Customs Post Audits and Re-alignment

          By “post audits” I am referring to audits conducted by either yourself (i.e. annual self-audits), an independent auditor or post-audits conducted by SARS Customs.

          Just like many organisations, SARS too has its resource ups and downs. One of my former (late) Customs colleagues occasionally put a failure of the division into perspective. He would say that just because we have not made a finding during an audit, does not mean that industry are compliant. It may simply be a reflection of our own abilities to make audit findings, he would say.

          Looking at this from the other side of the fence (i.e. a clearing agent or trader) reveals a similar perspective. The consequence of compliance issues not detected (regardless by who) poses a greater future risk to us all.

          Imagine something simple which could have being detected within the first few months of its occurrence only gets picked up two or three years later. The financial impact of a shortfall in duties and taxes in the longer term (of repetitive occurrences) would be more severe. Alternatively, imagine having paid too much duties and taxes. How would this have impacted on cash flow over a long period of time? This is why it is crucially important to make discoveries early in the game and to rectify these.

          Incidentally, SARS audits and schedules currently go two years back. Refund claims also go back two years. In the new legislation this will be three years for both schedules and refunds alike.

          So, what do you do when findings are made? Aside from bringing the duties and taxes to account (to be discussed in the following blog) or claiming refunds, the status quo needs to change. This might seem obvious but implementation is not always straight forward.

          Firstly, you should make 100% certain that the finding is valid. Often what might seem obvious at first glance becomes more complex as more information comes to light. One way to resolve uncertainties is to obtain a firm Ruling or Determination from SARS Customs. Once absolute certainty on the way forward is reached, one should update all operational requirements. This applies not only to your internal operations but especially also to your LSP (Logistics Service Provider).

          Don’t forget to update all systems settings. Some systems have what I refer to as “stop-block” facilities, a term used in the woodwork industry. In IT and in other industries this is referred to as “fail-safe”, “fail-secure” or “fool-proof” mechanisms. The Japanese call them “poke-yoke”. Use them judiciously.

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Customs Licenses, Registrations and Rulings

          What a boring subject, right! Nobody I know dreams of the moment when they need to review their licencing and registration particulars with SARS. Well, neither does SARS, but guess what? Every now and again, someone at SARS Customs queries the status of your licence or registration particulars. When this happens, it will feel like a rude awakening. It usually happens when your company details have changed and nobody has notified SARS of the changes. This is why the subject deserves attention. Outdated information may result in shipments being held back and penalties being issued.

          While most licencing and registration types are open ended (i.e. valid indefinitely), some (licencing) are term based. Term based licencing currently relate to excise operations, searching for wrecks, depot operators, clearing agents, bonded removers, and Customs warehousing in an IDZ (Industrial Development Zone). Until now, importer and exporter registrations have being open-ended. In the future, most open ended licencing and registration types will terminate if not utilised for a period of three consecutive years.

          Going forward, the validity of company particulars will also affect the Clearance Instructions. For example, if personnel who are authorised to sign Clearance Instructions resign from your organisation or if role changes are made in the company division, you will need to update the authorised signatory with SARS (for Clearance Instruction purpose).

          Customs Rulings are also referred to as Determinations. Rulings or Determinations come in several forms namely TDN (Tariff Determinations), VDN (Value Determinations), and ROO (Rules of Original Determinations). Rulings are essentially decisions which were made by SARS Customs on your company or products. Such decisions are legally binding. You should review these (if you have any) on an annual basis.

For example, review for product changes on a TDN, a change in supplier or valuation details on a VDN, or a change in the level of manufacture of a product in the country of origin for a COO Determination. Advance Rulings are featured in the new legislation. These fall into the same category.

          In the future, all Customs Rulings or Determinations will expire every three years. For Determinations to remain valid, new applications will need to be made prior to expiry thereof.

          There are many different types of licencing, registration, determination and designation (another term used by Customs to define IDZ operations) types. Each of these will have their own specific adherence requirements. More information about these can be found in the current SARS SOP titled Licencing Registration and Designation number SC-CF-19 on the SARS website www.sars.gov.za, search under “Find a Publication”.

          Also don’t forget to review the validity of your securities (i.e. bonds) lodged with SARS, if you have any.  Registrations will soon be done via e-filing. 

Customs Supporting Documents: AVAILABILITY

          “Immediate” is the only phrase left to describe the level of availability of supporting documents for Customs today.

          The logic behind this has to do with the fact that in order to have submitted a Customs declaration, one had to have had the relevant documentation to do so. In addition, with the speed of electronic communications today there is little reason why documents cannot be made available on demand, barring public holidays in the supplier’s country, and time zone variants.

          In the new Customs legislation it is stated that any documentary requests must be complied within 24 hours of request, unless otherwise specified in writing. When SARS Customs conduct large audits they will generally provide longer periods of time, such as 7 or 14 days. One may in some instances be able to negotiate for longer periods of time.

          Most supporting documents may be presented to Customs in photocopy format. They do not need to be original. However, there are some exceptions. When requested, permits, certificates and in some cases invoice declarations must be original. The invoice declaration (which has to do with trade agreements and preferential rates of duty) must in some instances, contain the supplier’s original signature. Traders who qualify for preferential rates of duty via trade agreements such as the TDCA (Trade, Development Cooperation Agreement) commonly referred to as the EU / SA Trade Agreement, and the SADC (Southern African Development Community) must supply original certificates on demand.

          Failure to provide documentation on time is an offence in terms of the new legislation. Furthermore, failure to provide full and accurate information which results in revenue prejudice is a disciplinary offence. Such offences are subject to a minimum penalty of R 2,500.

          Your LSP (Logistics Service Provider) will have most of the documentary requirements on hand. Most LSPs keep these records in electronic format, which makes it easy to access and to pass on. However, one challenge facing the industry and traders now is the length of time for which records must be stored. In the new legislation, records must be maintained for a period of 5 years including the year in which it was created. This may have the effect of having to keep records for nearly six years in some instances. Records (whether physical or electronic) must be kept on site for a period no less than 12 months.

          Literature (which was discussed in the former blog) will remain a challenge for some.

Customs Supporting Documents: LITERTURE

          Literature requirements for Customs purposes are somewhat misunderstood. Yet it is something that Customs require fairly often.

          The production of literature is primarily required for tariffing purposes, a process we also refer to as classification. The tariff code affects the rate of duty as well as the prohibition and restriction of goods. It is therefore important to be able to produce the correct literature at short notice.

          So, what is literature? Literature is exactly what you are reading now. It is a document containing literary work. The literary work for Customs purposes has to be descriptive. It must contain a 100% breakdown of the constituent material of the product. It must include product specifications, drawings, design works, functionality, features, or a chemical analysis. Although ‘what the product is going to be used for’ has no bearing on classification, it does help the reader to understand what the product is. Tariff classification is based purely on what you see in front of you, and not what it might become or be used for later on.

          Literature has to be merit based. The merits of literature hinges on three aspects.

Firstly, it must be generated or documented by the supplier, not the importer. The reason for this is that an importer has a material interest in how the rates of duty are affected. An importer may therefore provide false or misleading information. The importer was not party in the production of the product. According to the authorities they therefore have no authority to comment on the constituent material of the product; strictly speaking.

Secondly, literature must be formally documented. It cannot be a hand or type written letter or e-mail drawn up by an individual or company. Literature is normally documented by persons who hold some authority over the product, i.e. product development specialists, laboratory scientists, a manufacturer and so forth. Literature may also be given authority by virtue of it being printed on a formal company technical or specifications letterhead, pamphlet or catalogue. In some cases SARS may accept explanations on a supplier’s letterhead, but not in all cases.

          Thirdly, the identification marks and numbers on the literature must correspond to the marks and numbers embossed on the product. If these do not match, the literature is insufficient. Likewise, the marks and numbers on the literature must match that of a commercial invoice.

          There are cases where supplier’s literature is very hard to come by, normally owing to trade secrets. In such instances, the literature may be sent to the Customs authorities directly from the suppliers e-mail address (as an attachment), with prior arrangements. Customs Officials are legally bound to confidentiality clauses. Alternatively, a third party (i.e. independent), nationally accredited chemical laboratory may conduct a chemical analysis of the product. This can be done at the importer or exporters home country. Customs however do not take responsibility for the analysis fees even though they may, in the absence of literature, demand such analysis.

          Finally, a MSDS (Material Safety Data Sheet) is not normally an acceptable form of literature. A MSDS does not contain product material information other than what is required for safety purposes.