Handling Customs Tax Audits and Remedies

HANDLINGCUSTOMSTAXAUDITSANDREMEDIES

By:DomingoG.Castillo

A. PROCEDURE INTHE IMPORTATIONANDRELEASEFROMCUSTOMSCUSTODYOF IMPORTEDGOODS

ANDARTICLES

1. Importation

a. Whenimportationbeginsandends

Importation is the act of bringing goods into a domestic port from a foreign country.Importation begins when the carrying vessel or aircraft enters the jurisdiction of thePhilippineswithintentiontounladethereinandisdeemedterminateduponpaymentoftheproperduties,taxesandotherchargesdueuponthearticles,orsecuredtobepaid,ataportofentryandthelegalpermitforwithdrawalshallhavebeengranted.1

b. Customsduties

Allarticles,whenimportedfromanyforeigncountryintothePhilippines,shallbesubjecttodutyuponeach importation,even thoughpreviouslyexported from thePhilippines.2 Thetermcustomsdutiesarethetaxeschargeduponcommoditiesontheirbeingimportedintoorexportedfromacountry.Theexceptionsare:

i. ThoseprovidedforundertheTCCP(e.g.,Section105,CBMWs);ii. Thosegrantedunderspeciallaws;iii. Thosegrantedtogovernmentagencies,instrumentalities,GOCCswithexistingcontracts,

agreements,obligationsorcommitmentswithforeigncountries;iv. ThosethatmaybegrantedbythePresidentuponpriorrecommendationbyNEDAinthe

interestofnationaleconomy;andv. Thosegrantedtointernationalorganizationsorassociationsandinstitutionspursuantto

agreementsorspeciallaws.

InthePhilippines,asageneralrule,allkindsofimportsareallowed.However,byvirtueofthepolicepoweroftheState,Congresshastheplenarypowertoregulateorprohibitcertaincommodities for reasons of public health and safety, national security, and for theprotection, development or rationalization of the local industry. Also by reason of ourmembership in the international community, we have the commitment to enforceinternationalagreementstorestricttradeoncertaincommoditiesorprohibitthesamefromentering or exiting our territory. Foremost ofwhich are the protection against illegal orpiratedtapesanddiscsundertheTRIPSConvention,theprotectiononendangeredFloraandFaunaunderothertreatiesundertheWTO.

Followingaretheclassificationofcommoditiesaccordingtotheirdegreeofrestrictions:

1Section1202,TariffandCustomsCodeofthePhilippines(TCCP).2Id.,Section100.

S Y C IP S ALAZAR H ERNANDEZ & G ATMAITAN

ATTORNEYS-AT-LAW

of2ImportationofUsedItems

i. FreelyImportableCommodities

These are commodities the importationsofwhich isneither regulatednorprohibitedandmaybemadewithoutthepriorapprovalorclearancefromanygovernmentagency.

Articles falling under this category are those importations that any person, whethernatural or judicial, can immediately purchase abroad and free to bring into thePhilippineswithoutsecuringanypermitfromregulatorygovernmentbody.Exampleofthesecommoditiesare:computers,typewriters,pencilsorpens,shoes,toys(otherthantoygunsthatarereplicas)andanyothersocialitems.

ii. RegulatedCommodities

Thesearecommoditiestheimportationofwhichrequiresimportclearanceorpermittoimport from regulatory or appropriate government agencies. Hence, the would beimportersofthefollowingarticlesneedtosecureorobtainaclearanceorpermitfromthe appropriate regulatory agency before they could legally bring the same to thePhilippines:

Commodity Agency/Department

1. Foodandfoodproducts,drugs&

devices,cosmeticproducts&hazardoussubstances

BureauofFoodandDrugs(BFAD)/DepartmentofHealth(DOH)

2. Antibiotics,penicillinanditsderivatives

BFAD

3. Prohibitedand/orDangerousdrugs

PhilippineDrugsEnforcementAgency(PDEA)

4. Precursors&essentialchemicals

PDEA

5. Variouschemicalsforthemanufactureofexplosives

FirearmsandExplosiveOffice(FEO)/PhilippineNationalPolice(PNP)

6. Dynamite,gunpowder,firearms&weaponsofwar&partsthereof,ammunitions&otherexplosives

FEO/PNP

7. Radioactivematerials

PhilippineNuclearResearchInstitute(PNRI)

8. Radiationemittingapparatus&relateddevices

RadiologyHealthServices(RHS)/DOH

9. Radiocommunicationsequipment,accessories,components&partsthereof

NationalTelecommunicationsCommission(NTC)/DepartmentofTransportation&

Communication(DOTC)

10. Plants&plantproducts

BureauofPlantIndustry/DepartmentofAgriculture(DOA)


11. Animals&theirproducts

BureauofAnimalIndustry(BAI)/DOA

12. Fish&fisheryaquaticproducts

BureauofFisheries&AquaticResources(BFAR)/DOA

13. EndangeredSpeciesofwildFauna&Flora

BureauofForestDevelopment(BFD)/DepartmentofEnvironmentandNatural

Resources(DENR)

14. Pesticides&Fertilizers

FertilizerandPesticideAuthority

15. Videograms(tapes,CD,VCD)

OpticalMediaBoard

16. Moviefilms,TVprograms&relatedpromotionalprograms

MovieandTelevisionReviewandClassificationBoard

17. Rice

NationalFoodAuthority

18. Sugar&Molasses

SugarRegulatoryAdministration

19. Tobacco

NationalTobaccoAdministration

20. Colorreproductionmachines

NationalBureauofInvestigation/BangkoSentralngPilipinas(BSP)

21. Logs&Lumber

BFD/DENR

22. PhilippineLegaltenderinexcessofPhp10,000;CoinBlanks&BankNotes

BSP

23. Parts&componentsofmotorvehicles

BureauofImportServices(BIS)/DepartmentofTrade&Industry(DTI)

24. Usedtrucks&engines,usedtires

BIS/DTI

25. Nodollarimportsofusedcars

BIS/DTI

26. ProductscoveredbymandatoryPhilippineNationalStandards

BureauofProductStandards/DTI

27. Ships,vesselsandwarshipsofallkinds

MaritimeIndustryAuthority

28. SodiumCyanide,Chlorouflourocarbon&otherOzonedepletingsubstances

EnvironmentalManagementBureau

29. Coals&Coalsderivatives EnergyIndustryAdministrationBureau

30. CommoditiesoriginatingfromSocialist

&othercentrallyplannedeconomycountries(Albania,Angola,Ethiopia,Laos,Libya,Mongolia,Mozambigue,Myanmmar,Nicaragua,NorthKorea)

PhilippineInternationalTradingCorporation


TheenumerationaboveareexclusiveandmaybechangedoraddedastheneedarisesfromtimetotimebythePhilippineregulatoryagencyconcerned.

iii. ProhibitedCommodities

ThesearecommoditiestheimportationofwhichisnotallowedorbannedunderexistingPhilippinelawsorrulesandregulations.UnderSec.101oftheTariffandCustomsCodeofthePhilippines(TCCP),theimportationofthefollowingarticlesareprohibited.

AbsolutelyProhibitedImportations

Goodstheimportationofwhichisprohibitedbylawhavebeensaidtobeipsofactoforfeitedbythefactofimportation.

The following articles because of their very nature are considered prohibitedwithoutanyqualificationsorconditions:

1. Written or printed articles in any form containing any matter advocating or

inciting treason, or rebellion, insurrection, or subversion against theGovernment of the Philippines, or forcible resistance to any law of thePhilippines,or containing any threat to take the lifeof,or inflictbodilyharmuponanypersoninthePhilippines.

2. Written or printed articles, negatives or cinematographic films, photographs,

engravings, lithographs,objects,paintings,drawingsorotherrepresentationofanobsceneorimmoralcharacter.

3. Roulettewheels,gamblingoutfits,loadeddice,markedcards.4. Any adulterated ormisbranded articles of foods or drugs in violation of the

provisionsoftheFoodandDrugsAct.5. Opiumpipesandpartsthereof,ofwhatevermaterial.

ConditionallyProhibitedImportations

The following articles, notwithstanding their nature, maybe imported in thePhilippinesprovidedtheconditionssetforthbylawarecompliedwith:

1. Gunpowder,ammunitionsandotherexplosives, firearmsandweaponofwar,

andpartsthereof,whenauthorizedbylaw[Sec.101(a)];2. Articles, instruments,drugsandsubstancesdesigned, intendedoradapted for

producinglawfulabortion[Sec.101(d)];3. Machines,apparatusormechanicaldevicesusedingamblingorthedistribution

of money, cigars, cigarettes or other articles when such distribution isdependentonchance[Sec.101(c)];

4. LotteryandsweepstakesticketsauthorizedbythePhilippineGovernment[Sec.

101(f)];


5. Marijuana, opium, poppies, coca leaves, heroin, or any other narcotics orsynthetic drugswhen imported by theGovernment of the Philippines or anypersondulyauthorizedbytheDDBformedicinalpurposesonly{Sec.101(i)];

6. ToyGuns,exceptthosereplicas;and7. Used Clothing or Rags, except those donations to the DSWD or any duly

registeredrelieforganizations.

ImportationofCopyrightedArticlesand/orInfringingGoodsProhibited

CustomsAdministrativeOrder(CAO)62002providesfortherulesandregulationsimplementingthe IntellectualPropertyCodeofthePhilippines(IPCode/R.A.8293)in relation toSections5160of theTradeRelatedAspectsof IntellectualPropertyRightsAgreements(TRIPS),whichhasitsobjectiveofprohibitingtheimportationofgoodsorproductsthat infringeuponallintellectualpropertyrights.[Handbookonthe Tariff and Customs Code of the Philippines, as amended, and the CustomsBrokersActof2004 (R.A.9280)and its ImplementingRulesandRegulations (FirstEdition2005)byAtty.FerdinandNague,pp.71to78)

c. Whoistheimporter

Section 1203 of the TCCP considers the following persons the owners of importedarticles:3

i. Consignee the words importers, owner or consignee of cargos refer to the

clientele of shippers of merchandise or those for whose account or benefit theshipmentismade;

ii. Holderof thebillof ladingorairwaybillduly indorsedby theconsigneenamed

therein;iii. Consignor the shipper of the imported articles from abroad if consigned to

another;iv. Underwritersoftheabandonedarticlesthesearethe insurancecompanies from

whomtheimportedarticlesareinsuredundertheprincipleofsubrogation;andv. Salvoronewhovoluntarilyandsuccessfullysavesimperiledpropertyonnavigable

waters,be itdamages,derelictorwrecked, for thebenefitof theownerandwiththeexpectationofreceivinganappropriatesalvageaward.

d. RegistrationofImporters

PursuanttoCustomsMemorandumOrder(CMO)14988,asamendedbyCMO2399,all regular importersare requiredto fileanapplicationunderoathattheofficeoftheCustomsIntelligenceandInvestigationService(CIIS)oftheBureauofCustoms(BOC)andshallbeissuedaCertificateofRegistrationwithanassignedregistrationnumberandshallberequiredtoundergoayearlyupdateattheCIISandattheofficeofManagement

3ATTY.FERDINANDASEJONAGUE,C.B.,Handbookon theTariffandCustomsCodeof thePhilippines,asamended,and theCustomsBrokersActof2004anditsImplementingRulesandRegulations,p.318.


InformationSystemsandTechnologyGroup(MISTG)oftheBOC.Failureonthepartofthe importertoregistershallbeaground forthenonacceptanceoftheentry filedorlodgedbytheimporterorhiscustomhousebroker.4

e. LiabilityofImporterforDuties

The importer is the person primarily liable for the payment of any duties on theimported goods/articles. It constitutes a personal debt due from the importer to thegovernmentwhich canbedischargedonlybypayment in fullofallduties, taxes, feesandother charges legally accruing. It also constitutes lienupon the articles importedwhichmaybeenforcedwhilesucharticlesareincustodyorsubjecttothecontrolofthegovernment.5

f. HarmonizedSystem

The Harmonized Commodity Description and Coding System or Harmonized System(HS) is an internationalproductnomenclature since thePhilippines is amemberofInternational Convention for the Harmonized Commodity Description and CodingSystemwhichisreflectedinSections103and104oftheTCCP,VolumeI.

The HS effects uniformity in the classification of goods and standardizes commercialdocumentswhichultimatelyenhancescustomsadministration.The Philippines generally uses the 8Digit HS level to accommodate specificnomenclature for the purpose of reflecting our national requirements (e.g. for tariffprotectionandincentives).Section 103 of the TCCP sets out the General Rules for the Interpretation of theHarmonized System to assure correct merchandise classification. As U.S. Customsdefined it: The General Rules of Interpretation (GRI) are the single set of legalprinciplesthatgoverntheclassificationofmerchandiseundertheHarmonizedSystem.

2. DeclarationofDutiableValue

Todeterminethecustomsduties imposableuponan importedarticle,onemustdetermineitsdutiablevalue.Thedutiablevalueofimportedgoodsshallbedeterminedusingoneofthesix (6)methodsof valuation enumeratedunder Section201of the TCCP, as amendedbyRepublicAct(RA)9135.Thesemethods,whicharetobeappliedsequentiallyintheorderprovided by law, are as follows: transaction value, transaction value of identical goods,transaction value of similar goods, deductive value, computed value and fallback value.Section204oftheTCCPstatesthattheimportedarticlesshallbesubjecttotherateorratesof import duties existing at the time of entry or withdrawal from warehouse in thePhilippines,forconsumption.

The primary method of valuation is the transaction value method. The law provides forcertainconditionswhen thealternativemethodsmaybeapplied in lieuof the transactionvaluemethod.CustomsAdministrativeOrderNo.42004providesforadetaileddiscussiononthevaluationmethods.

4Id.,319.5Section1204,TCCP.


TheWTOValuationAgreementprovidesforthefollowingsix(6)methodsofvaluationwhichshouldbeapplied,asamatterofruleinhierarchicalorder.Hierarchical order of application provides that, in determining the correct customsvaluationofan importedarticles,theapplicationofthesix(6)methodsofvaluationaboveshould be in strict order from Method 1 to 6, which means that, if the first method(Transactionvalue) failstoproduceacorrectvalue,thencustomsshouldproceedtoapplythesecondvalue(transactionvalueofIdenticalGoods),andsoon.Valuation issueswill not delay the release of shipments since theWTO valuation systempromotesfacility intheclearanceofgoodsatdifferentcustomsoffices. The implementingrulesfurtherstatethatIfinthecourseofdeterminingthedutiablevalueofimportedgoods,delaywillnecessarilyensue inthe finaldeterminationofsuchdutiablevalue,the importermaysecurethereleaseoftheimportedgoodsfromCustomsprovided:

a. Theimporterpaysthedutiesandtaxesbasedonhisdeclaration.b. The importerputsupasufficientguarantee insuch formaswillbedeterminedbythe

CommissionerofCustoms inanappropriateregulationand inanamountequivalenttotheadditionaldutiesand taxesdue, computedbyBOCusing thealternativemethodssequentiallyand in theorderofsuccessionasprovidedby law,tobeapprovedbytheCollectorofCustomsconcerned.

c. Provided,however,thatgoods,the importationofwhich isprohibitedby lawshallnot

bereleasedunderanycircumstancewhatsoever.(Sec.III.C,CAO42004).Undertheoldlaw(RA8181),theamountofCashbondis125%.Underthelaw(RA9135)theamountofguaranteeisequalto100%oftheascertaineddutiesandtaxes.


