Declaring an incorrect undervalue of imported commercial marine craft to the Australian Border Force has cost importers nearly A$2 million (US$1.41 million). Although these particular events took place in Australia, experts advise that importers can run into problems with customs authorities all around the world. And, they say, customs authorities are only going to become more effective and more aggressive in chasing duty.
Customs compliance officers with the Australian Border Force (ABF) yesterday revealed three undervalued commercial importations that resulted in large demands for cash penalties.
Craft in question: two dredgers, a tug, fuel and lube
A dredging vessel imported into the Australian state of Queensland was undervalued by A$15 million (US$10.5 million). An investigation resulted in the craft’s value being increased by the authorities to just under A$66 million (US$46.4 million). And that, in turn, led to a tax demand for A$1.5 million (US$1.06 million).
In the second case a tug boat imported into Western Australia was undervalued by US$1.7 million. The value was increased by the authorities to US$8.6 million. A tax demand of A$250,000 (US$176,840) was duly issued.
And in the final example, a customs broker of another imported dredger, this time into the Northern Territory, did not correctly state the amount of marine diesel fuel and lube oil onboard the vessel. A tax bill for A$20,549 (US$14,390) was issued.
“Importers who don’t pay the correct amount of duty and GST are depriving the Australian economy and ultimately Australian taxpayers,” said ABF Acting Commander Steve Evans.
“ABF Customs Compliance officers work diligently to ensure importers comply with reporting and revenue collection requirements so there’s a level playing field for both industry and consumers. Failure to comply can result in severe penalties,” Evans said.
FreightWaves understands a multiplier of up to 75 percent of the duty shortfall can be applied to corporations in certain circumstances.
While these three cases happened to involve two different types of commercial marine craft, it could have been any high value vehicle or machinery. FreightWaves spoke to two highly regarded customs experts in Australia for insight.
The law is clear
Licensed customs broker Susan Danks is the principal and founder of Susan Danks Tariff Consulting. She has been involved with customs broker training and development at a national level for several years. Among her lines of business, Danks handles customs matters on the importation on large machinery, vessels and aircraft.
“The legislation is very clear. Australia works on the World Trade Organization principles of valuation,” she said. Danks explained that the important concept is a price paid between two unrelated parties with reasonable allowances for such things as wear and tear.
When valuations of imported items are successfully challenged by the authorities on the basis of undervaluation, Danks argues that questions need to be asked and that there may be a lack of understanding or experience.
She urges importers to obtain quality professional advice, because there are generally ways to import high-value machinery and craft for use in business while minimizing the amount of cash that has to be paid out.
“Otherwise companies can put themselves at risk when they don’t need to,” Danks warned.
Trusted traders make life easier for Customs
Russell Wilkinson is a customs and international trade expert of near 40 years standing and has worked extensively with global professional financial services firms. He is also the CEO and founder of World Customs Portal, a high-level global and customs-focused consultancy for multinational corporations.
Wilkinson noted that ABF said that trade enforcement is one of its key operational priorities. He referred to the “trusted trader” concept. Under that model, highly secure and compliant traders are typically inspected and watched far less than traders that are less compliant.
In that way customs authorities can direct more of their time and resources to enforcing the law where it needs to be enforced and spend less time and effort monitoring traders who want to, and do, comply with the law anyway.
Needles, haystacks, traders and aggressive enforcement
Wilkinson put a new spin on the old “needle in a haystack” model.
“The haystack is shrinking. And that means customs authorities will likely become more aggressive in their enforcement as the haystack continues to reduce. It’s just the tip of the iceberg as to what’s coming. Customs authorities will become more effective over time,” he said.
Old goods, old – but still existing – problem
Wilkinson also discussed the problem of valuing second-hand goods during importation for customs purposes.
He pointed out that companies simply cannot just look at the price paid for machinery or vehicles and depreciate over a given number of years to come up with an acceptable figure. That’s a typical accounting method. But it’s not a good way to come up with a second-hand value for customs purposes.
“The written value is not necessarily the customs value. What third-party evidence do you have to prove value?” he asks.
Wilkinson says that the value of second-hand equipment and machinery is inherently subjective. What importers need is some kind of independent evidence of value, such as from a register, a major reference work or from a highly credible independent expert. He points to an example in which an importer hired a sea-captain who was an expert on the prices of vessels. That captain then scoured the world looking for prices paid for vessels.
“If you’ve got the evidence, you’re OK. If you don’t, you’ve got a problem,” he says.
Find and keep evidence
And he urges that such evidence is collected well before importation, and timely records are kept, especially if the equipment is going to be shifted around multiple jurisdictions.
“It’s a problem all around the world. We’ve told international companies to get their customs values sorted out in each country beforehand as they shift hardware around. It’s far to easy for someone from customs to come along two years later, review the importation and then ask for an explanation of how the valuation is arrived at.
“You can, I suppose, try to go and find out a couple of years later what the customs value was a few years ago. But it’s hard. It’s very hard.”