On post-importation payments and charges
By Atty. Mark Anthony P. Tamayo on March 30,2023
UNDER the present transaction value (TV) system, the duty base in valuing imported goods for customs appraisement purposes is the total payment made (or to be made by) the buyer to (or for the benefit of) the seller. The system is essentially transaction-based in the sense that it covers the price actually “paid or payable” for the imported goods, regardless of whether the payments were done before, during or after importation. Accordingly, the TV of the imported goods is not necessarily equal to the invoice value, unless the invoice captures all the additions and payments made by the buyer to the seller.
The payments made by the buyer to the seller (or to third parties) after importation of the goods are usually checked by the Bureau of Customs (BoC) through its post-clearance audit system, a control mechanism done at the back end of the cargo clearance. The BoC, through its Post-Clearance Audit Group (PCAG), would procedurally review the agreements between the buyer and the seller, the terms and conditions of the sale, and the general circumstances surrounding the import transaction insofar as they affect the transacted price paid or payable, and the adjustments, if any, to the price paid or payable. Default areas for verification and examination are post-importation payments and charges incurred by the buyer.
Post-importation payments
Post-importation payments are additional payments for previously imported goods made by the importer directly or indirectly to the foreign seller. These payments could either be treated as elements of the “price paid or payable” (e.g., selling commissions, royalties, assists, year-end transfer pricing adjustments, etc.) or as “subsequent proceeds.” If these payments relate to previously imported goods, such payments are generally treated as additions to the previously declared dutiable value of the imported goods and, hence, subject to adjustments in customs duty and taxes.
Post-importation charges
The dutiable value of imported goods includes, among others, a) the cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines; and b) loading, unloading, and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines. (Section 701 (3) and (4) of the CMTA).
The “cost of transport” basically refers to the basic freight charges billed by the carrier for transporting the goods to the port of import or place of import. Thus, transport cost after importation should be excluded in the determination of the dutiable value.
The term “loading and unloading” covers different activities relating to the movement of goods onto and from any conveyance. Meanwhile, the term “handling” includes any number of activities surrounding the physical movements of the goods such as, among others, the preparation of manifests, bill of lading or airway bill, obtaining any export license, and any other shipping arrangement. The common element of these charges is their connection or linkage with the transport of the goods.
PCAG examiners would normally take the default position that the payments made by the importers to local service providers (at the destination port) were payments actually made to the shipping lines or carrier, warranting therefore their inclusion as additional freight cost. Thus, the issue to be resolved is whether these charges are costs after importation but are associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines.
While the issue revolves around factual circumstances, it is clear that transport, loading, unloading, and handling charges associated with transporting imported goods from the country of exportation to the port of entry in the Philippines may be considered dutiable if ultimately incurred by the buyer.
Conversely, post-importation charges may not be dutiable if they are considered inland charges resulting from local services rendered by a service provider after the vessel has arrived at the Philippine port of entry.
The issue becomes more complicated when it comes to terminal handling charges (THC). In an ocean-only transport, THC is incurred twice, specifically at the point of origin and at the point of destination where the imported goods are moved from the holding area to the collecting vehicle (Unloading THC). Unloading THC is levied at the terminal of the port of entry (and, therefore, is a charge incurred at the port of entry in the Philippines) and not incurred “before the vessel reaches the port of importation.”
In the eyes of the PCAG examiners, however, THCs are costs associated with the transport of goods particularly if the corresponding invoice issued by the local service provider is a non-VAT invoice. The payments made by the importer for such services are considered “pass-through” payments ultimately in favor of the carrier and consequently, should be added as an additional cost for purposes of determining the dutiable value of the imported goods.
It should be noted, however, that unless stated otherwise in the contract, the buyer normally pays for the THC under Free On Board, Free Carrier, Cost Insurance and Freight, or Cost and Freight arrangements. Hence, it becomes arguable that the THCs for services rendered after importation are inland charges. Thus, by the very nature of the Unloading THC, the activities undertaken are purely inland services and, hence, should not form part of customs value.
Applying the above, THCs and similar charges, such as local surcharges, delivery order charges, logistic container imbalance, and container clearing fees, may be argued as unrelated to the transport of the imported goods, particularly if these charges are not conditions for the sale of the imported goods being imposed by the seller. The absence of said conditions negates the existence of a direct nexus with the value of goods as they are only paid after the importation of the goods has been completed.
Post-importation payments and charges are closely scrutinized during PCAs. Importers must review the duty aspect of these payments beforehand to avoid after-the-fact controversy with the BoC.
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Mark Anthony P. 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.