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How to plan a customs compliance program
By Daniel L. Kiselbach, Miller Thomson LLP
I.
INTRODUCTION
The range and type of businesses engaged in the importation and exportation of goods to and
from Canada is almost infinite. Businesses range in size from small sole proprietorships to
large multinational corporations.
Businesses may be resident in Canada or non-residents.
Goods may be imported from or exported to countries world-wide. The types of goods can
range from consumer products, to bulk commodities, to strategic goods that may have a military
purpose.
The laws and policies regulating those businesses are also wide-ranging. Changes are made to
customs requirements on a regular basis. This may present challenges to customs compliance
managers who must keep current with applicable laws and policies. Custom compliance begins
with the identification and understanding of applicable laws and policies. It is implemented
through the establishment of procedures and controls. It is maintained through monitoring and
self-audits.
Customs compliance is about risk management and being commercially effective.
A
compliance system can make the difference between having a reliable supply chain in a
profitable business or an unreliable supply chain plagued with delays and penalties.
The
following pages will provide observations respecting how to plan a customs compliance
program.
II.
DESIRABLE FEATURES OF A COMPLIANCE PLAN
A good customs compliance program should meet the following priorities:
1.
Effectiveness: a system should be able to make accurate and useable information
available to the manager and to custom authorities in a timely way. This is critical in
times where regulatory investigations, verifications, audits or enforcement activity takes
place. Being able to access documents and correct information in a timely way signals
that the business is being run in a compliant manner.
2.
Efficiency: a system should provide information in the most productive and economical
manner (e.g., using electronic rather than paper processes when possible).
The
advantages to using electronic processes may be self-evident. Electronic documents
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 1
and information may be easier to store, easier to access and retrieve, and may be easier
to send to Canada Border Services Agency (CBSA) in response to verification or audit
questionnaires.
3.
Confidentiality:
a system should protect information from unauthorized disclosure.
Unauthorized disclosure may be a big concern for certain clients who wish to protect
such things as: (a) the cost of goods; (b) the profit margin on goods; (c) suppliers’ names
and locations; (d) purchasers’ names; (e) ingredients in goods; and (e) method of
fabrication of goods.
4.
Integrity: a system should provide true, accurate and complete declarations and reports.
True, accurate and complete declarations are required at the time of customs
accounting. It is also absolutely critical to be true, accurate and complete when dealing
with a CBSA verification or other audits. The provision of inaccurate information can
quickly dampen the rapport that a business has with a verification officer or auditor.
5.
Availability: a system should be able to provide information now and for the required
record retention period. For example, the Exporters’ and Producers Records
Regulations1 and the Imported Goods Records Regulations2 set out 6 year records
retention periods.
6.
Ability to Address All Regulations: a system should ensure that the requirements of all
laws, regulations and contractual arrangements are met. Where a business has global
operations it is necessary to keep track of the customs compliance requirements for
each country.
This may be a challenge for companies with customs transactions
occurring on a world-wide basis. In such case, it may be necessary to work with local
customs brokers to identify customs requirements and to monitor customs compliance.
7.
Reliability: a system should provide reliable information. A system that is prone to, for
example, intermittent breakdowns, can lead to disaster especially if the breakdowns
occur at peak business periods or while a CBSA verification or other audit is underway.
1
SOR/97-71, as amended.
2
SOR/86-1011, as amended.
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 2
III.
PRIORITY COMPLIANCE ISSUES
Canada’s greatest trading partner, the United States, has just experienced the worst recovery
from a recession since the Great Depression. At this time importers and exporters may wish to
reduce budgets for items that are not perceived as revenue-producing. Budget limitations may
make customs compliance more challenging. Compliance managers or customs brokers may
be forced to identify immediate priorities. In such cases it may be most effective and efficient to
identify the issues that may most commonly arise and which may present the most risk if the
business was the subject of a CBSA verification or audit. The following is a list of potential
priorities:
1.
Valuation: establish the method for determining how to value goods. Some importers
have been surprised that post-importation adjustments must be made to the value for
duty of goods.3 CBSA has announced valuation verification priorities for 2012 including:
car, bus and lorry tire industry, video recording apparatus, pumps for liquids, jewellery
and fresh cut flowers.4
2.
Classification: establish the method to determine how to classify goods. CBSA has
announced classification verification priorities for 2012 including: specially defined
mixtures, pet toys, seaweed, steel T posts and fresh cut flowers.
3.
Origin: establish the method for determining the origin of goods. CBSA has announced
origin verification priorities for 2012 including: vegetable fats and oils, pumps for liquids
and cocoa powder.
4.
Anti-dumping and countervailing duties: determine whether or not goods are subject to
anti-dumping or countervailing duty or other special levies.
Recently, for example,
importers have been surprised by CBSA assessments of duty on aluminium extrusions
on the grounds that they were “subject goods”, pursuant to a Canadian International
Trade Tribunal Order. Some of these assessments have been for millions of dollars.
3
4
Post-Importation Payments or Fees “Subsequent Proceeds”: http://www.cbsa.gc.ca/publications/dmmd/d13/d13-4-13-eng.html
Canada Border Services Agency, Appendix “A” document titled Trade Compliance Post-Release
Verifications – January 2012.
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 3
5.
Program eligibility:
determine, for example, whether or not goods are eligible for
preferential tariff treatment under a free trade agreement.
The CBSA has been
conducting verifications of claims for preferential tariff treatment under the North
American Free Trade Agreement (NAFTA).
A common compliance problem is the
making of NAFTA claims in the absence of NAFTA Certificates of Origin.
Another
common issue is the failure to track the inputs into a finished good in order to ensure
that the finished good meets the regional value content required of a specific rule of
origin under NAFTA.
6.
Special levies or taxes: determine whether or not goods are subject to a special import
or export charge, manufacturing processing fee, value added tax or other levy. For
example, a person who exports softwood lumber may be required to account for charges
under the Softwood Lumber Products Export Charge Act, 2006.5 Persons who import
goods into the U.S. might be required to file a Certificate of Non-Reimbursement within
12 months of the date of the original accounting, failing which U.S. Customs and Border
Protection may assess additional duties on the product.
7.
Certification requirements: determine whether or not the goods must meet countryspecific or international safety, environmental or other standards. For example, new
Canadian and American legislation impose product safety requirements, including the
potential for testing.6
8.
Export controls, embargos: determine whether or not goods are subject to export
controls and regulations. For example, Canada’s Export Control List, which is included
in A Guide to Canada’s Export Controls, identifies specific goods and technology that
are controlled for export from Canada to other countries.7
9.
Import controls:
determine whether or not goods are subject to import controls or
regulations. For example, there are certain requirements and permit procedures for
5
6
7
Softwood Lumber Products Export Charge Act, 2006 S.C. 2006, c. 13.
Canada Consumer Product Safety Act, S.C. 2010, c. 21.
See Foreign Affairs and International Trade Canada, “A Guide To Canada’s Export Controls, 2009”:
http://www.international.gc.ca/controls-controles/about-a_propos/expor/guide.aspx?view=d
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 4
goods on Canada’s Import Control List. Carbon steel, specialty steel and textiles, and
clothing products are subject to permit requirements.8
10.
Permits: determine whether or not a permit is required in order to import or export the
goods. For example, permits may be required in connection with the importation or
exportation of dangerous goods, explosives, hazardous waste and hazardous recyclable
material.9
11.
Unique country-specific requirements:
determine whether or not there are unique
considerations applicable to particular countries (e.g., Brazil customs authorities may
have a particular interest respecting the declaration of the weight of goods).
IV.
BEST COMPLIANCE PRACTICES
Customs compliance planning may also include the following:
1.
The establishment of good lines of communication with the CBSA officers responsible
for the administration and enforcement of programs that apply to the business. Global
customs managers may need to establish a rapport with customs authorities in various
countries. For example, there may be a program manager responsible for a particular
customs program (for example, duties relief under the Exporters of Processing Services
program).10
Further, contacts should be established with officers and with other
government authorities (e.g., Environment Canada for the transportation of hazardous
recyclable materials or the Export Controls Division of Foreign Affairs and International
Trade Canada for export controls established pursuant to Canada’s Export Control List).
2.
