By: Mark Anthony Tamayo on July 8,2021.

All importers are mandated to exercise reasonable care in entering, classifying and determining the value of their imported goods not only for the purpose of expediting the release of their shipments from the custody of the Bureau of Customs (BoC), but more importantly, to avoid being exposed to stiff penalties that may be imposed under the Customs Modernization and Tariff Act (CMTA) and other Customs rules and regulations.

The prime responsibility of every importer (and customs broker) is to accurately declare the details of particulars in the goods declaration. As the declaration is based on self-assessment, the BoC is always keen in taking a closer scrutiny of the details of the importation to ensure that declarants do not, wittingly or unwittingly, warp the computation of lawful revenues.

At the border, the issues raised by the BoC frequently relate to alleged tariff offenses involving unlawful importation, which covers both outright smuggling and technical smuggling (Sec. 1401, CMTA); fraudulent practices against customs revenue such as the filing of an entry (or claims) by means of any false or fraudulent statement, document or practice (Sec. 1403, CMTA); or misdeclaration, misclassification or undervaluation (Sec. 1400, CMTA). Except for the latter (which can either be deliberate or not), the existence of fraud is a necessary element for these tariff offenses.

“Outright” smuggling sidesteps the usual and normal procedure and process of clearing the cargo at the BoC. On the other hand, “technical” smuggling involves some fraudulent acts during the processing and releasing of the goods. Technical smuggling commonly takes place through fraudulent, falsified or erroneous declaration of goods resulting in undervaluation, misdeclaration or misclassification of the goods shipped.

Note though that a misdeclaration, misclassification or undervaluation in the goods declaration may not necessarily be intentional, deliberate or one tainted with fraud.

Undervaluation, misdeclaration or misclassification

In technical terms, undervaluation refers to a situation when a discrepancy (between what was declared and what was legally determined as correct) in duty and tax results as a consequence of the importer’s failure to a) disclose in full the price actually paid or payable; or b) report any dutiable adjustment to the price; or c) use the correct valuation method; or d) properly observe the valuation rules.

On the other hand, misdeclaration exists when the discrepancy pertains to the erroneous declaration of quantity, quality, description, weight, or measurement of the imported goods.

There is misclassification when there is insufficient or wrong description of the goods or declaration of wrong tariff heading/s or subheading/s, which then results in a discrepancy.

Generally, any misdeclaration, misclassification or undervaluation of imported goods resulting in a discrepancy (of 10 percent or more) is subject to a fixed surcharge rate of 250 percent of the duty and tax due (Sec. 4.2, Customs Administrative Order (CAO) 01-2020).

If deliberate intent or fraud exist (such as when a false or altered document is submitted or when false statements or information are knowingly made) in the commission thereof, a 500-percent surcharge shall be imposed against the importer and to those who willfully participated in the fraudulent act (Sec. 4.2.3, CAO 01-2020). A prima facie evidence of fraud exists when the discrepancy amounts to more than 30 percent (Sec. 6, CAO 01-2020). In such instances, the imported goods shall be subject to seizure and forfeiture (Sec. 1113, CMTA) and the importer may be criminally prosecuted.

The settled rule is that the fraud contemplated by law must be actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right (Farolan Jr. vs. Court of Tax Appeals and Bagong Buhay Trading, GR 42204). It includes the suppression of a material fact, which a party is bound in good faith to disclose. Fraudulent nondisclosure and fraudulent concealment are of the same genre (BOC vs. Unioil Petroleum, Inc and Oilink International Inc., GR 193253).

Thus, in the Farolan case, the Supreme Court stated that if the goods declaration merely restated faithfully the data found in the corresponding certificate of origin, certificate of manager of the shipper, the packing lists and the bill of lading (which were all prepared by its suppliers abroad), the importer and/or the customs broker may be considered as having acted in good faith. If at all, the wrongful making or falsity of the documents can only be attributed to the foreign suppliers.

Customs Memorandum Order (CMO) 12-2021

Whether the misdeclaration, misclassification or undervaluation was willfully committed or not, these offenses are subject to the provisions under CMO 12-2021.

CMO 12-2021 (signed March 18, 2021) provides the guidelines for the imposition of penalties relative to the customs accreditation of importers (and brokers) arising from breach of importer’s responsibilities and violation of customs laws, rules and regulations.

The sanctions, such as warning, suspension (ranging from one month to 12 months) or revocation of customs accreditation, as well as blacklisting of the importer and/or broker, apply to cases involving misdeclaration, misclassification or undervaluation, depending on the gravity of the offense and the presence of mitigating or aggravating circumstances. The sanctions shall be without prejudice to the criminal, civil and other liabilities that may be incurred under the CMTA, and other customs laws, rules and regulations.

While the aforesaid CMO has for its purpose the deterrence of inaccurate declaration of particulars in the goods declaration, the imposable penalties have been carped by industry associations as too harsh and oppressive in the sense that they infringe upon the clear provision of Section 108 of the CMTA, which prohibits the imposition of excessive penalties for unintentional and inadvertent errors.

Despite this, the CMO may serve to assist the BoC in performing its gargantuan task of ensuring border protection, suppressing all forms of smuggling and other frauds committed against collection of lawful revenues. For the importers, there is no other way to eschew delay and unnecessary import costs other than ensuring the faithful compliance with the rules.

#TariffOffenses #CustomsOffenses #CMTA #SmugglingOffenses #ImportOffense #CustomsFraud #ImportFraud

Mark Anthony Tamayo is a CPA-lawyer and a partner of Mata-Perez, Tamayo & Francisco (MTF) Counsel. He is a recipient of the 2016 Asia Tax Practice Leader award and is consistently voted as one of the recognized indirect tax leaders in the Philippines by the International Tax Review. The content of this article is not a substitute for professional advice where the specific circumstances warrant. If you have any question or comment, you may email the author at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com.

https://www.manilatimes.net/2021/07/08/business/top-business/on-tariff-offenses/1806202