Im p o rte d G o o d s

YE SIs th e re a sa le fo r e x p o rt to th e c o u n try

o f im p o rta tio n ? N O

Are th e re a n y sp e c ia l c o n d itio n s? YE S

N O

Are th e re a n y sp e c ia l c o n d itio n s? YE S

D o e s th e sp e c ia l re la tio n sh ip in flu e n c e th e tra n sa c tio n va lu e ?

N O N O YE S

C a n th e im p o rte r dem o n stra te w h e th e r th e tra n sac tio n va lu e

c lo se ly a p p rox im a te s to C u s to m s va lu e ?

YE S N O

T ra n sac tio n va lu e o f id e n tic a l o r s im ila r g o o d s

If th e p re c e d in g m e th o d ca n n o t b e a p p lie d

R e q u e st is n o t m a d e b y th e im p o rte r

R e q u e st is n o t m a d e b y th e im p o rte r

D e d u c tive va lu e m e th o d C o m p u te d va lu e m e th o d

If th e p re c e d in g m e th o d c a n n o t b e a p p lie d


C o m p u te d va lu e m e th o d D e d u c tive va lu e m e th o d



C u sto m s va lu e sh o u ld b e th e tra n sa c tio n va lu e (se e T h e e lem e n ts w h ic h c o n stitu te

th e C u sto m s va lu e )C u sto m s va lu e sh o u ld b e d e te rm ine d b y Fa ll-b a ck m e th o d

Sequen tial O rder o f Va luation M ethod


Customs Value (A + B)

A. Price actually paid or payable:

The total payment (including indirect payment) made or to be made by the buyer to or for the benefit of the seller for the imported goods

(a) Invoice price (+)

If a price adjustment clause is applicable, the actual price replaces the invoice price.)

(b) Elements not included in the invoice price which constitute part of the price actually paid or payable (+): Price actually paid or payable.

For example,

(I) separate payment of part of the imported goods in addition to the invoice price;

(ii) settlement made or to be made by the buyer of debt owed to a third party by the seller in addition to the payment of the invoice price;

(iii) offset to debt owed the buyer by the seller, taken into account when determining the invoice price.

* Non-dutiable elements (-)

These elements do not constitute the price actually paid or payable and have to be deducted if distinguishable from the price.

For Example,

(I) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on the imported goods such as industrial plant, machinery or equipment; (Price actually paid or payable)

(ii) the transport cost after importation; (ditto)

(iii) duties and taxes of the country of importation; (ditto)

(iv) interest charges; (Decision 3.1 if applied)

(v) activities undertaken by the buyer in his own account other than those for which adjustment is provided. (Price actually paid or payable)

(a) The following commissions and expenses, to the extent that they are incurred by the buyer (+);

(I) Commissions and brokerage fees, except buying commissions;

(ii) The cost of containers which is treated as being one for customs purposes with the goods in question;

(iii) The cost of packing whether for labor or materials.

* Non-dutiable elements (-)

Buying commissions. (-)

(b) The value of the following goods and services where supplied directly or indirectly by the buyer, free of charge or at a reduced cost for use in connection with the production and import transaction of the imported goods (+):

(I) materials, components, parts and similar items incorporated in the imported goods;

(ii) tools, dyes, moulds and similar items used in the production of the imported goods;

(iii) materials consumed in the production of the imported goods

(iv) engineering, development, artwork, plans and sketches undertaken elsewhere than in the country of importation and necessary for the production of the imported goods.

*Non-dutiable elements (-)

Engineering, development, artwork, plans and sketches undertaken in the country of importation.

(c) Royalties and license fees related to the goods being valued (excluding the right to reproduce the imported goods to the country of importation) that the buyer must pay directly or indirectly as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. (+)

*Non-dutiable elements (-)

(I) the charges for the right to reproduce the imported goods in the country of importation

(ii) Payments made by the buyer for the right to distribute or resell the imported goods.

(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller. (+)

(e) Freight charges, cost of insurance and other expenses incurred for transport of the goods to the port of importation.

Other elements which should be considered

a) Restrictions as to the disposition of the goods

b) Conditions or considerations

c) Proceeds of subsequent resale

d) Related party transaction

Additions to the Price actually paid or payable shall be made only on the base of objective and quantifiable data.

B. Adjustment, and in case Customs value is based on C.I.F., the optional adjustments.


3. Classificationcases

Below is a summary of the procedure followed in the event of any dispute on theclassification(andeventualdisputeinthepaymentofcustomstaxesandduties)casesbeforetheBOC.

a. Upon importation, the importer submitsamongothers,6an ImportEntryand Internal

RevenueDeclaration(IEIRD)totheBOC.TheIEIRDisbasedonselfassessmentthatis,theimporterprovidesacompleteandcorrectdeclarationofthespecificationsoftheimportationand,onthatbasis,computesthedutiesandtaxesdueusingtheapplicablevaluationmethods.TheimporterthenpaysthedutiesandtaxestotheBOCthroughanauthorizedagentbank.7

b. The BOC officer/appraiser at the BOCs Formal Entry Division reviews the importers

supportingdocumentsand,ifwarranted,conductsaphysicalexaminationofthegoods.8Iftheappraiserconteststheimportersclassificationofthegoods,heshallimmediatelyforward the documents to the BOCs Valuation Classification Review CommitteeTechnicalSupportTeam(VCRCTST).9

c. TheVCRCTST,which is tasked toprovideadministrativeand technical support to the

VCRC, shallnotify the importer to submitwithin ten (10)days from receipt thereofawritten explanation/justification as to the truthfulness and accuracy of the declaredvalue including the submission of documents relevant to the determination of theapplicablemethodofvaluationaswellastheapplicabledutiablevalue.10

d. TheVCRC11deliberatesand rendersadecisionon theclassification issue.12 TheVCRC

has twenty (20) working days from the date the case is calendared for deliberationwithin which to resolve the case. A case referred to the VCRC shall be calendaredimmediately,not laterthanthree(3)workingdaysfromreceiptthereof.13TheVCRCisenjoinedtoconveneatleastonceaweek,orasoftenasnecessary.14

e. While the case is pending before the VCRC, the importer can secure the tentative

release of this goods by posting sufficient guarantee in the form of cash,managerscheck,bankguarantyorsuretybondequivalenttotheadditionaldutiesandtaxesdue.15Asamatterofpolicy,theguaranteeshouldbeintheformofcash,managerscheck,orbankguarantee.16

6Billofladingorairwaybill,commercialinvoice,packinglastandotherdocumentsasmayberequiredbytheBOCfromtimetotime[SeeCMONo.372001,SectionIV(A)].7SeeCMONo.372001,sectionIV(A)(1)(2)&(3).8SeeCMONo.372001,sectionIV(C)outliningthedetailedprocedureattheFormalEntryDivisionoritsequivalentunit.9SeeCMONo.372001,sectionIV(D)(5).10SeeCMONo.372001,SectionIV(D)(5).11Thememberof theVCRCare: (i) theDistrictCollectorasChairman (ii) theDeputyCollector forAssessmentasViceChairman (iii) theChiefof theFormalEntryDivisionorequivalentunitasMemberand (iv)otherpersonnelasmaybeappointedbytheBOCCommissionerupontheDistrictCollectorsrecommendationfollowingtheguidelinessetoutinCMONo.372001,SectionIII(E).12SeeCMONo.372001,SectionIV(D)(6).13SeeCMONo.372001,SectionIV(D)(7).14SeeCMONo.372001,SectionIV(E)outliningthedetailedprocedureattheVCRClevel.15SeeCMONo.372001,SectionV(A);CAONo.52001,SectionIII(C).16SeeCMONo.372001,SectionV(A).


f. If theVCRCsdecision is favorable to the importer, theChiefof theCollectionDivisionshallnotifytheChiefoftheAdministrationDivisiontoissueadisbursementvoucherandprepareacheckpayabletotheimporterinthefullamountoftheguaranteepostedbytheimporter.17

g. If theVCRCsdecision isadverse to the importer, the lattermayeither: (i)protest the

decisionpursuanttoSection2308oftheTCCP;or(ii)appealtheadversedecisiontotheBOCCommissioner.18

Protesttheassesseddutiesandtaxesandthecorrespondingdocketfeesmust

bepaid. Theimporterhasfifteen(15)daysfromthedatethedutiesandtaxesarepaidorcollectedfromtheguaranty,withinwhichtofiletheprotest. Assuminghehasnotpreviously secured the release thereof from theVCRC, the importermayobtain the releaseof thegoodsuponpaymentof theassesseddutiesand taxes.19TheDistrictCollectorshall issueanorder forhearingwithin fifteen (15)days fromreceiptof theprotestandhear thematter. Upon terminationof thehearing, theDistrictCollectorshallrenderadecisionwithinthirty(30)days.20

Appealthe importerhasfifteen(15)daysfromreceiptoftheVCRCsadverse

decisiontoappealtotheBOCCommissionerontheconditionthattheimporterwillagreetoundergoapostentryaudit.21Anyappealfiledaftertheprescribedperiodshallbedeemeddismissed.22Nohearingontheappealisrequired.23

h. If the District Collectors decision is adverse to the importer, the decision may be

appealedtotheBOCCommissionerwithinfifteen(15)daysfromreceiptthereof.24IftheBOCCommissionersdecision isadversetotheimporter,thedecisionmaybeappealedtotheCTAwithinthirty (30)days fromreceiptthereof.25 Unlessanappeal ismadetotheCTAinthemannerandwithintheperiodprescribedbylaw,theBOCCommissionersdecisionshallbefinalandconclusive.26

i. If theDistrictCollectorsdecision is adverse to the government, thedecision shallbe

automatically elevated to, and review by, the BOC Commissioner. If the BOCCommissioner affirms the District Collectors decision, the decision shall beautomaticallyelevatedto,andreviewby,theSecretaryofFinance. However, ifwithinthirty(30)daysfromreceiptoftherecordofthecasebytheBOCCommissionerorthe

17SeeCMONo.499,SectionIII(2.4).Thedocumentsrequiredtosupportadisbursementvoucherare:(i)originalofBOCForm 38A (Cash BondProvisional) equivalent to the guarantee (ii) the Collection Division Chiefs notice to theAdministrationDivisionChief(iii)theBOCSGSAppealsCommitteedecisionorthedecisionbyanyBOCauthorizedofficer(iv)aphotocopyoftheimportentrywithfinalassessmentofdutiesandtaxes.18Pleasenote thatwhileCMO372001provides for thesealternative remedies,underCAO52001, the importersonlyremedyfromanadversedecisionisanappealintheformofaprotestpursuanttoSection2308oftheTCCP,whileunderCMO372001.19TCCP,Section2308;seeCAONo.52001,SectionIIID;seealsoCMONo.372001,SectionIII(A).20TCCP,Section2312.Ifthenatureofthearticlespermit,theimportermayberequiredtosupplytheDistrictCollectorwithsamplesofthearticlessubjectoftheprotest[TCCP,Section2311].21SeeCMONO.372001,SectionIII(B).Inagreeingtoapostentryaudit,theimportereffectivelyagreestoallowacustomsofficertoenteritspremisesduringofficehourstoconductanauditexamination,inspectionandinvestigationofitsdocumentflow,financialflow,goodsinventoryandotherbusinessprocesses.ThedetailedprocedureisoutlinedinSectionIV(C)ofCAONo.52001.22TCCP,Section2313.23VitugandAcosta,TaxLawandJurisprudence380(2000).24TCCP,Section2313.25TCCP,Section2315.26TCCP,Section2402.


SecretaryofFinance,asthecasemaybe,nodecisionisrenderedbyeitherofthem,thedecisionunder review shallbecome final and executory. Theparty aggrievedby theSecretary of Finances decision may appeal to the CTA within thirty (30) days fromreceiptofthedecision.27

j. AnadversedecisionbyoneoftheCTAsDivisionmaybeappealedtotheCTAEnBancby

way of petition for review. The appealmay be takenwithin fifteen (15) days fromreceiptoftheCTAsdecision.28

k. IftheCTAEnBancsdecisionisadversetotheimporter,thedecisionmaybeelevatedto

theSupremeCourtwithin fifteen (15)daysfromreceiptthereofbywayofpetitionforreviewoncertiorari.29

4. PostClearance

a. RequirementtoKeepRecords

All importers are required to keep at their principal place of business in themannerprescribedbyregulationstobeissuedbytheCommissionerofCustomsandforaperiodof three (3) years from thedateof importation, all the recordsof their importationsand/orbooksofaccounts,businessandcomputersystemsandallcustomscommercialdata including payment records relevant for the verification of the accuracy of thetransactionvaluedeclaredbytheimporters/customsbrokersontheimportentry.30

b. PostEntryAudit

The BOC, through its authorized customs officers, shall conduct audit examination,inspection,verificationand/orinvestigationoftransactionrecordsofimporters/customsbrokers.31Pursuant to thispowerof theBOC, thePostEntryAuditGroup (PEAG)wascreatedunderExecutiveOrderNo.160.

ThepostentryauditoftheBOCmaybeconductedwithinthree(3)yearsfromthedateoffinalimportentry(i.e.,settlementofduties).Theauditaimsto,amongothers,verifyacompanysimporttransactionsinordertodeterminewhether:32

i. Importedgoodsarevaluedusingtheappropriatecustomsvaluationmethod;

ii. Thepricepaidorpayableandthedutiableadjustmentsarecorrectandcomplete;

iii. Goodsareproperlydescribedandthecorrecttariffclassificationareused;

iv. Quantityofgoods,asreported,arecorrect;

v. Importer has compliedwith the reportorial, registration and other administrativerequirementsimposedbytheBOC.

27TCCP,Section2315.28SeeRulesofCourt,Rule43,Sections1,3and4.29SeeRulesofCourt,Rule43,Sections1and2.30Section3514,TCCP.31Section3515,TCCP.32http://www.ey.com/GLOBAL/content.nsf/Philippines/Customs_Compliance_Review?OpenDocument (last accessedFebruary24,2008).


PROFILING

ISSUANCE OF AUDIT

NOTIFICATION LETTER

SERVING OF ANL

PRE-AUDIT CONFERENCE

VDP?

PRESENTATION OF DOCUMENTS?

AUDIT PROPER

EXIT CONFERENCE

ASSESSMENT NOTICE

PAYMENT

MANAGEMENT LETTER

END OF AUDIT

VDPACCEPTANCE

PAYMENT

VDP ACCEPTED

VDP REJECTED

MANAGEMENT LETTER

(APPROVED)

MANAGEMENT LETTER (DENIAL)

END OF AUDIT

ADMIN/ CRIMINAL

COMPLAINT

APPEAL TO THE OFFICE OF THE COMMISSIONER

(OCOM)

NON ACCEPTANCE

YESNO

YES

NO

ACCEPTANCENON ACCEPTANCE

YES


5. Failuretopaycorrectdutiesandtaxesonimportedgoods33

Anypersonwho,afterbeingsubjectedtopostentryauditandexamination,isfoundtohave incurred deficiencies in duties and taxes paid for imported goods, shall bepenalizedaccordingtothree(3)degreesofculpabilitysubjecttomitigating,aggravatingor extraordinary factors that are clearly established by the available evidence. Thepenaltyimposableisanadministrativefinewhichrangesfromto8timestherevenuelossdependingonthedegreeofculpabilityi.e.negligence,grossnegligenceorfraud.

UnderthePEAGsystem,theimporterhastherightto:

a. Verify the auditors identification and the authenticity of the Audit NotificationLetter(ANL);

b. Toclarifyandinquireabouttheauditprocess;c. Tobeinformedofthepurposeoftheaudit,thecompositionoftheauditteamand

thedocumentsandrecordstobesubmittedandexamined;d. Tobeinformedoftheauditfindings;e. Contestthedeficiencyassessment,ifany.

II. STEPSTOFOLLOWWHENYOURECEIVEANASSESSMENTFROMTHEBOC.1. ReadtheBOClettercarefullyandstudythebasisoftheassessmentincludingthecomputations

thereof.2. Determineof the allegations in the assessment are correct including the correct classification

under the Harmonized Code and the use of the tariff rate. If they arewrong, consult yourcustomsbrokerand/orlawyertoformallywritetheBOCdisputingthesame.

WherethecustomsvaluecannotbedeterminedunderprovisionsofArticle1(transactionvaluemethod),thereshouldnormallybeaprocessofconsultationbetweentheBOCandtheimporterwithaviewtoarrivingatabasisofvalueundertheprovisionsofArticles2(transactionvalueofidenticalgoods)or3(transactionvalueofsimilargoods),etc.Itmayoccur,forexample,thattheimporterhasinformationaboutthecustomsvalueofidenticalorsimilarimportedgoods,whichis not immediately available to the customs administrationmay have information about thecustoms value of identical or similar imported goods, which is nor readily available to theimporter. Aprocessofconsultationbetweenthetwo (2)partieswillenable informationtobeexchanged, subject to the requirements of commercial confidentiality, with a view todetermining a proper basis of value for customs purposes. [WTO Valuation Code, GeneralIntroductoryCommentary]

3. Requestforaconferencewiththecustomsexaminerand/ortheDistrictCollectordisputingthe

assessment.4. Incaseofdoubt,paythecustomstaxesanddutiesunderprotest.

33Section3611,TCCP.


5. AppealanyadverserulingoftheDistrictCollectortotheCommissionerofCustoms.6. AppealanyadverserulingbytheCommissionerofCustomstotheCourtofTaxAppeals.III. DIFFERENCEBETWEENSMUGGLINGANDTECHNICALSMUGGLING?

The termsmugglingconveys the ideaofasecret introductionofgoodswith intend toavoidpaymentofcustomstaxesanddutiesandsignifiessomeformofdeceittointroduceortobringon shore,or carry from the shore,goods,waresormerchandise.34 Section3601of theTCCPprovidesthat:

AnypersonwhoshallfraudulentlyimportorbringintothePhilippines,orassistinsodoing,anyarticle, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate thetransportation,concealment,orsaleofsucharticleafterimportation,knowingthesametohavebeen imported contrary to law, shall be guilty of smuggling and shall be punishable by finesstatedtherein.

Moreover, in the case of Felicisimo Rieta vs. People of the Philippines (436 SCRA 273), theSupremeCourtheldthat inorderthatthepersonmaybedeemedguiltyofsmugglingor illegalimportationprerequisitesmustconcur:

1. thatthemerchandisemusthavebeenfraudulentlyorknowinglyimportedcontrarytolaw;2. thatthedefendant,ifheisnottheimporterhimself,musthavereceived,concealed,bought,

sold or in any manner facilitated the transportation, concealment or sale of themerchandise;and

3. that the defendant must be shown to have knowledge that the merchandise had been

illegally imported. If the defendant, however, is shown to have had possession of theillegally importedmerchandise,without satisfactory explanation, such possession shallbedeemedsufficienttoauthorizeconviction.

Thetermtechnicalsmugglinginvolvesthefalsedeclarationintheimportentriesofthetrueorcorrectclassificationand/orthepropercostoftaxesanddutiesortariffratethathavetobepaidthereon thereby resulting in a lower payment of customs taxes and duties. The differencebetween smuggling and technical smuggling is thatoftentimes in smuggling there isnosubmissionofadocumentsmoreparticularly,the importentrywithrespecttothepaymentoftaxesanddutieswhereasinthetermtechnicalsmugglingitoftentimesresultinthesubmissionor falls or fraudulent documents to the BOC whereby there is a misclassification ormisdeclarationofthegoodssupposedtobethesubjectofcustomstaxesandduties.

IV. WHATTODOWHENYOUOVERPAYYOURCUSTOMSTAXESANDDUTIES.

DuetothevariousprocedureslaiddownbytheTCCPonthechallengeorprotestofthecorrecttaxes and duties that to be paid, oftentimes the importer is compelled topay the taxes anddutiesunderprotest.Thetermprotestismeanttobeawrittendocumenttobefiledbytheimporterwith theDistrictCollectoragainst itsdecisionas to the rateandamountofduty forclassification of the imported goods. The filing of the protest suspends the running of thestatutoryperiodof limitation intheeventthattheprotesthasbeendecided inareliquidation

3425C.J.S.customsduties,subsection248.


and conformitywhichhasdecision ismade the statuteof limitationbegins to run. Once theformalprotestisfiled,theDistrictCollectorhastoresolvethematter.Ifhedeniestheprotest,theimportermaystillappealtotheCommissionerofCustoms.Assuch,thegoodsarereleased.Iftheprotestisgivenduecourse,theimporterisentitledtoataxcreditwherebyhecanapplytotheDistrictCollectorandsubsequentlytotheCommissionerofCustomswithregardstoissuanceofataxcreditcertificatethatmaybeusedforthefuturepaymentofcustomstaxesandduties.Atthispoint,itispertinenttomentionthattheissuancesoftaxcreditcertificatesisonlygoodforthe taxeswhich is issuedby the taxing authority. For example, if the tax credit certificate isissuedby theBOC, the said certificate canonlybeuse for thepaymentofcustoms taxesanddutieswhich is assessedby theBOC. In contrast, if the tax credit certificate is issuedby theBureauof InternalRevenue (BIR),saidcertificatecanonlybeused for thepaymentof taxesassessedbytheBIR.

Tostressthispoint,theSupremeCourt inthecaseofCommissionerofCustomsvs.PhilippinePhosphate Fertilizer Corporation (437 SCRA 452) allowed the application by PhilippinePhosphateFertilizerCorporationofthetaxcreditcertificate forrefundsofdutiesandtaxesonthebasisofthePhilippineExportZoneAuthorityLawmoreparticularlySection17withregardstotaxtreatmentofmerchandiseinthezone.Thus:

Section17oftheEPZA(nowPEZA)Lawparticularizesthetaxbenefitsaccordedtodulyregisteredenterprises.Itstates:

SEC.17TaxTreatmentofMerchandiseintheZone.(1)Exceptasotherwiseprovided in this Decree, foreign and domestic merchandise, raw materials,supplies, articles, equipment, machineries, spare parts and wares of everydescription,exceptthoseprohibitedby law,brought intotheZonetobesold,stored,brokenup, repacked,assembled, installed,sorted,cleaned,graded,orotherwise processed, manipulated, manufactured, mixed with foreign ordomesticmerchandiseorusedwhetherdirectlyor indirectly in such activity,shallnotbesubjecttocustomsand internalrevenue lawsandregulationsnorto local tax ordinances, the following provisions of law to the contrarynotwithstanding.

Thecitedprovisioncertainlycoverspetroleumsuppliesused,directlyorindirectly,byPhilphostofacilitateitsproductionoffertilizers,subjecttotheminimalrequirementthatthesesuppliesarebrought intothezone. Thesuppliesarenotsubjecttocustomsand internalrevenue lawsandregulations,nortolocaltaxordinances.ItisclearthatSec.17(a)considerssuchsuppliesexempteven if they areused indirectly, as theyhadbeen in this case. Since Sec. 17(1) treats thesesuppliesfortaxpurposesasbeyondtheambitofcustomslawsandregulations,theargumentsoftheCommissioner invokingtheprovisionsoftheTCCPmustfail. Particularly,hispointthattheimportationof thepetroleumproductsbyPetronwasdeemed terminatedunderSec.1202oftheTCCP,andthattheterminationconsequentlybarredanyfutureclaimforrefundunderSec.1603ofthesame law ismisplacedand inconsequential. Moreover,thecitedprovisionsoftheTCCP ifrelatedtoSec.17(1)oftheEPZALawwouldsignificantlyrendertheargumentstrainedand, ifupheld,obviatemanyof thebenefitsgrantedbySec.17(1), for theprovisiondoesnotlimitthetaxexemptiononlytodirecttaxes.

V. WHENIMPORTEDGOODSCONSIDEREDABANDONED. Section1801and1802oftheTCCPdealswithabandonmentonimportedarticles.Thus:


SECTION1801.Abandonment,KindsandEffectsof.An importedarticle isdeemedabandonedunderanyofthefollowingcircumstances:

xxxf. When theowner, importerorconsigneeof the importedarticleexpressly

signifiesinwritingtotheCollectorofCustomshisintentionstoabandon;org. Whentheowner,importer,consigneeorinterestedpartyafterduenotice,

failsto fileanentrywithinthirty (30)days,whichshallnotbeextendible,fromthedateofdischargeofthelastpackagefromthevesseloraircraft,orhavingfiledsuchentry,failstoclaimhisimportationwithinfifteen(15)dayswhich shall not likewise be extendible, from the date of posting of thenoticetoclaimsuchimportation.

Anypersonwhoabandonsanarticleorwhofailstoclaimhisimportationasprovidedforintheprecedingparagraph shallbedeemed tohave renounced allhis interests andproperty rightstherein.

SECTION 1802. Abandonment of Imported Articles. An abandoned articleshall ipso facto be deemed the property of the Government and shall bedisposedofinaccordancewiththeprovisionsofthisCode.

Nothing inthissectionshallbeconstruedasrelievingtheowneror importerfromanycriminalliabilitywhichmayarisefromanyviolationoflawcommittedinconnectionwiththeimportationoftheabandonedarticle.

AnyofficialoremployeeoftheBureauofCustomsorofothergovernmentagencieswho,havingknowledge of the existence of an abandoned article or having control or custody of suchabandonedarticle, fails to report to theCollectorwithin twentyfour (24)hours from the timethearticleisdeemedabandoned,shallbepunishedwiththepenaltiesprescribedinParagraph1,Section3604ofthisCode.

Basedontheforegoing,therearetwo(2)kindsofabandonment.

1. ExpressabandonmentUnderSection1801oftheTCCP,asamended,there isanexpressabandonmentwhentheowner,importerorconsigneesignifieswiththeDistrictCollectorhisintention toabandonhis importation in favorof thegovernment, inwritingand inunderoath.

2. ImpliedabandonmentItiswhen:

a. the importer, owner, consignee or interested party after due notice, fails to file and

entry for its importationwithin thenonextendibleperiodof thirty (30)days from thedateofdischargeofthelastpackagefromthevesseloraircraft;or,

b. havingfiledanentryforashipmentfailtoclaimitsimportationwithinfifteen(15)non

extendibledaysthedateofpostingofthenoticetoclaimsuchimportation. Thefollowingaretheeffectsofabandoningimportedarticles.


1. Any person who abandons an article or who fails to claim his importation within thereglamentary period shall be deemed to have renounced all interest and property rightstherein;and

2. An abandoned article shall ipso facto be deemed the property of the government to be

disposedoffinaccordancewithlaw.Notwithstanding the foregoing, there has been a conservative view that there should be ahearingfirstconductedbeforeforfeitureoftheabandonedarticleshouldbeeffectedbyvirtueofaseizureproceedings initiatedbytheBureauofCustoms. However,the importerorowneroftheabandonedarticleisnotrelievedofanycriminalliabilitywhichmayarisefromtheviolationof Tariff and Customs Law and other laws enforced by the Bureau of Customs committed inconnectionwiththeimportationoftheabandonedarticle.Incontrast,theimporter/ownerifhehas already renounced his rights over the imported article and the same has already beenforfeited in favor of the government, the supposed civil liability of the importer/owner isdistinguishedunlessthedispositionofthearticleisburdensomeonthepartofthegovernmentlikethoseharmfulorantisocialgoods.

VI. MODIFICATIONOFDUTY

Section401of theTCCP, allows themodificationofdutiesunder the FlexibleClausewherepublichearingsareconductedonpetitionsfortariffmodification initiatedbytheprivatesectorandthegovernmentbeforetheTariffCommissionwhere itsfindingsarerecommendationsaresubmittedtotheNEDAforconsiderationoftheTariffandRelatedMatters(TRM)TechnicalandCabinetCommitteeswhereby thePresidentof thePhilippines signsanExecutiveOrder (EO)reducingorincreasingimportduties.Forexample,three(3)EOswereissuedin2010,thus:

EONo.790(Modifyingthenomenclatureandratesof importdutyonvariousproducts under Section 104 of the Tariff and Customs Code of 1978, asamended).

EONo.818(ExtendingtheeffectivityofthezerorateofimportdutyonmillingwheatunderSection104ofPresidentialDecreeNo.1464,otherwiseknownasthe Tariff and Customs Code of 1978, as amended, as provided for underSection3ofExecutiveOrderNo.765,Seriesof2008).

EO No. 819 (Extending the effectivity of the zero rate of import duties oncementandcementclinkerunderSection104ofPresidentialDecreeNo.1464,otherwise known as the Tariff and Customs Code of 1978, as amended, asprovidedforunderSection3ofExecutiveOrderNo.766,Seriesof2008)

Moreover, public consultations are conducted by the Tariff Commission regarding thePhilippines regional tariff commitments under the Association of Southeast Asian Nations(ASEAN); ASEAN Integration System of Preferences (AISP); ASEAN Trade inGoods Agreement(ATIGA); ASEANChina Free Trade Area (ACFTA); and ASEANKorea Free Trade Area (AKFTA).With regard to WTO activities, the Tariff Commission reviewed and verified thecomments/changesmadebytheUnitedStatesonthePhilippinesHS2002RevisedScheduleofCommitments submitted to theWTOandparticipated in theWorkshoponMarketAccess forASEANEconomies.


In2010,thePresidentsignedthefollowingEOsdraftedbytheTariffCommissionconcerningtheimplementationofthetariffcommitmentsofthePhilippinesarisingfromitsmembershipintheASEAN:

EO No. 812 (Modifying the rates of duty on certain imported articles asprovidedforundertheTariffandCustomsCodeof1978,asamended,inorderto implement the commitment to reduce the tariff rates on ninety percent(90%) of the products in the normal track to zerowith flexibility under theASEANKoreaFreeTradeArea[AKFTA]).EO No. 814 (Modifying the rates of duty on certain imported articles asprovidedforundertheTariffandCustomsCodeof1978,asamended,inorderto implement the20102012Philippinescheduleof tariff reductionunder thenormal trackof theASEANChinaFreeTradeAreaoncertainproductsand toimplement the transfer of certain tariff lines from the sensitive track to thenormaltrackcategoryoftheASEANChinaFreeTrade)

VII.WARRANTSOFSEIZUREANDDETENTION(WSD) Section2205oftheTCCPstatesthat:

It should be within the power and duty of the customs official or anyauthorizedpersontomakeseizureofanyvessel,aircraft,cargo,article,animalorothermovableproperty,couldthesamebesubjecttoforfeitureorliableforanyfineimposedundertariffandcustomslaws,rulesandregulationsprovided.However, the same is to be exercised on a conformity with the law andprovisionsoftheTCCofthePhilippines.

In thisconnection, theSupremeCourthadoccasion to rule in thecaseofFelicisimoRietavs.PeopleofthePhilippines(436SCRA273)that:

Furthermore, the search and seizure of goods, suspected to have been introduced into thecountryinviolationofcustomslaws,isoneoftheseven(7)doctrinallyacceptedexceptions36tothe constitutionalprovision.Suchprovisionmandates thatno searchor seizure shallbemadeexceptbyvirtueofawarrantissuedbyajudgewhohaspersonallydeterminedtheexistenceofprobablecause.Under the Tariff and Customs Code (TCC), a search, seizure and arrestwill bemade evenwithoutawarrantofpurposesofenforcingCustomsandTariffLaws. Withoutmentioningtheneed of priory obtained a judicialwarrant, the code specifically allows police authorities toenter,passthroughorsearchany landor inclosureoranywarehouse,store,orotherbuilding,notbeingadwellinghouseandalsotoinspect,searchandexamineanyvesseloraircraft,trunk,package,boxorenvelopetoanypersononboardortostopandsearchandexamineanyvehicles,beastsorpersonreasonablysuspectedofholdingorconveyinganydutiableorprohibitedarticleintroducedinthePhilippinescontrarytolaw.In thecaseofFeeder InternationalLinePte.,Ltd.vs.CourtofAppeals (197SCRA842) itwasheld that it isquiteclearthatseizureand forfeitureproceedingsundertheTariffandCustomsLawarenotcriminal innatureas theydonot result in theconvictionof theoffendernor theimpositionofpenaltyprovidedforinSection3601oftheCode.AscanbegleanedfromSection2533ofthecode,seizureproceedings,suchasthose instituted inthiscase,arepurelyciviland


administrative incharacter. Themainpurposeofwhich isenforcedagainst finesor forfeitureincidenttounlawful importationofgoodsforthe indeliberate incidenttounlawful importationofgoodsortheindeliberatepossession.Thepenaltyofinseizurecasesisdistinctandseparatefromthecriminalliabilitythatmaybeimposedagainsttheindictedimporterorpossessorinbothkindsofpenaltiesmaybe imposed. Inotherwords, forfeitureproceedingsareproceedings inremandaredirectedagainsttheres(CommissionerofCustomsvs.ManilaStarFerry,Inc.[227SCRA317]).InthecaseofNewFrontierSugarCorporationvs.CommissionerofCustoms(CTACaseNo.5347,June19,1998) itwasheldthataWSD isessentiallyaconditionssinequanonbeforeanyseizureproceedingscanbeformallyinitiated.Section2301oftheTCCP,asamended,isaexpress itenough inthat itrequirestheCollectorto issueaWSDuponmakinganyseizure.Likewise,Section2303providesthattheCollectorshallgivetheowner/importerofthepropertyor its agent a written notice of decision and shall give him an opportunity to be heard inreferencetothedelinquencywhichwastheoccasionofsuchseizure.

Theremediesoftheowner/importertosecureimmediatereleaseoftheseizedpropertyare,asfollows:

1. Posting a sufficient cash bond (surety bond or other sufficient instruments is permitted

underRepublicActNo.9135)shallnotbeinanycasebelessthantheappraisevalueofthearticleplusfine,expensesandcostthatmaybeadjudgedinthecase;

2. Thatthereisnoprimafacieevidenceoffraudattendanttotheimportation;3. Thattheimportationofthearticleisnotprohibitedbylaw;and4. Thereleaseundercashbond(suretybondorothersufficientinstrumentasapprovedbythe

CommissionerofCustoms[Section4,CustomsAdministrativeOrderNo.993]).

Formal hearings are conducted after the notification of the notice of seizure. Offers ofsettlementofseizurecaseshallbemadeintheformofamotionwithacopythereoffurnishedthe prosecuting officer concernedwho shall be required to submit hismemorandum on thematter.

Settlementinseizurecasesisnotallowedinanycasewheretheimportationis:

1. Attendedwithfraud;2. Absolutelyprohibited;3. Thereleaseofthepropertywouldbecontrarytolaw.(Sec.2307,lastpar.,TCCP)

The fraud contemplatedby lawmustbe actual andnot constructive. Itmustbe intentionalfraud,consistingofdeceptionwillfullyanddeliberatelydoneor resorted to inorder to induceanothertogiveupsomeright.

Thefollowingcasesdemonstratethepresenceoffraud:

1. Theuseofforcedorspuriousdocuments;

2. TheprimafacieevidenceoffraudunderSection2503,TCCP;


3. Theuseoffalsemachinations,misrepresentation,concealmentoffactsthatresultedinlossof revenues reaching levels that is unconscionable and unbecoming of a lawabidingtaxpayerandcitizen;and

4. Othercasessimilarlysituated.35

The TCC contemplates that fraudmustbe actual, amounting to intentionalwrongdoingwith theclearpurposeofevadingthetax. Merenegligence isnotequivalenttothe fraudcontemplatedbylaw.Whatishereinvolvedisanhonestmistakethatevendirectlyattributabletoprivaterespondentwhodeprivedby thegovernmentof the right tocollect theproper tax (Republicvs.CourtofTaxAppeals[366SCRA489]).

Section2503ofTCCwithrespecttoundervaluation,misclassificationandmisdeclarationinentry:

That an undervaluation, misdeclaration in weight, measurement or quantity ofmore than thirty percent (30%) between the value, weight, measurement, orquantity declared in the entry, and the actual value, weight, quantity, ormeasurement shall constitute a prima facie evidence of fraud penalized underSection2530of thisCode:Provided, further,Thatanymisdeclaredorundeclaredimported articles/items found upon examination shall ipso facto be forfeited infavoroftheGovernmenttobedisposedofpursuanttotheprovisionsofthisCode.

which simplymeans that if the undervaluation,misdeclaration ormisclassification exceeds thirtypercent(30%)ofthevaluethenthereisimmediatelyapresumptionoffraud.Infact,Section3611oftheTCC,asamendedbyRepublicActNo.9135states:

Section.3611.FailuretoPayCorrectDutiesandTaxesonImportedGoods.Anypersonwho,afterbeingsubjectedtopostentryauditandexaminationasprovidedinSection3515ofPart2,TitleVIIhereof, isfoundtohave incurreddeficiencies indutiesandtaxespaidforimportedgoods,shallbepenalizedaccordingtothree(3)degreesofculpabilitysubjecttoanymitigating,aggravatingorextraordinaryfactorsthatareclearlyestablishedbytheavailableevidence:1. NegligenceWhenadeficiencyresultsfromanoffendersfailure,throughan

act or acts of omission or commission, to exercise reasonable care andcompetencetoensurethatastatementmadeiscorrect,itshallbedeterminedtobenegligentandpunishablebyafineequivalenttonotlessthanonehalf()butnotmorethantwo(2)timestherevenueloss.

2. GrossNegligenceWhenadeficiencyresultsfromanactoractsofomission

or commission done with actual knowledge or wanton disregard for therelevantfactsandwithindifferencetoordisregardfortheoffender'sobligationunderthestatute,itshallbedeterminedtobegrosslynegligentandpunishablebyafineequivalenttonotlessthantwoandahalf(2)butnotmorethanfour(4)timestherevenueloss.

3. Fraud When the material false statement or act in connection with the

transactionwascommittedoromittedknowingly,voluntarilyandintentionally,asestablishedby clearand convincingevidence, it shallbedetermined tobefraudulentandbepunishablebyafineequivalenttonotlessthanfive(5)times

35Sec.1,CMO8792.


butnotmore thaneight (8) times the revenue lossand imprisonmentofnotlessthantwo(2)yearsbutnotmorethaneight(8)years.

The decision of the Commissioner of Customs, upon proper hearing, to imposepenaltiesasprescribedinthisSectionmaybeappealedinaccordancewithSection2402hereof."

VIII.RECOURSE BY LOCALMANUFACTURERSWITH RESPECT TO THE INFLUXOF CHEAP IMPORTED

GOODS.

Therearetimeswhenmanufacturersof locallymanufacturedgoodsarethreatenedbythe influxofcertainimportedgoodswhicharesubjecttoalowvaluationandsufferssomeeconomiclossduetothis importations. The law grants them the right to raise adutiable value in three (3)ways: theimpositionofantidumpingduty,acountervailingdutyandasafeguardduty.

Globalizationopenedupthenationaleconomytoforeigncompetition.Inherentintheintegrationofmarkets is the opportunity for all stakeholders in the economy to benefit from the fruits ofliberalization: expanded market access for Philippine products; improved competitiveness ofdomestic industries; acquisition of modern technology; enhanced productivity; infusion of newinvestments;efficiencyintradeinservices;anddiversificationofmarketsandproducts.

New developments in trade and tariff policy have emerged with the updating of the ASEANHarmonized Tariff Nomenclature (AHTN), the implementation of the HS 2007, the forging ofbilateral trade relations and regional economic integration and the ongoing multilateral tradenegotiationsundertheDohaDevelopmentAgenda. Whilealltheseareforeseento leadtogrowthand economic development, challenges and costs brought about by trade liberalization are alsoexpected.

The Philippine government, realizing the need of business to adjust to globalization, resolved toprovidethedomestic industrieswiththenecessarysafetynetstocopewithforeigncompetition.Strengthened andWTOconsistent trade remedy rules, e.g.,RA8751 (CountervailingDutyActof1999)andRA8752(AntiDumpingActof1999)wereenactedtogoverntheprosecutionofcasesof such unfair trade practices as dumping and subsidization. Also, the passage of RA 8800(SafeguardMeasuresAct)enhancedprotectiontolocalindustriesagainstinjuriousimportsurges.Thefollowingareclassesofdutywhichhavetheirspecialpurposeofprotectingdomesticindustriesfromthecompetitionbroughtaboutbycheapimportedmerchandize:

1. AntidumpingdutyThisspecialdutywhich isequaltothedifferencebetweenthe lowerprice

ofthedumped importedarticlesandthehigherpriceofa likedomesticproduct, is imposed inaddition to the regularduty, toprevent thecontinuousdumpingof importedarticles into thelocalmarketofacountryatapricelessthanthoseprevailinginitsdomesticmarkets,whichhastheeffectof causingmaterial injuryor threatening to retard theestablishmentofadomesticindustryproducingthesameproduct.

2. Countervailing duty This special dutywhich is equal to the ascertained amount of subsidy

granted, is intendedtooffsetorforestallthesubsidyorbountydirectlyorindirectlygrantedbythemanufacture,productionorexportationofaproductimportedinacountrywhichhascausedor threatens to causematerial injury to adomestic industryor retard theestablishmentof adomesticindustryproducingidenticalorlikearticles.


3. SafeguarddutyThis isanewmultilateralmeasure in the formofanincrease tariff (in thecase of industrial or nontariffied imports) or additional special safeguard duty (in the caseagricultural products) levied in addition to the regular duty against covered products beingimportedinanincreasedquantities,oritsvolumeexceedsthetriggerleveloritsC.I.F.valuefallsbelowthetriggerprice.

Dumpingoccurswhenforeignproducersselltheirproductstoanimporterinthedomesticmarketatprices lower than in theirownnationalmarkets,oratpricesbelowcostofproduction, thesaleorimportationofwhichinjuresorthreatenstoinjureadomesticindustryproducinglikeorcomparableproductsor retards theestablishmentofapotential industry. It isa formofpricediscriminationbetweentwonationalmarkets.

When countervailing duty imposed, the following are the elements or factors which must beconsideredbeforeacounterveilingdutymaybeimposed:

a. Product Comparability a product is identical or alike in all respects to the article under

considerationor, inabsenceof suchproduct,anotherproductwhich,althoughnotalike inallrespects,hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.

b. Subsidy refers toanyspecificassistancedirectlyor indirectlyprovidedby thegovernmentof

thecountryofexportororigininrespectofaproductimportedintothePhilippines.c. Injury means material injury to a domestic industry, threat of material injury or material

retardationofthegrowthorthepreventionoftheestablishmentofadomesticindustry.d. Causal Link thematerial injury sufferedby thedomestic industry is thedirect resultof the

importationofthesubsidizedproduct. RA8800,otherwiseknownasSafeguardMeasuresActprovidesfor:

a. General safeguardmeasures to relieve domestic industries suffering from serious injury as aresultofincreasedimports.

b. Specialsafeguardmeasures (additionaldutynotexceeding1/3of theexisting rateofduty)on

agricultural products marked SSG in Schedule LXXVPhilippines, when the import volumeexceedsitstriggerlevelorwhentheactualc.i.f.importfallsbelowatriggerlevel.

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Handling Customs Tax Audits and Remedies

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