Understanding any country-specific laws and policies that affect goods or technology
that will be imported or exported. For example, the exports of all goods and technology
8
9
10
See Canada Border Services Agency Memorandum D19-10-2 Export and Import Permits Act
(Importations): http://www.cbsa.gc.ca/publications/dm-md/d19/d19-10-2-eng.pdf
See Canada Border Services Agency Memorandum D19-13-5 Transportation of Dangerous Goods:
http://www.cbsa.gc.ca/publications/dm-md/d19/d19-13-5-eng.html; Administration of Explosives Act
and Regulations: http://www.cbsa.gc.ca/publications/dm-md/d19/d19-6-1-eng.html; and Import and
Export
of
Hazardous
Waste
and
Hazardous
Recyclable
Material:
http://www.cbsa.gc.ca/publications/dm-md/d19/d19-7-3-eng.html
Canada Border Services Agency Memorandum D7-4-1 Duties Relief Program Rhttp://cbsaasfc.gc.ca/publications/dm-md/d7/d7-4-1-eng.pdf
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 5
of U.S. origin, as defined in Item 5400 on Canada’s Export Control List, regardless of
their nature and destination, require permits.11
3.
Conducting regular periodic self-audits to determine compliance levels.
Compliance
audits may focus on the high risk priorities and may follow the methodology set out by
CBSA verification officers or other auditors responsible for the administration and
enforcement of particular programs (e.g., the Export Controls Division).
4.
Creating a compliance committee involving a compliance manager and representatives
for the regions or countries in which the company or group of companies does business.
The responsibility of the compliance manager may include the following:
(a)
Identify applicable customs laws and policies.
(b)
Establish business systems and controls to ensure that those requirements are
met.
(c)
Establish a customs compliance team, including representatives of the importer
or exporter and its service providers. For example, an importer may create a
centralized electronic information and document sharing system via cloud
computing. In this way the importer can obtain up-to-date information respecting
the status of purchase orders, shipment date, reports (such as advance reporting
of goods by carriers), permits (for example any import or export permit) and
declarations from filed forms (such as B3 Canada Customs Coding Forms filed
by customs brokers).
(d)
Establish contact with the officials responsible for the administration and
enforcement of applicable laws and policies.
(e)
5.
Monitor compliance.
Create a customs compliance and procedures manual which sets out a record of past
decisions and current procedures. A compliance manual is to record the decisions
made in respect of transactions that may be the subject of verification and the
procedures which should be followed to ensure that the business is compliant.
11
Government of Canada, Export Control Handbook (Export Controls Division, (Foreign Affairs and
International Trade Canada, 2011) p. 10 “C.2 Important note on U.S.- Origin Goods”.
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 6
Obviously, each business must tailor its compliance manual to take into account
business-specific requirements.
V.
PLANNING FOR VERIFICATION AND AUDIT COMPLIANCE
Canada has established a self-reporting and self-assessing customs scheme. To some extent,
self-reporting and self-assessing schemes rely upon the honesty and integrity of the
declarations provided by importers and exporters. However, officers conduct verifications and
audits to:
(a)
audit or verify compliance;
(b)
correct non-compliance;
(c)
assess or re-assess duties, taxes and charges; and
(d)
assess interest, penalties and other consequences for non-compliance.
A customs verification or audit can be a confusing, difficult and time-consuming experience in
the absence of compliance planning.
Disorganized, incomplete or inaccurate responses to
customs authorities may lead to findings of non-compliance and assessments of duty, penalties
and interest. With compliance planning, an importer or exporter may stand a better chance of
obtaining a successful verification or audit result. Some steps that importers or exporters can
take in order to plan for verification and audit compliance include the following:
(a)
Ensure that a business representative is responsible for receiving and
responding
to
correspondence,
verification
letters,
Detailed
Adjustment
Statements and other similar customs related documents in a timely way. Many
audits result in the assessment of Administrative Monetary Penalties for failure to
respond to the requests issued by CBSA officers.
(b)
If a CBSA verification officer conducts a verification or an auditor conducts an
audit, ensure that only one person is responsible for communicating with the
verification officer or auditor. Also ensure that all other relevant personnel are
advised of the purpose of the verification or audit and the identity of the business
point person.
Sales Tax – Newsletter of the CBA National Commodity Tax, Customs and Trade Section July 2012 Page 7
(c)
Ensure that the business leaders understand the consequences for failing to
respond
to
CBSA
correspondence,
verification
questionnaires,
Detailed
Adjustment Statements and the like.
(d)
Obtain the resources (internal staff, customs brokers, consultants, legal counsel)
necessary to deal with requests that are issued by the CBSA. For example, the
CBSA may issue a verification questionnaire relating to 25 sample transactions.
The CBSA officer may request relevant supply documents including the purchase
orders and B3 Canada Customs Coding Forms. The CBSA officer may also
request related documents such as royalty agreements in order to verify whether
or not royalty payments should be included in the value for duty. It may be
necessary to obtain assistance from persons within the verification team in order
to comply with the request.
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