Early in 2016, the State Council of PRC issued Order No. 670, the Decision on the Amendments to the Regulations of the People’s Republic of China on Customs Audits (Customs Audit Regulations). The amended Customs Audit Regulations introduced a self-disclosure mechanism provision which provides that “where a company directly related to import or export of goods voluntarily reports its violations to the Customs and assumes the corresponding consequences, it should be eligible to receive leniency or reduced administrative penalties.”
In response to China Customs’ recent reform focusing on promoting cross-border trade facilitations and improving the business environment, this October, the General Administration of Customs (GAC) issued Announcement No. 161, the Announcement on the Handling of Relevant Matters for Self-disclosure Cases involving Violations with Duty Implications (New Announcement) which provides clarifications and guidance to those companies that contemplate leveraging this policy.
As a milestone in terms of self-disclosure, this is the first time that China Customs has clearly and publicly stipulated the specific circumstances in which an importer or exporter can be exempted from the administrative penalty liability. The New Announcement also simplifies the assessment criteria for violations with duty implications.
Set out below is a brief summary of the highlights in relation to the New Announcement:
1. Penalty exemption circumstances
Under the self-disclosure mechanism, an importer or exporter proactively taking actions to eliminate damage can be exempted from penalties if:
- The violation act with duty implications is voluntarily disclosed to the Customs no later than three months from its occurence; or
- The violation act with duty implications is voluntarily disclosed to Customs beyond three months after its occurrence, but the amount of the underpaid import taxes is less than RMB 500,000, or the percentage of the underpaid import taxes is less than 10 percent of the total import taxes payable.
2. Formalised self-disclosure procedure
If an importer or exporter applies for self-disclosure with the Customs:
- A self-disclosure form must be submitted together with supporting documents;
- The competent Customs to which the self-disclosure form is to be submitted should be either the original Customs in charge of collecting the import taxes or the Customs with which the importer or exporter is registered.
3. Limited impacts on Customs credit level
In terms of importer or exporter Customs credit level, the New Announcement reiterates and highlights that:
- Under the self-disclosure mechanism, a warning or a fine of less than RMB 500,000 shall not be considered as a negative Customs credit record; and
- If a company applies for self-disclosure in relation to a violation act with duty implications, the Customs shall not suspend the application of corresponding facilitation measures to the company during the Customs investigation.
As mentioned above, the “self-disclosure mechanism” has been formally established by China Customs since 2016. In practice, due to the lack of guidance, it is not uncommon for importer, exporter and even the Customs authorities to have concerns as to the implementing procedures and potential outcomes of this compliance program (such as clarifications on the determination criteria for lenient treatments or reduced penalties) and as to which Customs should be in a better position to handle the self-disclosure cases.
Along with the issuance of the New Announcement, we believe that both companies and the Customs authorities will have a clearer legal basis and practical guidance to implement the compliance program and mitigate the uncertainty thereof.
From importers’ or exporters’ perspectives, it is suggested that they consider and leverage self-disclosure to deal with historical compliance issues because these issues may be relatively difficult to resolve in the past.
Specifically, importers or exporters should consider establishing a compliance program that includes self-disclosure to deal with unintentional violations arising from normal trade operations in a timely manner, such as:
- Daily import or export declaration errors and issues
- Discrepancies in the Processing Trade Customs Handbook or the Bonded Warehouse Inventory
- Other trade compliance issues during internal audits or compliance reviews, investigations and other procedures.
What can our Customs and trade team in China help you with?
With extensive experience in handling self-disclosure cases, our Customs and trade professionals in China are able to deliver solutions from strategies to implementation. This includes:
- Providing training and real case experience to enhance trade compliance awareness at the management level and among staff and improve trade compliance;
- Conducting health checks in relation to trade compliance and identifying potential issues and/or opportunities for improvement;
- Assessing the risk level in relation to the potential trade compliance issues and offering advice on how to improve compliance;
- Strategically analyzing and applying for self-disclosure with China Customs, when appropriate;
- Preparing comprehensive explanations and supporting evidence to mitigate potential risks; and
- Maintaining contact with the Customs authorities and receiving their feedback during the whole process.
Our Customs and trade practice in China
The Customs and trade regulatory environment in China is complex and has been continually evolving. Our Customs and trade team in China consists of ex-Customs senior officials, seasoned professional consultants and industry experts who have a profound knowledge of Customs regulations and rich experience in handling all kinds of Customs- and trade-related issues in China. We can help our clients create value through structuring and implementing creative Customs and trade strategies and maintain a high level of Customs and trade compliance and manage risks by providing a robust defense during Customs inquiries, audits and investigations.
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