Tax & Accounting Blog

Fasten Your Attention on Customs Valuation

Blog, Global Trade, ONESOURCE July 1, 2016

On March 26, 2016, General Administration of Customs of the PRC (GACC) released an announcement of Revised Specifications on the Import/Export Declaration Form  (GACC Announcement, No. 20 of 2016).

When I first saw the title of the announcement, I thought it was just a regular customs standard update, assuming some of the declaration requirements might be updated and more standardized. But after I read the whole announcement, I found  it reflected many signs of a China Customs supervision and trade management strategy.  Below I have identified some of the key takeaways.

Key revisions to the Standards for Filling in Declaration Forms:

1.The maximum number of declaration line items increased

  • Previously, there were up to 20 items allowed per declaration. If there were more than 20 items for the shipment, the owner was required to split the invoice to create more declarations. The process does allow the ability to group similar items; however this allowance causes extra work to prepare the declaration document, thereby increasing the declaration lead time.
  • Now the Maximum number of items has increased to 50 items per declaration. This increase allows the owner to easily finish the declaration and reduce some of the customs clearance costs by lowering the amount of declarations.

2. New filling-in requirements – There are two series of additional requirements that have been added

  • First is the change related to country information including “Trading Country (Region)”, “Country of Origin” for export declaration and “Country of Final Destination” for import declaration.
  • Second is the valuation information including “Confirmation of Special Relationship”, “Confirmation of Price Impact”, and “Confirmation of Payment of Royalties”. I believe this is because China Customs has become increasingly focused on the customs valuation and potential royalties and having visibility to this information. In fact, since 2014, China customs increased the inspection efforts of royalty payments and launched a special investigation in 2015 of royalty payments tied to the automotive industry.

3. Updated the filed descriptions to be consistent with how they are expressed in relevant laws

  • Change Trade Method to Supervision Method
  • Change Operating to Consignor/Consignee
  • Change Consignee to Entity to consume or use
  •  Change Consignor to Entity that produces or sells

4. Removed some fields which already lost their legal or regulatory basis from the declaration such as: Approval number, Settle of exchange on export declaration, Usage/ Manufacturers, Tax collection status, Customs Remark and release date, Print date and some of the broker information

For the professional trade manager, there are quite a few challenges in providing the correct information to the government.  In addition to this comes the ability to control their compliance risks, based on the new filling-in requirements and in determining:

  • the partner’s country for “trading country”
  • the rule of origin to provide a correct “country of origin”
  • review the royalty agreement to confirm royalty payment
  • check the contract and transfer price policy to confirm price impacts
  • confirm special relationship (concept refer to GACC Decree No. 213 IV)

In conclusion, the new requirement offers convenience in declarations for enterprises doing business in China.  It is highly recommended that trade managers have an internal policy review to understand the transfer price and royalty policy the company has, so they can respond to the inquiries they may receive from the government.  It would also benefit trade managers to seriously review the required trade documents, so they can declare the correct information; especially for the valuation related requirements.

If a trade management solution already exists, then it is best to focus upon improving the workflow and the financial links to the original purchase order and sales order to automatically receive the country and valuation information from the ERP.  All of these steps will help to avoid errors and reduce any compliance risks.

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References

GACC Announcement, No. 20 of 2016 at http://www.e-to-china.com/tariff_changes/Policy_Focus/2016/0510/113044.html

GACC Decree No. 213 at http://www.e-to-china.com/tariff_changes/Policy_Focus/2016/0510/113043.html