The fifth article in a series of publications "Classification of goods from A to Z"
In the previous one articles we talked about how customs checks the product code defined by the declarant, and how this check can end with a classification decision. Now we will find out how to prove the rightness of the declarant to the customs authorities and how to minimize the negative consequences of changing the classification of goods.
What are the consequences of changing the product code?
The consequences of changing the code declared by the declarant can be very different. It all depends on the product, the behavior of business leaders and the intentions of customs officers.
Change in the rate of import duty. This is the least unpleasant thing that awaits the declarant after the classification decision. Although sometimes the change in the duty rate can be quite significant and cover the entire margin from the foreign trade transaction.
Refusal to provide installment payment of VAT. The legislation provides for the possibility of providing deferred payment of VAT on imports of certain equipment. The provision of installments directly depends on the classification of this equipment. Therefore, changing the code may affect the ability to use such benefits.
Change of non-tariff regulation measures. You will need to obtain additional permits or undergo additional forms of control. Sometimes obtaining permits takes too much time or too much material resources, which can also make a foreign trade operation completely unprofitable.
The procedure of customs clearance is complicated. Here is an example from my own experience. The company imported complex technological equipment. Customs classified each piece of equipment as a separate commodity. The importer could not declare each node separately due to the lack of shipping documents for individual parts.
Fine and confiscation of goods. Often, after changing the product code, customs officers draw up a report on the declarant of violation of customs regulations. According to the inspectors, the declarant intentionally declares the goods under the code, which corresponds to a lower rate of duty. In this case, the customs officers draw up a report on the declarant under Article 485 of the Customs Code, which provides for a fine of 300% arrears of customs duties. Some inspectors are even more "creative." They accuse the declarant that he stated inaccurate information about the goods in the declaration, which was the reason for changing the product code. Then they draw up a report under Article 472 of the Customs Code, which already provides for the confiscation of goods and a fine of the value of the confiscated goods.
Licensing of foreign economic activity. This rarely happens, but in addition to the protocol on violation of customs rules, the customs can also send to the Ministry of Economic Development and Trade of Ukraine a request to apply a special sanction to the importer - licensing of foreign economic activity. In the case of such a sanction, the company is forced to obtain licenses for each supply of goods and for each transaction to transfer funds to non-residents.
What can be done before changing the product code?
After filing a customs declaration, the declarant's ability to influence the classification of goods is very limited. Therefore, it is necessary to make sure in advance that the description of the goods in the customs declaration and in all accompanying documents confirms its classification.
If after filing the declaration, the customs requires additional documents, we recommend that you provide as much information as possible to confirm the characteristics of the goods that are crucial for its classification.
If the customs changes the code based on the results of laboratory tests, then make sure that you have samples of the product for an alternative examination. The CCI can help with this. Its specialists can take and seal samples. Thus, with the help of the CCI, you will confirm the fact that the alternative examination was conducted using samples of goods from the same batch.
Is it possible to appeal the classification decision?
The company may appeal the decision to determine the product code to the State Fiscal Service of Ukraine or to the court.
Complaint or lawsuit?
You can not file a complaint to the SFS, and immediately go to court. Whether to file a complaint to the SFS, each company decides for itself. Some consider it a waste of time and effort. We always recommend using the possibility of such an appeal, if time limits allow. After all, a complaint to the SFS is a kind of rehearsal before the court. Moreover, as our practice shows, consideration of a complaint against classification decisions may be successful.
If in connection with the change of classification of goods a report on violation of customs rules under Article 472 of the Customs Code has been drawn up for you, then there is no time to complain - go to court as soon as possible. The protocols under this article are considered by the court and it will not wait until the procedure of appealing the classification decision is over.
Deadline for appealing a classification decision?
The company may file a complaint to the SFS within 1 month from the date of receipt of the classification decision.
The deadline for filing a lawsuit is much longer - 6 months.
When should the classification decision be appealed?
Appealing the decision to determine the code is a complex and resource-intensive process. In most cases, forensic examinations are required to confirm the correctness of the classification. It is long and sometimes expensive. These and other factors often deter entrepreneurs from arguing with customs.
At the same time it is necessary to consider:
Frequency and volume of deliveries. When a change in the product code leads to an increase in the duty rate by a few percent, the amount of additional customs duties paid will not look very significant. But if the company imports this product constantly and in large quantities, the overall difference in the amount of payments will be significant.
Availability of partner companies. The decision on the classification of goods affects not only one importer, but all companies that import this product. Therefore, sometimes the costs of appealing a classification decision can be shared with partner companies that are also interested in a lower duty rate.
The threat of fines and confiscation of goods. If at the same time with the change of the product code the customs draws up a report on violation of customs rules, it should be understood that without appealing the classification decision it is difficult to effectively protect against sanctions under such a protocol.
What to do when the customs together with change of the code makes the report on violation of customs rules?
We do not recommend waiting for customs to start drawing up a report. As soon as it becomes clear that the customs intends to change the code of your goods, do everything possible to release it for free circulation.
The declarant has the right to release the goods for free circulation on a temporary customs declaration before the decision to determine the code of the goods. In this case, you will have to pay customs duties at the highest rate of duty of those to which the goods may fall due to changes in its classification. However, this is much better than losing the product in a case of violation of customs regulations due to a change in the product code.
If the company is lucky and the customs does not change the product code, or change the code does not increase the duty rate, the overpaid payments can be refunded. If the company will wait until the customs decides to change or not to change the code, then simultaneously with the change of the code you can get a report on violation of customs rules under Article 472 of the Customs Code of Ukraine. In this case, the goods can be collected only after the court decision in the case of violation of customs regulations.
The original article is published in the online edition Logist.FM
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