China: China Customs Focuses On Voluntary Disclosures And Under-Reporting Of Royalties

There has never been a better, or more critical, time than now for enterprises to review their operations and activities that are subject to scrutiny and regulation by China Customs. With the recent changes to the Regulations on Customs Audit as well as the boost in China Customs' audit capabilities, enterprises can expect China Customs to heighten their efforts to complete audits of all importers, exporters and processing trade manufacturers.

Clarity on Customs Audit

On 7 July 2016, the State Council amended the Regulations on Customs Audit (State Council Order 670). The amended regulations will enter into force on 1 October 2016. The revised audit rules further clarify, among other things, the scope and period of a customs audit, the procedures and processes of an audit, the mechanisms for self-compliance and voluntary disclosure, and the involvement of third-party intermediaries in a customs audit.

The revised audit rules also formalise the sharing of enterprise information. This means that China Customs can collect information related to the import and export of certain commodities and industries from related industrial associations, government bodies and enterprises as required for a customs audit.

China Customs has also increased the number of Customs accredited third-party auditing firms which can be appointed to conduct post-clearance audits of enterprises. The assessments of these third-party auditing firms can form the basis of Customs audits.

Royalties and Voluntary Disclosure

Article 26 of the Regulations on Customs Audit stipulates that violations of customs regulations discovered during Customs audits will be dealt with in accordance with the relevant provisions of the Customs Law and the Implementing Regulations on Administrative Punishment. The revision to Article 26 adds that if import/export enterprises voluntarily report any actions that violate customs regulations and cooperate with Customs, they may benefit from lighter or mitigated administrative penalties.

Local Customs offices in China are encouraging enterprises in their respective areas to actively make use of the voluntary disclosure mechanism to report any violations of the customs regulations. Examples are:

  • On 5 July 2016, Nanjing Customs issued its notice on the Pilot Program Regarding Proactive Voluntary Disclosure by Enterprises (Nanjing Customs No. 8/2016);
  • The 12 July 2016 notice by Huangpu Customs on the Initiation of Voluntary Disclosure Program Specially Targeting the Automotive and Electronic Industries requests importers and manufacturers of automobiles, automotive parts and electronic products to make voluntary disclosures from the date of announcement.

China Customs is especially focused on royalty fees. Enterprises are encouraged to make voluntary disclosures to the Customs audit division in relation to the under-reporting of royalty payments, which may need to be included in the value of the goods for customs valuation purposes. The self-disclosure must be undertaken prior to receiving an audit request from China Customs and before China Customs discovers any under-reporting. Self-disclosing enterprises may receive reduced or no administrative penalties and fines in accordance with the regulation.

One automotive enterprise located in northern China has already completed a voluntary disclosure and made duty short-payment of RMB 18 million to Customs.

Multiple Information Sources

Another recent change in customs procedures was issued under the General Administration of Customs ("GAC") Notice 20 of 2016 Regarding the Amendments to the Declaration Requirements for Import/Export Entry issued in March 2016. Enterprises must declare additional information when making import/export entries, including:

  • The special relationship (between the China entity and overseas parties);
  • The influence of special relationship on pricing; and
  • The payment of royalties.

With the new information now required to be provided as part of the customs entry documentation, enterprises will be legally liable if they mis-declare the information. In the past, the old declaration forms did not contain sufficient information for Customs officers to determine whether the good's value was affected by the above-mentioned situations. Even if a customs post-entry audit uncovered a low declared value due to transfer pricing or royalty payments, China Customs could not determine if the consignor or consignee had deliberately lowered the value of the goods and could only seek to make up for the duty short-paid. Now, China Customs will have the necessary information to verify past entries and determine if there is under-reporting of taxable royalties.

Furthermore, enterprises are additionally required to submit large amounts of information to the State Administration for Taxation ("SAT") for transfer pricing purposes. The two revenue authorities (SAT and China Customs) may share that information, creating the ability for both authorities to cross check information a enterprise submits to either authority. It is therefore extremely important that the information provided to both authorities is consistent, accurate and complete.

Given the multitude of changes in customs requirements and China Customs' enhanced capabilities in terms of regulatory authority, human resource and access to information, enterprises need to pay special attention to China Customs' "amnesty" program – the voluntary disclosure mechanism – particularly if they did not include royalty fees when valuing goods for customs purposes. It may be time for enterprises to conduct their own customs compliance audits to determine their level of compliance and identify any areas of potential exposure.

Originally published 1 September 2016

Learn more about our International Trade practice and Mayer Brown Consulting.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions