

(3) Proactive disclosure system. This refers to a situation where an enterprise, after release of the goods, finds upon examination that it has underpaid, or failed to pay, duties or taxes, or violated customs supervision regulations, and so proactively reports the same in writing to customs and submits to handling by customs. Dividends: Where a specified circumstance applies, the corresponding “fault-tolerance dividend” may be available, which mainly includes the reduction or waiving of a late payment fine, reduced or no administrative penalties, or no downward adjustment in the enterprise’s credit rating.

(4) Provision of prior disposal service for samples of imported goods. Upon application by the consignee of imported goods, customs will provide prior classification consulting services for the goods that an enterprise proposes to import. Dividend: Skilful use of such a service can reduce the various risks that can arise from non-compliant declarations.

(5) Processing trade regulatory system. Under the new processing trade model, customs has issued a series of measures to streamline and standardize processing trade procedures and promote trade facilitation. Dividends: Under the new model, regulatory procedures have been significantly simplified, the tax burden lightened, and the tie-up of funds reduced, allowing enterprises to assess whether to opt for the processing trade model.

(6) Customs Authorized Economic Operator (AEO) certification. Enterprises with high creditworthiness enjoy greater convenience. The customs reform pilot project and system dividends set an enterprise credit rating entry threshold. Dividend: More benefits become available with the improvement of an enterprise’s credit rating, enhancing its overall competitiveness.

Risks from reform

(1) The compliance requirements of the new regulatory system for enterprises have become more stringent. For example, an enterprise’s obligation to make truthful and accurate declarations has been strengthened. In the case of a two-step declaration, an enterprise is required to itself declare to customs whether its imported goods involve certification, inspection and/or duties and taxes. If something that requires declaration is not declared, the situation may be deemed a false declaration, inviting the corresponding handling.

(2) The new regulatory system requires enterprises to have higher risk prevention and control capabilities. Customs has optimized risk prevention and control means, and strengthened its application of big data, making risk monitoring more precise and efficient, and law enforcement criteria more uniform.

(3) An enterprise’s credit status will have a multi-faceted impact on its production and operations. The credit rating of an enterprise has already become a key factor affecting its overall competitiveness, at home and abroad. Once an enterprise is identified by customs as a delinquent enterprise, the attendant losses include not only individual, tangible economic losses, but also intangible losses in terms of corporate reputation, planned development, etc.

(4) Follow-up supervision by customs has been beefed up, meaning that enterprises need to respond more aptly. In particular, when customs launches a law enforcement procedure (audit, check, investigation, etc.), an enterprise needs to respond promptly, and, with respect to specialized or technical issues, it is advised to seek the opinion of professional lawyers so as not to delay the timing, resulting in an escalation of the issue or an inadequate response, and leading to heavier losses.

Compliance strategy

(1) Compliant operation requires top-to-bottom comprehensive planning. Compliant operation, which covers various aspects of enterprise management and operation, including top-level design, infrastructure, personnel management, training outlays, etc., requires top-to-bottom planning and implementation. This also includes a full understanding of the trade control policies and regulations of the country being traded with, which serves as the basis for planning fund outlays, plant construction, infrastructure, production development and logistics routing.

(2) Establish and improve internal compliance systems. An enterprise needs to be aware to guard against law enforcement risks, commencing with improvement of import/export compliance work procedures and mechanisms, to prevent trouble before it manifests.

(3) Formulate and improve the enterprise import/export compliance handbook. The compliance handbook is the concrete system embodiment of the compliance procedures and mechanisms, which on the one hand can be used to respond to external inspections and for risk defences, and on the other hand can regulate the acts of employees and prevent compliance risks.

(4) Pay attention to risk prevention and control in connection with high-risk sectors, products and positions. Identify the key business sectors, products and positions requiring prevention and control, and clarify work procedures, standards and emergency response mechanisms. Once an alert “red line” is brushed up against, immediately activate the emergency response mechanism and, if necessary, seek the opinion of professional lawyers to effectively mitigate and respond to the compliance risks.

(5) Track the reforms, and duly adjust and respond as required. The measures and regulations relating to customs reform are constantly being revised and improved, requiring an enterprises to track and stay apprised of them in a timely manner, to choose to apply them based on its own realities, and enjoy the benefits and avoid the risks to the greatest extent possible.

Jia Xiaoning is a senior partner and Ning Jing is a senior counsel at AllBright Law Offices

AllBright Law Offices customs

AllBright Law Offices
11/F and 12/F, Shanghai Tower
No. 501 Yincheng Middle Road
Pudong New Area, Shanghai 200120, China
Contact details:
Tel: +86 21 2051 1000
Fax: +86 21 2051 1999
Website: www.allbrightlaw.com

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